Commonwealth ceases sale of some variable annuities

Commonwealth ceases sale of some variable annuities
Commonwealth brokers can no longer sell L share class variable annuities, as industrywide scrutiny of these annuity contracts grows.
MAR 01, 2016
Commonwealth Financial Network is restricting the sale of “L share” variable annuities, due to mounting concern from regulators and the broader insurance market for characteristics associated with these specific types of annuity contracts. As of Wednesday, all brokers in the independent broker-dealer's network can no longer sell these types of variable annuity contracts. “We have recently learned that some insurance carriers have discontinued or will be discontinuing the offering of the L share class of annuities. It has also been widely publicized that this share class is coming under increased scrutiny from regulators. Although Commonwealth carefully reviews each application to ensure suitability, we believe that ceasing to offer the L share class at this time is in the best interest of all parties,” Jim Adelman, senior vice president and general counsel, said in an e-mailed statement. Commonwealth has around 1,650 active producing advisers. L share variable annuities have come under fire recently as some have questioned their suitability for investors. The contracts typically charge higher fees in exchange for shorter surrender periods — the time an investor must wait to withdraw money from an annuity or cash it in without penalty — than those of other VA share classes. The Financial Industry Regulatory Authority Inc. announced in 2015 that it would target VA sales and marketing practices in its regulatory and exam priorities, particularly those relating to L share annuities given their higher costs and shorter time horizon to surrender the contract. L share VAs have an average base contract expense of 163 basis points, whereas B shares have an average base expense of 126 basis points, for example, according to Morningstar data. Following Finra's announcement, Voya Financial Advisors revamped its variable-annuity sales policies to disallow the sale of L share annuities if the contract includes any riders. Because using a living benefit rider on VA contracts is a long-term play for investors, these riders are thought to be most consistent with contracts having longer surrender periods. Due to the fee sensitivity the Labor Department's pending fiduciary rule is likely to create, industry experts believe there will continue to be a shift away from L shares and toward B shares. Year-to-date through the third quarter of 2015, 75.3% of total VA sales flows went to a B share, up from 63.6% over the same period in 2012.

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