Insurers are stepping up their wholesaler education efforts to help advisers prepare for tougher suitability rules involving the sale of variable annuities. Finra's Rule 2821, which becomes effective May 5, requires principals of advisory firms to review customer VA applications within seven business days before applications are sent to an insurance carrier.
The rule was handed down in November by the New York- and Washington-based Financial Industry Regulatory Authority Inc., having been approved in September by the Securities and Exchange Commission.
"We will probably see companies react to the implementation of Rule 2821 six months after it is in place," said Cynthia E. Zalewsky, a certified financial planner at Saratoga Investment Solutions Inc. in Saratoga Springs, N.Y. "Most people act after the legislation takes place, rather than before."
Despite efforts to provide comprehensive training, some advisers feel that the industry can do better.
Ms. Zalewsky has noticed an improvement in the explanation of variable annuities by wholesalers but recognizes that more work needs to be done.
"Wholesalers used to never talk about expenses, and they never came up," she said. "I would say that has started to change."
However, Ms. Zalewsky said, wholesalers still lack knowledge about specific variable annuity vehicles.
"The complexity of the benefits is such that people write it in shorthand and producers leave out essential elements," said John Olsen, principal of Olsen Financial Group LLC of Kirkwood, Mo., and co-author with Michael Kitces of "The Annuity Advisor" (The National Underwriter Co., 2005).
"It is fair to say that unintentional misrepresentation of benefits and cost in variable annuity contracts is probably a widespread problem and a large percent of agents are guilty of misrepresenting contracts," Mr. Olsen said.
VARIOUS TACTICS
Several producers have employed different tactics in order to educate their sales force better about the sale of variable annuities.
At New York-based ING U.S. Financial Services, wholesalers receive a month of training in which they are taught about positioning variable annuities and their suitability in an individual financial plan, said Ann Hughes, Dallas-based senior vice president and national sales manager at ING.
The wholesalers are also taught to give advisers an hour-long continuing-education course on those subjects, she said.
In order for wholesalers to be certified in living benefits, they are required to take a written examination on a yearly basis about all of the products that ING offers, she said.
Wholesalers who fail the exam are let go, Ms. Hughes said.
At New York-based MetLife Inc., nine months of intensive training are required to become a variable annuity wholesaler, said Jeremy Bishop, a Newport Beach, Calif.-based senior internal wholesaler for MetLife.
Once the VA training concludes, potential wholesalers typically spend six weeks learning how VA products fit into a financial plan, as well as the potential effect of taxation. They also take calls for information from advisory firms around the country and sit for several exams.
After wholesalers have received Series 6, Series 63 and state insurance licenses, they spend an additional three to six months taking phone calls from advisers. Eventually, wholesalers are assigned territories of their own.
Because of the product's many parts and riders, learning how to sell VAs takes requires at least three times as much time as learning how to sell mutual funds or bonds, Mr. Bishop said.
At John Hancock Financial Services Inc. in Boston, there is a focus on educating wholesalers about the mutual fund and pension plan businesses, in addition to learning about VAs.
Once a wholesaler goes into the field, they travel with a sales manager, spend time with wholesalers in other businesses and try to foster good lead generation.
Additionally, John Hancock trains advisers on how to present VAs to their clients and has a major push toward continuing education, said Marc Costantini, president of variable annuity service at John Hancock.
"We feel that the best knowledge is in the seasoned professionals," he said. "It takes a whole lot of support to get productive in the field, and wholesalers always need a lot of support and hand-holding."
Dan Kinney, an independent retirement consultant with Sommers & Danforth Financial LLC of West Des Moines, Iowa, who was formerly in the insurance business, said that "quite a few" reps didn't provide full disclosure to their clients, which ultimately led him to leave the business.
He said that his broker-dealer, Linsco/Private Ledger Corp. of Boston and San Diego, has been proactive in keeping people up to date in regard to requirements related to VAs.
"LPL requires its reps to put all variable annuity transactions online," Mr. Kinney said. "If we don't give a proper reason for the VA, we get a call from the compliance department."
Aaron Siegel can be reached at [email protected].
