Voya Financial Advisors has restricted sales of variable annuities for the second time in two months, as the brokerage firm faces increased pressure from regulators questioning the suitability of the products for retirement savers.
On Monday, the broker-dealer that serves more than 2,000 registered representatives said it is no longer approving sales of a second type of variable-annuity contract if that contract includes add-ons that come at extra cost, according to an internal document obtained by
InvestmentNews.
The newest rule — covering a type of variable annuity known as a “C share” — comes on top of
an identical restriction imposed in June that covered “L shares.”
The firm is also requiring brokers provide to clients an analysis of each annuity contract's cost in dollars on both L and C shares and to obtain a signature from those clients before selling the new annuity. That analysis, which compares those contracts' cost against a comparable B share annuity, is produced by a third party, Morningstar Inc.
COSTS AND EXPENSES
“Finra has been examining whether investors understand the different costs and expenses associated with different share classes and whether L-shares are suitable for the investors who are purchasing them,” according to an unsigned Voya compliance document carrying Monday's date. “We based our decision on our review and evaluation of the transaction activity in C-share and L-share class annuities, guidance provided by Finra and similar positions taken by other broker-dealers.”
Each of three top regulatory organizations have described focusing increasingly on variable annuity sales: the
Securities and Exchange Commission, which has a broad regulatory mandate; the
Labor Department, which oversees employer-sponsored retirement benefit plans that enjoy favorable tax treatment; and the
Financial Industry Regulatory Authority Inc., whose regulatory operations both cover and are financed by broker-dealers. Nancy Condon, a Finra spokeswoman, declined to comment.
INCREASED REGULATORY ATTENTION
The increased regulatory attention on variable annuities is putting new pressure on a business that generates $140 billion in sales annually for the insurance industry, money managers and brokers, according to the LIMRA LOMA Secure Retirement Institute, an industry group. The hybrid products combine aspects of an insurance product and a mutual fund.
Both C shares and L shares generally offer investors the ability to withdraw their premium payments or exchange their contracts sooner or even immediately without paying a surrender charge. In the case of C shares, they generally have no surrender period during which an investor would have to pay a charge for such a withdrawal. But the investor generally pays higher ongoing fees for that benefit. The products offer a rich compensation stream for broker-dealers and their affiliated financial advisers.
Riders, which come at an extra cost, are added to annuity contracts to blunt the market risk in the product's underlying investments. They offer additional features, such as death benefits that protect income or withdrawals if the beneficiary lives longer than expected.
“We continue to ensure that the products we sell and their features are both prudent and cost-effective for our clients,” said Tina Hurley, head of product for retail wealth management at Voya Financial, in an emailed statement. “Similar to our policy on restricting the sale of L-share annuities with riders … we're extending this to the sale of C-shares with riders. We feel strongly that this change is in the best interests of our advisers and their clients; and we recognize that others in the industry are taking similar action.”
