Annuity Illustrations
Annuity Marketing, Sales Ideas, Suitability, and Issues by Michael J. Prestwich

You may have heard that SEC Rule 151(a) will be dead if the Finance Reform Bill is signed by President Obama. This is because the Conference Committee bill passed by the joint House-Senate conferees on June 25, 2010 included language proposed by Senator Tom Harkin (D-IA) to leave fixed indexed annuities under state supervision. The Finance Reform Bill also will make the 2010 NAIC Suitability in Annuity Transactions Model Regulation the law in all 50 states.

The fight against fixed indexed annuities is far from being over, however.  Here are several articles that appeared in response to the Harkin Amendment:

·         Jane Bryant Quinn on CBS Money Watch wrote, Congress Sells Out Seniors: No SEC Regulation for Indexed Annuities (Be sure to read Sheryl J. Moore’s 32-point response to this article)

·         FINRA, the Financial Industry Regulatory Authority, posted an Investor Alert about indexed annuities

·         Senator Daniel Akaka (D-HI) said in hearings for S.A. 3920, “Deceptive sales practices have been found to be used in these products. An individual in Hawaii pushed equity index annuities to collect high commissions at the expense of senior investors. Those investors least able to effectively evaluate financial products need these federal protections, without question. And they’ve been suffering.” (see full article)

·         Kevin Keller, president of the Certified Financial Planner Board of Standards, said, “These are products that are ripe for abuse among the elderly. It’s important for consumers, especially the elderly, to have the protection of the SEC.” (see full article)

·         Barbara Roper, director of investor protection at the Consumer Federation of America, in her letter to Congress wrote, “If adopted, this amendment would open a gaping hole in investor protections without any assurance that the insurance regulation relied on in its place is adequate or effective.” (see full article)

·         Denise Voigt Crawford, the Texas Securities Commissioner and president of the North American Securities Administrators Association said in her letter to Congress, “It’s a hybrid product, so the questions in play here go beyond just equity-indexed annuities themselves and raise issues concerning who is going to regulate these hybrid instruments on a going forward basis.” (see letter to Congress)

The list of consumer groups and financial professionals who are against indexed annuities is endless.  What is their beef?  Here is a summary of the issues that I have found after reading numerous articles and following indexed annuities almost from their inception:

·         Deceptive and/or high pressure sales practices

·         High commissions

·         High / long surrender charges

·         Lack of disclosure

Most annuity producers and companies who market indexed annuities, especially those who are members of the National Association for Fixed Annuities (NAFA), have already adopted marketing methods and procedures that deal with the above concerns.  Passage of the provisions of the 2010 NAIC Suitability in Annuity Transactions Model Regulation opens producers and companies to fines, discipline, and civil action if they cannot prove that they adhered to these higher suitability standards.

In short, assuming the final provisions of the Finance Reform Bill remain intact and the law is signed by President Obama, those involved with the development, distribution, administration, and purchase of fixed indexed annuities finally won after a long fight.  This win comes with a price, however.  All the players in the fixed indexed annuity industry must strictly follow the provisions of the 2010 NAIC Suitability in Annuity Transactions Model Regulation or the enemies of indexed annuity products will continue their attack with more ferocity than ever before.

If you sell annuities you probably know on December 17, 2008, the SEC enacted Rule 151A that redefines the definition of the term “annuity contract” under the Securities Act of 1933. The primary target of this ruling is fixed indexed annuities, but many in the insurance industry believe that this rule may soon extend to all fixed annuities because of the SEC believes the rule extends to annuities “if the amounts payable by the insurer under the contract are more likely than not to exceed the amounts guaranteed under the contract.”

ImagiSOFT, Inc. is sponsoring a promotion to help the National Association of Fixed Annuities (NAFA) fight this SEC rule. The heart of the SEC’s arguments center around suitable sales.  Through September 1, ImagiSOFT is offering a FREE two-year license to DataNet, a powerful software system to help you make higher quality annuity sales by following state suitability laws. Click this I Love Suitability link for details. This page gives an overview of state suitability law and how DataNet addresses these issues.  This page also explains how to get a lifetime free license to DataNet when you donate $250 or more to the NAFA Opposition Fund.

Lack of suitable annuity sales is the key argument that the SEC has used to defend their position why they should regulate fixed annuity sales instead of the states.  This argument has deep flaws. State suitability laws state that each agent should have a “system” to ensure that suitability laws are being followed, and that records must be kept (depending upon the state) from 3 to 10 years.  If you sell fixed annuities, make sure that you are not part of the problem — use a compliant “system” to follow state suitability laws, even if it is a thick, paper file.

Lastly, write a letter / email to your State Insurance Commissioner.  Tell them that you are following state suitability law, that you have a “system” to comply with the law, and that you believe that the state suitability law adequately protects consumers in your state.  Also write your State Representative and give him or her the same message, with the admonition to support the “Indexed Annuities and Insurance Products Act of 2009” recently introduced by Congressmen Greg Meeks (D-NY) and Tom Price (R-GA).  For more information see http://www.nafa151a.com/.

Please let your colleagues and associates know about ImagiSOFT’s free two year license to DataNet by sending them a link to this site.  The two-year free license offer ends September 1, 2009 so do this now.  The future of everyone who sells fixed annuities depends upon winning this fight!

Today the SEC exercised its power to grab control of fixed indexed annuities by a vote of 4-1. This rule goes into effect on January 12, 2011.

In my view, insurance agents who derive their primary income from indexed annuities need not panic. Insurance companies will continue to create innovative products that will not be under the control of the SEC, and companies who market these products will challenge this decision in court.

The state insurance departments also have a huge stake in this decision, and will also fight to keep control of jurisdiction of these products.

The SEC claims that “Unsuitable Sales Practices” is at the heart of this decision. Agents can help insurance companies and state insurance departments win the continuing battle with the SEC by doing the following:

·         Obey current state suitability laws (see my earlier post, Please Don’t Feed the Lawyers)

·         Record your sales presentations, then keep a written transcription. Contact Copytalk about their transcription service

·         Keep copies in your client files of all sales materials used in every sale – including yellow legal pad sketches.  For only $100 per year, ImagiSOFT’s DataNet is an inexpensive way to store this information electronically

·         Use software, sales ideas, seminars, and letters that comply with your state’s advertisement laws

·         Develop a close relationship with the compliance department of the insurance companies for which you sell, and have them review all materials that you will use in front of a client

·         Emphasize the product’s guarantees

·         Understand how your product works – especially income riders (see my earlier post, Don’t Be Confused By Income Riders)

·         Disclose the surrender charges

·         Avoid software that does not use product guarantees or surrender charges

In short, a suitable sale is much more than having your client sign a suitability statement during the application collection process. The battle with the SEC has just begun. Agents can win only if they keep their client’s needs foremost in their minds and can demonstrate that they run their practice with the highest integrity.

I just got back from the NAFA Annuity Solutions Expo and my brain is swimming with ideas that I hope to find time to share. The short story: if you sell annuities and missed this event, you missed out. Changes are coming at lightening speed, and those who are unwilling to adapt to the new regulatory climate will probably not last long. Here is an outline of the agenda:

·         45 Sales Ideas in 45 Minutes – Bill Harris, President WVH Designs

·         What the States and FINRA are Doing – Jim Mumford, Iowa First Deputy Insurance Commissioner

·         New Marketing Standards – Don Walters, IMSA

·         New Rules for Prospecting & Advertising – Heather Gierstorf, American Equity

·         New Suitability Rules on Income Riders – Steve Phillips, Creative Marketing

·         Income Solutions for a Better Retirement – Brent Hamann, Milliman

·         Regulation 151(a) – NAFA Board

·         Partnering for  Suitability Success – Cindy Reed, NACOLAH; Megan Claypool, AVIVA, Kathy Baron, Sun Life; Mike Mullan, Financial Independence Group

·         Annuity Solutions for Income Security – Jonathan C. Illig

·         Issues and Recommendations for the Annuity Industry – Jim Poolman, former North Dakota Insurance Commissioner (person who wrote the NAIC Suitability Model Law)

·         Tax Strategies for Distribution Planning – Jim Williams, Lincoln Financial Group

·         Driving Sales with Technology – Mark Stone, Insurance Insight Group

·         Regulatory Trends & How they Will Change your Business – Danette Kennedy, Gorilla Marketing

As you probably know, there is a war going on right now between the National Association of Insurance Commissioners (NAIC) and the Securities and Exchange Commission (SEC). The SEC wants to control annuities by calling them “investments” as outlined in its Rule 151(a) proposal. Here are a few reasons why it may not pass:

·         Since most insurance commissioners want to keep their jobs, they have been enforcing the suitability and other laws like never before. The Wall Street Journal published an article that outlines recent actions by the Pennsylvania Insurance Department, including, Todd B. Garry, “Five-year license supervision for operating under a non-registered name and misrepresenting himself as an estate planner.”

·         NAFA has spent hundreds of thousands of dollars in attorney fees fighting Washington, distributing their position paper to the press (see National Underwriter), and advertizing in Money Magazine.

·         Agent Sales Journal has a forum to fight SEC Proposed Rule 151(a).

·         Many annuity marketing companies are fighting this proposal. If you have not let your voice be heard in Washington, do so now at sec151a.com.

If you have not done so already, I recommend that you join NAFA today. The annuity industry’s future is at stake. If you sell annuities for a living, I cannot think of a better way of voting with your checkbook.