Amid heightened scrutiny from regulators, banks are intensifying their focus on the compliance issues raised by variable annuity sales, according to industry watchers, and some are looking to third-party marketing firms to help make sure their sales tactics pass muster.
Wealth2k, a Hingham, Mass., firm that specializes in developing multimedia sales presentations and Web-based marketing tools for clients including banks, broker-dealers, and insurance companies has seen growing demand from banks for its services, according to David Macchia, the firm's president and chief executive officer.
Its marketing presentations are reviewed by NASD, the securities industry's self-regulatory body, to ensure compliance before being introduced to consumers, Mr. Macchia said. The firm's customers include Royal Bank of Canada Insurance and Jackson National Life Insurance Co., a U.S. unit of Prudential PLC in London that is a major annuity marketer in banks.
Jackson National Life's annuity sales effort entails educating both consumers and bank sales representatives, said Bradley Powell, the president of the insurer's institutional markets group.
NASD has disciplined several companies in recent years for improper variable annuity sales practices, including Citizens Financial Group, the Royal Bank of Scotland subsidiary in Providence, R.I., and Nationwide Investment Services Corp., the general distribution arm of Nationwide Financial Services Inc. in Columbus, Ohio.
The regulator said this year that complaints about variable annuity sales practices had risen by 50% from 1999 to 2003. It issued a warning letter in May 2003 to investors, saying that some financial advisers were using scare tactics to persuade older investors to buy variable annuities.
Industry experts generally consider variable annuities inappropriate for elderly customers because of their high fees and slowly accruing tax benefits.
NASD last year proposed rules that would require variable annuity providers to give customers risk disclosure documents in "plain English" that would clearly present liquidity issues, sales charges, and fees.
Wealth2k's employees have expertise in insurance marketing and actuarial science, and they are knowledgeable about the regulatory issues, Mr. Macchia said. "We have the ability to conceptualize complex products and turn them into presentations that typical clients can understand very clearly," he said.
Jackson National Life used a multimedia presentation from Wealth2k to help explain to consumers its LifeGuard 5 product, a guaranteed-minimum-withdrawal benefit, Mr. Powell said.
The Lansing, Mich., insurance company gives bank representatives a brochure to help them evaluate customers' financial needs and determine which investment product is most appropriate.
The brochure includes an investor risk profile questionnaire that can be matched to an asset allocation model, along with an optional benefits questionnaire to help investors understand which specific annuity features, such as death benefits, they may need.
In addition, Jackson National Life supplies training modules specific to bank salespeople, including platform representatives, who typically focus on selling traditional bank services like checking accounts and loans, as well as to dedicated representatives who generally have a more detailed knowledge of investment products.
"It boils down to the profiling of the customer to make sure variable annuities are appropriate for the customer," Mr. Powell said.
Jackson National Life also offers customers educational seminars on generic financial topics such as beneficiary designations and the retirement "crisis." The insurer began offering the seminars about a year ago, and they have proven popular, Mr. Powell said.
