Facing a crackdown by securities regulators, several top insurers have redoubled efforts to educate bank sales representatives about appropriate variable annuity sales practices.
And more banks are seeking such help from annuity providers in light of intensified regulatory scrutiny, according to several insurers.
In a recent investigation of broker-dealers who sell variable annuities, the Securities and Exchange Commission and National Association of Securities Dealers found widespread evidence of unscrupulous practices. The regulators expressed concern that brokers were taking advantage of senior citizens who do not fully understand annuity contracts’ nuances.
Some brokers were found to be misleading older customers about the investment risks of certain annuities or encouraging them to exchange one contract for another, generating fees for the brokers, regulators said. In other cases, brokers were persuading senior citizens to put most or all of their savings into a deferred annuity contract, rendering the money inaccessible for years.
Tightened regulations are pending.
Massachusetts Mutual Life Insurance Co. is one provider that is bolstering its bank education effort in light of compliance concerns. The Springfield, Mass., insurer plans to introduce a variable annuity marketing kit for the bank channel within a few months, said Richard LaVoice, the company’s newly appointed head of annuity sales.
The kit is to include modules on topics such as prospecting, interviewing customers, product suitability, and compliance.
As more banks enter the business, training bank representatives in variable annuity sales has become crucial, Mr. LaVoice said. “The bank channel has been introducing new salespeople to the marketplace, and they lack experience at times” in annuity sales, he said.
Banks fear, moreover, that compliance problems could dent the profitability of the annuities business, he added. “The margins are small in these products,” he said. “At the end of the day, you don’t want to have problems at the back end.”
Nationwide Financial Services Inc. has also expanded its compliance-education offerings in the bank channel, according to Jim Pierson, the Columbus, Ohio, insurer’s vice president of compliance.
“Regulators … have taken the attitude that insurers have a responsibility to provide support in terms of suitability and monitoring the sales processes of [bank] representatives,” he said.
After meetings last year to ask banks what they needed in annuity compliance support from providers, the company introduced Web tools for the bank channel, Mr. Pierson said.
Banks can go to a Web site, enter a password, and view reports based on variable annuity sales activity tracked by Nationwide software. One report shows sales volume for individual representatives, including whether the annuity replaced a previous contract. Another flags annuities sold to customers older than 65.
The insurer also meets with bank sales representatives and supervisors to train them on suitability issues and the complexities of variable annuity features, Mr. Pierson said. And Nationwide gives them a list of information sales representatives should gather from customers to determine appropriateness. The insurer identifies industry standards for compliance and tells banks what compliance initiatives their competitors have adopted.
“The big question banks have is, ‘What is everybody else doing?’ ” Mr. Pierson said.
“Banks are conflicted about variable annuities,” he said. “They realize that variable annuities are a very important tool to use in planning for retirement, but they want to have the confidence that they’re not going to end up with their name in the paper for doing something wrong.”
Hartford Financial Services Group Inc., the top seller of variable annuities in the bank channel, has also bolstered its annuity compliance services in the past year.
“We have a presentation that we’ve been delivering to bank management for close to a year,” said Scott Sanderson, the vice president of marketing and strategic relationships at Hartford Financial in Simsbury, Conn. “It helps them take an objective look at when variable annuities make sense for clients and when they do not.”
The presentation covers topics including suitability and industry standards, he said.
“It gets as detailed as breaking out the various cost components of a variable annuity and why it may be more expensive on the surface than some investments, but here’s what you get for those costs,” he said.
The company also offers continuing education to sales representatives to help them navigate the complex features associated with variable annuities, Mr. Sanderson said.
Hartford does not go so far as to tell banks what specific questions they should ask customers to determine suitability, however. “They would view us as telling them how to run their business,” Mr. Sanderson said. “Every bank has very good client profiling questionnaires that are very, very detailed.”
Though regulatory pressure has already prompted several providers to beef up their compliance and education offerings, a variable annuity trade group has expressed concern that the NASD regulations would unduly burden the industry.
“We’re concerned with the general idea of singling out one type of security for a single and specific rule,” said Mike DeGeorge, the general counsel at the National Association for Variable Annuities in Washington. “That’s unprecedented.”
