From the April 01, 2007 issue of Agent’s Sales Journal • Subscribe!

FIA Suitability - Keeping Yourself out of Legal and Regulatory Trouble

By

April 1, 2007 • Reprints

If you have been selling fixed index annuities for the past few years, you know they have been under scrutiny by regulators, broker-dealers, and attorneys. Perhaps the greatest danger that many agents face that sell FIAs is the possibility of a lawsuit. It's important to understand that, as with any financial product, you need to be sure that the product fits the client.

Here are some steps you can take to keep yourself out of hot water and provide better service to your clients.

1. Determine the client's goals -- Ask them what they intend to do with the funds they want to invest. Will the funds supplement income, and if so when will they start to draw the income?

2. Determine time horizon -- Though this term is typically associated with equity investments, it's important to know when the client would like full access to their funds. FIA products typically have long surrender periods and hefty surrender charges. If the client's goals are short term, you need to recommend a short-term product.

3. Maintain some liquidity -- Never tie up all of the client's assets into FIAs. If the client were to ever need to access a large sum of money, the surrender charges they would pay would devastate their savings. Be sure to leave a certain amount of liquid assets for emergencies.

4. Explain surrender charges -- Do not glide over this issue. If you are concerned about the surrender period, you are recommending the wrong product. Be upfront about surrender charges and be sure the clients understand that an FIA is a long-term investment.

5. Explain crediting methods -- Don't assume that if you work with seniors that they will find the moving parts of a FIA difficult to understand. Get the client involved and let them choose the crediting method they prefer.

6. Explain death benefits -- Be sure the client understands how their beneficiary will receive the death benefit. Some companies require that the beneficiary take distribution over five years while others pay a lump sum. Many advisers have been sued by the family of a client because of the products they sold. If possible, involve the children in the process so they understand how the product works.

7. Be commission-neutral -- Let commission be the last thing you consider when recommending a product. If all you sell are high-commission products, chances are you not always doing what's right for the client.

8. Maintain contact -- Be sure that you meet with you clients on a set schedule. By maintaining this contact you can answer any questions and stay current with their situation. Many agents will sell a policy and the client never sees them again. Remember you are their financial advisor; they depend on you to offer the right products and services to meet their changing needs.



Survey: VA Guarantees Continue to Dominate
Results from Milliman's second annual Guaranteed Living Benefits (GLBs) survey of leading variable annuity (VA) carriers indicate that GLBs continue to drive variable annuity sales.

Total sales of VAs that offered a GLB during calendar year 2005 averaged 87 percent of total VA sales, stable relative to 2004 results. This figure increased to 89 percent during the first half of 2006, demonstrating the continued popularity of such benefits.

The election of GLBs by policyholders also continued to increase from 2005 to the first half of 2006. On average, during calendar year 2005, the election rate of GLBs was 68 percent of total VAs that offer any GLB, up from 56 percent in 2004. The comparable figure for the first half of 2006 is 72 percent.

The VA marketplace generally offers three types of GLBs. Election rates of the guaranteed minimum withdrawal benefit and guaranteed lifetime withdrawal benefit (GMWB/GLWB) increased, on average, from 24 percent in 2004 to 29 percent in 2005, to 35 percent during the first six months of 2006, according to survey participants (relative to total VA sales).

GMWB/GLWBs captured some of the market share from the guaranteed minimum income benefit (GMIB), whose election rates decreased from 24 percent in calendar year 2005 to 22 percent in the first six months of 2006. Although election rates for GMIBs have been falling steadily, there is still a strong core of companies and producers that remain committed to this feature. Average election rates of the guaranteed minimum accumulation benefit (GMAB) remained fairly stable over the three reporting periods at 7 percent. The portion of VA sales in which no GLB was elected dropped from 44 percent during 2004 to 40 percent during 2005, and to 36 percent during the first half of 2006.

Related Articles
Comments