InsuranceNewsNet Magazine January 2011 : Page 8
in Front A sense of relief pervaded National Association for Fixed Annuities (NAFA) 2010 IMO Summit. The meeting capped off a year of legislative and legal victories that stunned not only seasoned lobbyists but also the people intimately involved in fighting the Secu-rities and Exchange Commission’s Rule 151A, which would have treated indexed annuities as securities rather than as insurance products. Many on the front lines of annuity sales said the industry dodged a bullet when a court decision overturned 151A and Congress passed the Harkin Amend-ment, which ensured that indexed annui-ties would remain state-regulated. James Jones, vice president of mar-keting services with American Equity Investment Life Insurance Co., said that even though his company was deeply involved in the anti-151A coalition, the outcome still exceeded all expectations. “I was surprised that not only did we defeat 151A through the Harkin Amend-ment, but it also was vacated in court,” Jones said. “It saved our industry — what an awesome turn of events.” Another aspect that impressed all those involved was the unity among the players in the highly competitive indexed annuity business. Eric Thomes, senior vice president of sales at Allianz Life Insurance of North America, said even a half a year after the swirl of events that defeated 151A, a sense of disbelief remains. “I think a lot of people are still sur-prised that we actually pulled together as an industry and did that,” Thomes said. But the challenge remains to sell prod-ucts that were so thoroughly besmirched by bad press and the financial industry. In fact, even though it was a victory that indexed annuities are still considered insurance, this can also hinder a clear 8 InsuranceNewsNet Magazine January 2011 Timely issues that matter to you. WITH Steven A. Morelli Post 151A World – Suitability Standards, Low Interest Rates Still Lurk understanding of the product among consumers. “People buy life insurance because if they prematurely die there’s a death ben-efit for their beneficiaries,” Thomes said. “An annuity is just the opposite of that. That is implying when you decide to turn to income, it’ll make sure you never out-live your money. And by both expertise and by law, a life insurance company is the only financial institution that can guarantee somebody they’ll never out-live their money. … We have to sell the products for what they do and not nec-essarily what they are.” Another post-151A challenge is tougher suitability standards. The Harkin Amendment required states that do not want SEC regulation of indexed annui-ties to adopt the National Association of Insurance Commissioner (NAIC) model regulation on indexed annuity sales. A key requirement is for insurance compa-nies to verify that every transaction com-plies with suitability standards. Many companies and IMOs said they already meet the NAIC requirements, but some producers and carriers are never-theless concerned about the tighter scrutiny. Michael Prestwich, president of Imagi-SOFT, which sells annuity marketing and suitability software, said the new suitabil-ity laws are in some ways even tougher than the oversight the SEC has on broker/ dealers. “The states, to maintain control, made their laws that rigid,” Prestwich said. “So, before you send out a postcard, you have to have it reviewed by the various com-panies that you do business with. If you have seminars, the seminars have to be approved at the company level and reg-istered in most states. Again, if you’re working with 10 companies, somebody at each company has to approve what you say and [you have to] basically keep it extremely generic and not make any recommendations.” Some companies are deciding they don’t want to take the risk in the inde-pendent insurance distribution. “Transamerica just recently decided they weren’t going to sell fixed annuities anymore through their insurance bro-kers,” Prestwich said. “They’re going to do it through the broker/dealers.” Some also believe another chal-lenge will be the source of funds issue, which arises when money is taken from a security and used to buy an insurance product. Mike Walters, CEO of USA Finan-cial, said that source of funds is part of a larger push for “a fiduciary blanket that they’d like to throw across all licensure, regardless of insurance securities, RIA or otherwise.” The reasoning behind source of funds is if a salesperson is only insurance-licensed and is making an annuity sale with funds coming out of a mutual fund, then that salesperson must have given advice on a product line for which the salesperson wasn’t licensed. “It’s a pretty hard argument to com-bat because, quite honestly, that’s what took place,” Walters said. He added that he sees more insurance producers getting a securities license to be able to talk about clients’ finances. “When we look at our broker/dealer, 87 percent of our registered reps have a Series 7, yet we don’t have a single stock jock in the house,” Walters said. “The rea-son they have that license is essentially a different version of source of funds. They want to get access to those funds.” Even carriers that depend on the inde-pendent insurance sales channel say that although indexed annuities escaped the clutches of the SEC, producers should
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