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Variable Annuities Trigger Big Paydays, Red Tape For Brokers

March 27, 2014 • Page 3 of 3

Brokers must do fact-finding about customers to determine if a variable annuity is suitable, based on factors such as their risk tolerance and age, said Lee Kell, who heads the bureau of enforcement for the division of securities at Florida's Office of Financial Regulation. That means becoming familiar with the intricacies of annuity contracts and fees, Kell said.

Cashing In At 102

Brokers who do not face off with regulators may have to deal with investors' lawyers in Finra's arbitration forum. Investors filed 174 arbitration cases involving variable annuities in 2013, according to Finra.

The cases typically name brokerage firms, but individual brokers usually must testify about the annuity sale and details about the complaint appear on the brokers' public record.

One recent case involves a 90-year-old investor who met his adviser at a free-lunch seminar, according to Scott Silver, his lawyer in Coral Springs, Fla. The investor ended up with an annuity that charges higher administrative fees than his previous one, said Silver. The extra fees will grind down the investors' returns over time, Silver said.

What's more, the new annuity has a 12-year holding period. "He must wait until he's 102 for access to his money," Silver said. "That certainly wasn't his objective."

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8 Comments

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Comments

Politico 10 years ago

It's clear that both the VA's and FIA's are OUT OF CONTROL. The Department of Insurance does not truly regulate anything unless there's a complaint. At least FINRA has stated publicly and is doing a decent job at addressing all issues pertaining to VA's the best they can. The horrible thing about the FIA industry is that many insurance agents are obtaining a Series 65 who will then chassis that license with their FMO's RIA only to be 'legal' in recommending an individual out of their securities and into a FIA. Then that advisor will put the remaining monies in some passive ETF model and forget about it. Local radio shows are also being flooded by these type of 'professionals'. They harp how bad the market so they can 'bait and switch' the client into a FIA. Unbelievable! Does it make sense for an investment advisor to publicly state over the radio how horrible the market is only to sell the FIA?
jawbkr55 10 years ago

Sorry, I guess cuz you aren't securities licensed you don't truly know what your are talking about. A person only needs a Series 6, Not a Series 7 (BIG difference in EXAM difficulty, HUGE), along with a state insurance license in order to use VA's! O and please do not start spouting about FIA as being better than all other products. Also Insurance Agents and Securities Reps are NOT being watched the same. Most Insurance Agents who aren't securities licensed can get a way with a ton of questionable practices. Something a Securities Licensed Rep could NEVER get approved through Compliance. And DO NOT tell me you know the difference in products when you've never been licensed or even sold a VA. You guys aren't even mentioning a VA market player in the top 5 Companies. It is amazing the garbage people will sell thinking its a quality product because they haven't done their ????? Due Diligence. OR Homework for the "Salesmen" in this conversation. Who would put $700k into one VA, or even 2 VA's??? depending on the client I can see a minimum of 5-6 DIFFERENT asset classes this client should be exposed to. Man Sometimes these comments posted can scare the SH*t out of me! Many of the "professionals" that give the rest of us a bad name can be found commenting on a basically guaranteed COMPLAINT worthy type of business practices. I feel sorry for the retiree's in FL.
tnrep 10 years ago

The two cases I was referring to were VA sales. Large company insurance rep and an independent insurance agent(yes they are fully licensed). The independent rep only sold VA's and whole life policies, I spoke to them, they are in Florida - the client was moving up to my area and they were going to buy the VA from me but I would not put the 700k into one product, especially after discussing with them their income needs. The VA's were ING policies. I am not tossing stones just after speaking to some insurance reps about the restrictions I have comparing them to what others are doing. I don't do much in the VA side mainly FIA's.
OWM1Rep 10 years ago

rknox116 - ? Calm down. I was not "tossing stones" I also have an Insurance License. I was just stating the fact that you need a Series License to sell VA's. Both Brokers and Insurance reps are under the scope as we all should be.
rknox116 10 years ago

OWM1Rep - The article above specifically pointed to suitability as the number one cause of complaints of brokers selling VA's. The insurance industry has been diligent in designing Suitability Regulations which are stringent and welcomed by most agents. If you take a look at the NAIC Suitability requirements as well as each Insurance Carrier's suitability, it is no less policed than FINRA. Tossing stones at the Insurance industry is unprofessional.
rknox116 10 years ago

tnrep - In order to sell a VA one must be a Registered Representative. Insurance agents cannot sell a VA unless they also have the Series 7. Your loss of business was not from an insurance agent selling VA, rather, it was likely to have been Fixed Index Annuities, which require only Insurance credentials. As for your 30% limit on Net Worth, most Insurance Carriers limit the FIA to 50%. Maybe you should take a look at FIA's if your BD allows. Less complaints and other advantages - like low fees if any.
OWM1Rep 10 years ago

tnrep - You need at least a series 6 to sell a VA not just an insurance license. And yes, Insurance reps are also under the scope. Primarily for recommending Fixed Index Annuities (only need an insurance license to sell) to investors whom it may not be suitable for.
tnrep 10 years ago

I have a question about this. I am a broker that has to jump through the hoops for a Variable annuity sale. My brokerage limits sales to 30% max of investable assets. I have lost several large 401k rollovers to insurance reps that transfer all the funds into a variable annuity. Are the regulators looking at the insurance reps also?