A Reader Identifies The Un-Level Playing Field in Fixed Annuity Suitability Assessment
A reader who wishes to remain anonymous has written to me in response to my March 9 post referencing ING’s announcement that it will perform suitability review for fixed annuity sales in all states. This individual is highly experienced in compliance and regulatory matters and is presently employed by a life insurance company that offers fixed annuities, exclusively. His perspective is revealing. He identifies complexities and challenges- effectively, an un-level playing field- facing fixed-only annuity providers in contrast with other providers that offer both fixed and variable annuity products:
Hi David,
I’ve been enjoying your blog, and I wish you continued success with it. The following comments are personal, and not reflective of any opinion held by my current employer.
I noted with interest your endorsement of ING’s Suitability Profile, and wanted to offer you a couple thoughts about the situation that you might want to consider in future posts on the topic.
Being a variable provider, ING has a staff of NASD-certified Registered Principals who have passed the Series 26 exam and a background check. These people have an independently granted professional qualification to assess suitability. ING is leveraging their NASD membership and their staff of NASD Registered Principals already responsible for variable product suitability into the fixed side of their business. I’m sure this costs money both in terms of additional staff and foregone sales (both rejected sales and sales that are diverted to other carriers that won’t apply the suitability review) but ING has decided that those costs are more bearable than the cost of being associated with abusive sales tactics, unsuitable sales to seniors, etc, and that they may gain some sales through reputable agents who want to show off that their fixed annuity carrier does a suitability review.
I’m jealous, but to be fair, fixed-only carriers face a far greater challenge than fixed-variable carriers in implementing fixed product suitability.
My current employer isn’t a member of the NASD, because we don’t sell variable products (the NASD wouldn’t grant us membership even if we asked). Therefore, we can’t have staff who are Registered Principals. We have some staff that formerly were Registered Principals, but they aren’t anymore because they no longer work for a NASD member firm – they work for a fixed only carrier. So even if we created our own internal cadre of suitability reviewers, their qualifications to do suitability examination of proposed transactions wouldn’t come with any independent seal of approval. We might develop a consistent approach to suitability review and base it on the NASD standard, but it would be vulnerable to charges of excessive liberalism or excessive conservatism, because it won’t simply be an industry-wide standard laid down by a self regulatory organization that we’re a member of.
The insurance industry has IMSA, but membership isn’t mandated like NASD membership for securities firms. In addition, IMSA doesn’t offer to qualify/register individuals.
I think that suitability in the variable product marketplace has been improved (but not perfected) by the NASD Registered Principal mandate, but fixed-only carriers face more than just a cost/benefit analysis of staff expenses and sales impact – they also face a legitimacy challenge that by its very nature can’t be solved by the carrier alone.