The Variable Annuity Protocols
It happened again. An 85 year old man came to see me. He had been sold a variable annuity when he was 79 that carried substantial surrender charges and only a death benefit for security. The person that sold it to him was not a registered representative, but some sort of insurance agent with only a series 6 licensure, and little understanding of risk. His life savings was placed into aggressive funds. A third of his savings was lost in the crash of 2001 and in the intervening years, because of a failure to monitor his investments or provide the ongoing review that he thought he was buying from the major national insurer that sold the variable annuity, his investments have recovered less than 20% of the loss suffered in 2001. Money doubles every seven years except in variable annuities that are steeped in too much risk and too little common sense. If after the crash someone had just suggested moving his investments to a balanced fund within the same family of funds already in the variable annuity, he would by now be nearly back to where he started.
Investment News reported that the state regulator for Massachusetts, William F. Galvin, has proposed a set of criteria for variable annuity sales to elderly. Other states, the article reports, like Nebraska, are considering rules.
If suitability rules already on the books are not enforced, new sales practices rules will not add much. Moreover, sales practice rules are not enough to protect the elderly, or anyone, if the issuers of variable annuities are not also held to the same standard as wirehouse registered representatives and supervisors. They are required to review account positions at least annually and make recommendations. State regulators should also have on their websites a list of things for customers to demand and one of those things should be an annual review of positions in every account. If variable annuity issuers are not going to provide this, regardless of the reason, then these products must be clearly labeled as “self-directed” accounts after they are sold and advising the purchaser to obtain a financial advisor to review positions annually. Also, companies that do not offer annual position reviews should be precluded from imposing surrender charges beyond the first year on any variable product. Multi-year surrender charge platforms should be precluded for anyone over the age of 70.
IT’S MY UNDERSTANDING THAT A SERIES 6 HOLDER IS A REGISTERED REPRESENTATIVE UNDER NASD
True, but with more limited “powers” than a series 7. Also, nothing herein was meant to be disparaging about series 6 holders. Many of them are excellent financial advisors. The truly excellent series 6 holders do without being told to do so at least annual position reviews, no matter what, if any, residuals they may or may not earn, merely because they are professionals and place client concerns on a high priority.