NAVA, the association for insured retirement solutions, is upbeat about the state of the industry's main initiatives in public relations and regulatory affairs, according to NAVA President and CEO Mark Mackay, who opened the group's annual marketing conference held February 24-27 at the La Quinta Resort & Club near Palm Springs, Calif.
For instance, the Reston, Va.-based industry group continues to stage successful meetings and follow up work with state regulators in order to improve the ease and transparency of sales, known as straight-through processing (or STP). More than 10 states had approved the process, according to Mackay, who is retiring in October after 12 years with the organization.
In the media, more publications are showcasing positive articles on variable annuities, especially living benefits. This trend should continue if the organization and its members can further educate journalists, Mackay says, and hold one-on-one meetings.
Relations with regulators are "progressing well" as the group focuses on pro-consumer initiatives like STP and its support of a toll-free consumer-protection telephone line. "This is very important. When regulators see us put our house in order, they are less likely to regulate."
And after some negative publicity of the recent past, "We said we'd respond," Mackay explains. "And the press agrees. This is paying off with big dividends."
Mark Casady, president and CEO of LPL Financial and the meeting's co-chair, says LPL Financial is one of the largest sellers of variable annuities.
He compares the product's development today to mutual funds some 20 years ago and sees it as a robust source of innovation and wealth protection. "Now it's a tool for risk transfer. And it used to be for only the super rich, with $100 million. Not today," he explains.
David Odenath, president of Prudential Annuities and the event's other co-chair, says the opportunity for industry growth is very promising. "This is what happens when a wonderful client need meets an industry solution," Odenath explains.
The industry needs to further educate consumers about the solution annuities provide and firmly focus on transparency. "These steps are the core future for this business," he shares.
Frank Zafran, a managing director with Morgan Stanley's global wealth management group, says it's hard for sales to be unsuitable because of regulation. Advisors who have recently joined the firm, he says, have about 2 percent of sales in variable annuities.
"These products can make a difference for clients," Zafran explains. They represent about 7 percent of the revenue for the broker-dealer, or $4 billion, he says.
The challenge for broker-dealers, says Brent King, first vice president and centralized supervision manager for Wachovia Securities, is to teach advisors "that it isn't taboo to sell variable annuities despite their regulation." He says the broker-dealer aims to position variable annuities as "part of the puzzle, not as something that is meant to replace advisors' fee business."
Broker-dealers should serve as an information filter for advisors, giving them the right amount of details and complexity, according to Scott Stolz, president of the Planning Corporation of America with Raymond James Financial. The need for broker-dealers to simplify the paperwork and efficiency of the sales process is critical, since variable annuities involve a much greater investment of an advisor's time than mutual funds, Stolz explains.
Carriers that certify wholesalers and have wholesalers actively sharing high-quality information with advisors in the branches is very helpful, Zafran says.
Raymond James, in cooperation with Genworth, has electronic brochures that can be customized for each client, according to Stolz. The broker-dealer has also moved to produce research and executive summaries on riders and other features. It expects its annuity business to grow from $200 million to $230 million in the next year or so.
Broker-dealer executives insist that they encounter too many changes on a frequent basis to the products. "Don't change the product every six months," says Zafran. In addition, the broker-dealers would like to see more partnerships with insurers to better educate advisors.
One presentation at NAVA, and one being made with Merrill Lynch financial advisors as part of that firm's risk-management events, highlights recent research conducted by Ibbotson Associates (part of Morningstar) in cooperation with Nationwide.
This work shows that while a conservative mutual fund portfolio (20 percent equities/80 percent bonds) could provide about $2.4 million of retirement income and $1.7 million of investable assets after 28 years of retirement, this same portfolio with a 20-percent allocation in a moderately aggressive variable annuity (80 percent equities/20 percent bonds) could produce some $2.7 million in retirement income and $1.9 million in investable assets.
Eric Henderson, senior vice president of Nationwide, says the income (rather than accumulation) should become central to the industry's mindset. Consumers believe that what really matters is the income stream, he says, and they are concerned with income risk -- which represents the year-to-year fluctuation. And they are increasingly willing to pay for protection against living too long, he adds.
The insurance industry hedges its risks on behalf of consumers, and consumers today want to know how insurers are able to protect their interests. "This is what we do," says Henderson. "We are here specifically to manage this risk."
Janet Levaux is the managing editor of Research; reach her at firstname.lastname@example.org.