Placing VLs & VAs Through BGAs: What You Need To Know

Many registered representatives are not aware of what it takes to place variable life insurance and variable annuities through an independent brokerage general agent.

Some believe the process entails: selling away, becoming involved in dual registration, or moving from ones present broker-dealer.

All those presumptions are incorrect. Done properly, dealing with variable brokerage is as non-complicated as brokering non-variable cases.

What, in particular, can you, the rep, expect in such a relationship? Lets review the four key areas with which the variable brokerage general agent deals when doing business with you. They are: suitability, case flow, contracting, and compensation.

Suitability. You, the registered rep, must satisfy the suitability requirements of the sale set forth by your broker-dealer. Your broker-dealer remains responsible for compliance and supervision of you as a rep, even when the sale is being done on a brokerage basis.

Given that, the knowledgeable BGA never offers suitability advice to a registered rep of another broker-dealer. Instead, the BGA refers reps to their own broker-dealers for answers to suitability questions that arise regarding the sale or its documentation.

Such an arrangement is simple for all parties to follow, and allows for efficient processing of the case.

Case flow. This typically takes one of two routes, but both of them are also quite simple to follow. The route chosen depends on the standard operating procedure for variable brokerage cases set out by your own broker-dealer.

The most typical case flow follows exactly the same course as occurs in brokering non-variable cases. That is, the rep submits the case directly to the BGA for processing, while at the same time furnishing suitability requirements to the reps own broker-dealer.

In the second scenario, the registered rep first sends the case, along with suitability requirements, to the broker-dealer. In turn, the broker-dealer sends the case to the BGA for processing.

In either scenario, suitability of the sale is between the rep and his or her broker-dealer.

Contracting. Here, too, you are dealing with a fairly simple process.

When a non-variable case is sold, the two parties to the sale that must be properly contracted and licensed are you (the producer) and the BGA. When a variable case is sold, two additional parties must be also be contracted and licensed. These additional parties are the broker-dealer of the registered rep writing the case and the broker-dealer of the BGA.

Please note: This additional requirement rarely delays a case. Thats because most broker-dealers are already licensed in most states.

There is one aspect to the contractual relationship that may seem to be complicated but actually is not. This is the requirement that there must be a broker-dealer to broker-dealer selling agreement in place. This is an agreement between the distributor broker-dealer (i.e., the broker-dealer of the insurer accepting the case) with both the broker-dealer of the rep writing the case and the broker-dealer of the BGA.

The good news is, contrary to popular belief, there does not need to be a selling agreement in place between the broker-dealer of the rep and that of the BGA. This simplifies the sale by keeping the contracts and agreements to a bare minimum.

Compensation. This part of the variable brokerage arrangement is straightforward, as well. Once all requirements have been received and compensation is ready to be paid, the distributor broker-dealer pays the compensation.

The broker portion of the compensation is paid directly to your broker-dealer who, in turn, pays you, the rep, according to terms of the agreement the two of you have established.

The general agent portion of the compensation is paid directly to the broker-dealer of the BGA, who in turn pays the general agent under the terms of the agreement in place between the two of them.

In both cases, the dealer concession is an issue between each respective broker-dealer and their registered representatives. Dealer concessions are not an item thats negotiated between reps and BGAs.

As you can see, the process of placing variable business through independent BGAs is clear-cut and efficient. That means you can be as comfortable with turning to independent BGAs for help on variable life and annuity cases as you have been with turning to BGAs for help with non-variable cases.

M. Clark Lee, CLU, ChFC, is vice president and chief marketing officer with Capital Synergies, Inc., McHenry, Ill.

His e-mail address is Clark.Lee@CapitalSynergies.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.