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July 30, 2005 at 08:00 PM
Advisors are likely to be impacted by the June 2007 federal court decision in Hawaii denying class certification against Midland National for the sale of fixed index annuities.
The court said it could not treat all Hawaii residents who purchased Midland’s fixed index annuities the same. Thus, it could not certify the class because each consumer in the purported class had heard a different sales pitch, experienced a different sales presentation, and purchased an index annuity based upon unique financial conditions and objectives.
In short, too many variables in the sales process prohibited the court from treating all plaintiffs the same.
Significantly, the FIA distribution process protected the insurer from possible class certification–a legal determination to be avoided for sure.
Background: Embracing the independent agent as a main distribution channel for FIAs has led to the development of unique and individual sales presentations. Scripts and canned presentations are all but gone from the industry. (A few words of caution: if an agent or insurer is still relying on “scripts” to sell FIAs, it’s risky, since scripts create “sameness,” a key ingredient for class certification.)
While some firms provide examples or possible suggestions for advisors to use when explaining certain annuity features or benefits, these examples are not required and are still just a portion of a larger presentation.
At a minimum, the full sales process includes the items shown in the chart.
Even company-prepared marketing brochures and presentations allow for individual interpretation and comment by agents. To say that no two sales are alike is an understatement. Most agents claim their own sales process is fluid and flexible and adapts to each client. This uniqueness is a strength of independent agents.
At a time when suitability is paramount in the FIA industry, an agent’s ability to tailor and modify the sales presentation is directly in line with compliance requirements.
Take, for example, the fourth and final criteria from the Suitability in Annuity Transactions Model Regulation of the National Association of Insurance Commissioners. It requires the agent to make reasonable inquiry into relevant information which would assist the agent in making a suitable recommendation. Such a requirement demands flexibility in the sales process. The very nature of making suitable recommendations is incompatible with canned presentations.
