Seeking suitability

Companies and advisors flustered by a suddenly intense focus on the industry have turned their eyes to more carefully verifying the notions of suitability. But a variety of new programs and some unique efforts on the part of providers will help everyone make sure that the right products are sold to the right people at the right time.

In the second part of our ongoing look at the most recent shakeups in the industry, we turn our focus to suitability. It’s always been a part of a reputable advisor’s approach to providing the best products for their customers – and the best companies have long had processes in place to allow a better second look at the appropriateness of the financial instruments sold to the public – but with the heat turned up on the business, everyone in the industry finds themselves anxious to address suitability in a new light.

Follow along as we examine suitability efforts which range from pilot programs run by industry organizations to the focused work of individual companies – and get a bit of perspective on the issue from those who have long been at the forefront of the suitability inquiry (and a perspective that the suitability issue may be a bit different than many would believe).

NAIC clearinghouse sends a lifeline to companies

While last fall’s sudden nexus of self-reflection – Senate hearings and lawsuits included – sent a palpable chill through the financial services industry, the most frightening specter for a thriving field is that of more government intervention.

Instead, companies know and understand that suitability issues need to be addressed closer to home, and with the input and guidance of those in the business themselves.

To that end, the Insurance Marketplace Standards Association has opted to make a positive, proactive step by creating a new suitability clearinghouse program. Beginning last month, the clearinghouse offered IMSA members the opportunity to carefully vet their offerings with an eye to the model suitability in annuities regulations established by the National Association of Insurance Commissioners.

Don Walters, senior vice president and general counsel for the Bethesda, Md.-based IMSA, says the pilot program seeks to offer a unified front for the industry by simplifying the suitability oversight process in a venue somewhat closer to home.

“Life insurance companies will be able to get an annual certification for their third-party users, which will simplify things as they already have hundreds of relationships with those agencies,” Walters says. “Working on their behalf, we’ve established a central location that companies can contact and only need to contact once.”

While suitability oversight was previously delegated to third-party distributors (including broker/dealers, banks, general agencies and IMOs), the new clearinghouse will create a single point of contact for obtaining those certifications, avoiding unnecessary procedural interruptions of business for most companies.

Walters says the clearinghouse’s first efforts will be run in concert with about 10 insurance companies, expanding to a wider swath as the process is refined.

“We’ll be offering access to a Web-based technology program that they’ll be able to use. We anticipate a high level of interest, especially among companies with 500 to 1,000 distributors.”

Walters says he will be interested to gauge industry involvement in the plan, but hopes that the simplified and centralized nature of the offering will provide a certain appeal to companies.

An individual look at suitability

Advisors thrown into a tizzy about suitability, seminars suddenly vilified and credentials now looked at as a dubious jumble of letters: the past year was not a kind one for those in the financial services industry.

Or, as Westport, Conn.-based advisor and industry advocate Pasquale J. Sacchetta says, it was just another year in a complex business where many forces seek to shift the blame to those making the sales, rather than companies (and even customers themselves, as he somewhat controversially suggests).

“From a transactional point of view, there’s definitely been more scrutiny, especially on the whole issue of client lunches and credentials, but I’ve seen good and bad with that,” Sacchetta says. “Occasionally, it seems like clients are just as responsible as advisors for the blame in suitability. I’ve heard stories about advisors who’ve had dealings with multimillionaire professionals, really well-educated seniors who knew everything about the products they were getting involved in, who’ve still come back and complained about the suitability of the products sold.”

Sacchetta, president of CFIG Wealth Management, says that he’s seen some exceptionally dubious behavior on the part of potential customers.

“I’ve even had clients who’ve fudged their contact information to get around our own clearing processes just so they can come to more of our dinners, working very hard to circumvent the process, and that really irritates me. The bottom line, as I see it … if you don’t want to be sold, don’t go to a seminar.”

Sacchetta says that some of the responsibility should also be focused on insurance companies themselves, who have, at times, crafted products that don’t always have the best interest of customers in mind.