In an environment of heightened competition among the different distribution channels of life insurance and annuity products, a favorable brand reputation is critical. Compliance and market conduct improprieties often can tarnish a brand’s reputations on both local and national levels. Such damage often comes at a greater cost than regulator fines, settlement costs and the cost of litigation.

Agents and managers who sell life insurance and annuities in bank-type settings (banks, credit unions, etc.) may not be fully aware of some of the compliance and market conduct issues unique to the sale of registered and traditional insurance and annuity products in a bank environment. These are the type of compliance and market conduct issues that can tarnish a bank’s or credit union’s brand in a local area and, in some cases, on a national level.

The following are some of the situations we have observed that create greater potential risk for sales in bank type settings.

1. A product orientation vs. a planning orientation. Banks typically sell products like annuities when CDs come due or when there is an excess of cash in the client’s checking or saving accounts. They typically are not making sales based on in-depth fact finding. Without fact finding, it is almost impossible to provide planning or integration of life insurance or annuities with other investments and consumer needs. When you take into account the higher age of many bank consumers, the potential for unsuitable sales grows because the sale may not be integrated with the needs and financial circumstances of the consumer. This can lead to liquidity and suitability problems.

The solution: Require that a suitable need analysis be performed, provide agents with training on needs analysis and make appropriate computer-based tools and aids available. Provide incentives for consumers to spend the time on the needs analysis by providing things like a computerized analysis, personal financial software, etc.

2. High opt out rates for personal or financial information related to suitability. Consumers are not required to provide suitability information and can opt out of providing the information by signing a form. Based on our experience, life insurance sales in bank settings have higher opt out rates for providing financial information on applications than non-bank settings. One reason appears to be a lack of privacy in the bank setting. Sitting at a desk while other consumers mill around causes consumers and bank-housed agents to avoid discussing financial information of a personal nature that is often called for on applications. In addition, the lack of a strong personal relationship between the bank-housed agent and the consumer also can lead to unwillingness on the part of the consumer to divulge personal financial information. Without this information the bank and the insurance company may have difficulty evaluating the suitability of a particular sale.

The solution: Provide a private setting in which to conduct the sale. Create more pressure on agents and consumers to complete suitability forms and not opt out. Require a separate form be signed acknowledging the opt out and cautioning the consumer on the negative implications of opting out.

3. Lack of consumer education about the product’s features, benefits and cost. Based on our experience, the amount of time the consumer spends in the bank with the bank-housed agent is much less than is spent with an agent in either the agent’s office or the consumer’s home. The lack of time spent on educating the consumer about the features, benefits and costs of the product often leads to complaints based on a lack of understanding.

The solution: Develop streamlined consumer education materials for use by agents during and after the sale and require that they be used or provided to the consumer. One bank uses a short computer-based presentation to provide this information. Some banks follow up after the sale with additional materials including directing the consumer to the insurance company or bank website for additional educational information about the product he/she purchased.

4. Lack of management supervision. Many bank-housed agents are supervised by bank officers who may not be fully knowledgeable about or experienced in life insurance. Even when the bank-housed agent is supervised by an officer with brokerage experience, there sometimes is a lack of knowledge about life insurance and annuities. In addition, there is typically a wide supervisory span of control, with so many registered representatives or agents reporting to one registered principal or supervisor, that supervision of insurance sales are delegated to administrative support staff members who may not be adequately trained.

The solution:Reduce the supervisory span of control and provide supervisors with training on how to monitor and evaluate insurance and annuity sales. Provide supervisors with tools and aids to increase the efficiency and effectiveness of case review. Create a training program for certifying administrative staff involved in monitoring life insurance and annuity sales and only allow trained and certified administrative staff to support the supervisor.

Another factor impacting compliance and market conduct may be that banks sometimes believe the insurance company whose products they are selling will provide the monitoring and review of sales needed to avoid compliance and market conduct problems. Insurance companies often assume that the bank bears the responsibility for its compliance with regulations and market conduct and that insurers do not have a significant role to play in monitoring and supervising their compliance and market conduct. With regard to the sale of registered products, this may be a reasonable assumption, but with regard to traditional or non-registered products, the insurance company still may have a significant role to play in supervision of the sale of its products. With both banks and insurance companies thinking the other is responsible for supervision of compliance and market conduct, neither may be doing enough.

Increasing competition among banks puts a premium on maintaining a positive brand image in the marketplace. Compliance and market conduct improprieties can play a significant role in affecting a bank’s local image, which should motivate banks to invest in enhancing their compliance and market conduct procedures.

Insurance companies should consider providing the banks that distribute their products with additional guidance on these and other related compliance issues. Some insurance companies conduct annual due diligence reviews with banks and other third party distributors of their products. As part of this review process, the insurance company has an opportunity to provide advice to the bank about compliance and market conduct issues. Some insurance companies periodically review a sample of bank sales and provide feedback to the bank regarding potential issues that have been identified. It is in the best interest of both banks and insurance companies to avoid compliance and market conduct problems.

Dennis Groner, CLU, ChFC, is a principal in Groner & Associates, a Livingston, N.J. consulting firm that provides services to the financial services industry. He can be reached at