Comp Proposal Draws Fire

“By implementing effective controls based on a sampling of new business cases, and by taking corrective action when needed, an insurer can create a supervisory system that provides for reasonable assurances that sales of its products are suitable,” Martha Kendler of Northwestern Mutual and and Carla Strauch of Thrivent write. “A requirement to conduct reviews of all transactions would needlessly absorb compliance resources in our organizations that are currently devoted to identifying patterns or issues with all of our producers and across all product lines.”

Northwestern Mutual recently looked into updating systems to allow for reviews of all transactions, and it found that would cost about $5 million, Kendler and Strauch write.

Kendler and Strauch also object to a section governing producer compensation.

The provision would prohibit compensation for sales that are not recommended or for which suitability information has not been obtained.

“While the sale may not be recommended by the producer, one should not assume the sale is not suitable for the client,” Kendler and Strauch write.

In some cases, the executives write, an accountant or lawyer might have recommended and reviewed the suitability of a transaction.

“Producers should be compensated for their time even if a particular sale falls outside of the ‘recommended’ framework,” Kendler and Strauch write.

Roland Panneton criticizes the producer comp provision in a letter submitted on behalf of the National Association of Insurance and Financial Advisors, Falls Church, Va.

NAIFA would prefer to see the NAIC keep the current model and issue interpretive guidance and clarify areas of regulatory concern, Panneton writes.

When it comes to annuity producer compensation, NAIFA strongly believes that there should be no restrictions on or prohibitions of commissions when consumers buy annuities without having a recommendation from a producer, Panneton writes.

“The presumption that somehow, in the circumstance when a recommendation is not made, the producer has not earned a full commission or perhaps any’ commission is an incorrect one,” Panneton writes.

“The proposed draft in Section 6(D)(2)(b) allows for an insurer to issue a recommended annuity and for the producer to recommend an annuity when the customer fails to provide complete suitability information–as long as the recommendation is reasonable under all the circumstances actually known to the insurance producer at the time of the recommendation,” Panneton writes.

“The proposed draft should not have any provisions which restrict or prohibit a ‘full’ commission when an annuity is issued when the recommendation ‘is reasonable under the circumstances,’” Panneton writes. “Our position is that if an annuity is issued the producer has earned a full commission even if a recommendation is absent or full suitability information is not provided as long as the recommendation is reasonable under the circumstances.”