During an interview with an editor from LifeHealthPro, I was asked the question, “What are you most excited about in this industry?” Part of my answer was that I am very excited about the ways in which our industry is evolving. NAFA and other industry powerhouses have done a tremendous amount of work to change the perceptions of the fixed annuity world, as well as the sales process.
But while many positive changes have been made in our industry recently, there’s still one glaring defect. This probably won’t win me friends with other agents or FMOs — and certainly not with NAFA, considering some of their responses I found to this sort of statement on their website — but we need tougher licensing restrictions, fewer liberties to retake tests, and greater product-specific training to sell annuities.
Unfortunately, in Michigan — and presumably most other states — an individual can satisfy the pre-licensing requirements by attending an in-class life and health insurance course and scoring 73 percent on the licensing exam. First, I ask you: Does a 73 percent score really demonstrate a reasonable ability to solicit annuity products, which can represent half or more of an individual’s retirement savings? Maybe. But consider this: The test is 150 questions, which means that to score a 73 percent, the taker must answer just 110 questions correctly (actually it’s 109.5, but I’m assuming they round up). Half of these questions cover life insurance and half cover health insurance, with the life side being split between life and annuities. Questions about annuities cover fixed rate, fixed index, single premium, and variable.
Here’s the problem: A test taker could score 95 percent on the health side, which works out to 71 correct answers. This person would only need 39 more correct answers to pass the test. He or she could answer 90 percent of the life questions correctly, which would add another 34 correct answers. In the annuity portion, the person would need just five out of 37 correct answers, which equates to a 13.5 percent correct rate. That’s a shockingly low number for a very complex product.
What happens if you fail?
Another thing to consider is the licensing process for agents who fail this test the first time around. I was once a trainer for a large, nationwide firm that brought in dozens of new agents to each and every one of their 150+ branches each month. I remember recruiting meetings where we’d discuss which agents had passed and which had failed. If an agent failed, we had them schedule their next test as soon as possible, sometimes as early as the next day. Some agents took the test five, six, or even more than 10 times before they passed.
In other parts of the financial world, the number of retakes is not only limited but there are restrictions as to when you can retest. I suppose one could argue that an agent willing to test multiple times is dedicated to this cause. I argue instead that agents needing this many attempts display little dedication, for if they were truly dedicated to this, if this was their calling, their path, their trade, then they would surely pass on the first or second attempt. (Like I said, I’m probably not making many friends with this.)
The new training requirements
Let’s assume our only issue isn’t the lack of pre-licensing requirements. Yes, to sell annuities, carriers require product-specific training. The product-specific training I’ve seen (please note that I CANNOT speak for every carrier) allows an agent multiple attempts to take a test. I know I am probably preaching to the choir given the audience I’m addressing, but is it possible there are some out there who rapid fire the next slide button like they did with the fire button on Battlestar Galactica? Why allow unlimited attempts? Two attempts or possibly three may be justified, but I do think it is critical to restrict the number of attempts and the required time between attempts.
In addition, we must have some sort of annual retesting requirements. Currently I’ve only experienced product-specific retesting if the product has materially changed. Is it possible there are benefits available with a particular product that have gone forgotten given the obscurity of their appropriate use? Annualized retesting would help maintain a better knowledge base of the go-to products and the products used once in a while, even when things haven’t changed.
Annuities are insurance products but purchasers still perceive them as a type of investment. Someone who has saved this money for 20, 30, or 40 years and decides to purchase an index annuity will think of that purchase as an investment. The money oftentimes comes from other investments, and while some states have hammered down on the source of funds, this is unfair to the agent and to the purchaser. There are many agents who do not want to have the extra regulations associated with securities licensing, especially if they do not wish to actively pursue that sort of business, but that doesn’t mean they wouldn’t benefit from training that allows them to discuss the differences between safe products and not-so-safe products.
A problem and a solution
So, here’s our problem: One can take a licensing exam and live in the world of mediocrity with a score of 73 percent. Those who fail the test can simply retake, so why study hard? Product-specific training allows one to fail and retake, and has little (if any) periodic testing if there have been no material changes to the product. On the client side, annuity buyers are likely to look at their decision to purchase an annuity with a chunk of retirement dollars as an investment. Lastly, the agent selling the fixed annuity is likely to have made some comparisons to alternatives that they do not have the licensing to advise on — yet they advise anyway with utmost care (some more than others).
And here’s our solution: Add a new test for fixed annuities. Add coursework that trains agents on the fixed annuity alternatives, specifically securities products, so they can legally make in-depth comparisons between fixed and variable annuities. Require ongoing product-specific trainings.
When it comes time for CE credits or other trainings, I’m as annoyed with the requirements as everyone else is, and I’m sure I would eat these words if they were to come to fruition, but I believe these changes would make for a better fixed annuity world.