“Make sure you stay educated and don’t ever think you get to that plateau where you know it all, because when you get there, it’s going to change.”
That’s a direct quote from Nevada Commissioner of Insurance Scott J. Kipper, delivered as a key takeaway for the audience at a roundtable session titled “Navigating the Regulatory Arena” during the 2014 Advisor Network Summit conference this summer in Las Vegas.
That’s also good advice for life insurance and annuity producers who continually need to stay on top of the specific features in products they are recommending to their clients. It was also more or less the central theme of the session, where Kipper was joined on the panel by Kim O’Brien, president and CEO, National Association for Fixed Annuities (NAFA), Sheryl Moore, president and CEO, Moore Market Intelligence.
Panelists said that agents and the people who work for them – not your FMO or carriers—are the ones who need to protect their business by being well versed in product features.
“The products you sell to your clients – you are the person who is responsible for that,” Moore told the audience made up largely of annuity producers. “You have all these materials you could have read that clear things up. There are over 900 different fixed and indexed annuities out there. Use the resources.”
Moore added that when she is talking with producers about annuities, she often finds out that they don’t completely understand the products. “It boggles my mind how few people that have sold these products have actually read the contract,” Moore said.
As an example, Moore mentioned two-tiered annuities and how they were designed was different than how they were being pitched to clients. That led to a ton of lawsuits, and was a factor that led to the SEC’s proposal of Rule 151A, which had sought to reclassify fixed indexed annuities as securities rather than insurance products. The proposed rule was ultimately vacated after significant and well-organized opposition from the industry with the help of certain members of Congress.
Kim O’Brien mentioned uncapped crediting methods as another potential stumbling block for producers, as it is now offered on many FIA products today and enables the consumer to take advantage of well-performing market indices without an index cap. But as O’Brien pointed out, “Uncapped does not mean unlimited.” Although an uncapped strategy does not use index caps to limit returns for clients, there are still limits on the potential returns due to the volatility controlled index crediting method mechanism, and the distinction between uncapped and unlimited needs to be pointed out to clients.
Producers who market an FIA with an uncapped crediting method as being low-risk, high-reward with unlimited potential for earnings while still being a safe vehicle for savings could set up unrealistic expectations for clients and get you into trouble with compliance.
“Everybody wants to have an uncapped crediting method, and something different than the S&P,” O’Brien said. “If you are selling uncapped, please understand the product.”
Remember that misleading advertising, poorly worded or misleading seminar scripts and direct mail pieces can get you reported. Kipper said that in his experience, the most common mistake that leads to enforcement actions is “not knowing your product, and overpromising on what isn’t there.”