Who can sell variable annuities?
Life insurance company products are frequently sold through banks and stock brokerage firms. Ascertain that the person selling you the annuity is a licensed life insurance agent. The agent for a variable annuity should be a licensed securities dealer as well. If you purchase an annuity through a bank or brokerage firm, inquire about the types of annuities offered by the insurer as well as the insurer’s financial strength.
Do financial advisors sell annuities?
When it comes to categorizing the many sorts of financial advisors, the word “financial advisor” includes a wide spectrum of specialists, which makes it difficult to categorize them.
Financial advisors can be classified based on the services they provide, such as retirement planning, portfolio management, or tax advice, or the products they sell, such as stocks or annuities.
A broker-dealer is a term used to describe financial professionals who sell securities. Fixed annuities and other insurance products can be sold by insurance agents, but variable annuities can only be sold by agents who have received their Series 7 license.
Alternatively, we can categorize financial advisors based on their remuneration structure, such as whether they are paid on a commission, a flat fee, or some other arrangement, as well as their fiduciary or registered investment advisor (RIA) status.
And these are only a few examples of human advisers. Clients can also use robo-advisers and digital advisors, which are designed for clients with smaller portfolios.
As a result, if you’re thinking about becoming a financial advisor, think about what areas you’d like to concentrate in and what types of clients you’d like to work with.
Do you think you’d be better off working for a big company or as an individual agent?
The answers to these questions will point you in the right direction in terms of schooling and apprenticeship prospects.
Can insurance agents sell variable annuities?
An annuity will mostly certainly be purchased from a licensed insurance agent, broker, or financial consultant. Brokerage businesses (for brokers and financial advisers), marketing organizations (for independent insurance agents), or insurance companies themselves stand directly behind these intermediaries (in the case of career insurance agents).
When you meet with the agent or broker, they will go through your financial situation with you. The agent or broker will submit the application for approval when you have chosen a suitable product.
You’ll eventually submit a check for at least the minimal amount to the contract issuer – the insurance company (every carrier sets its own minimum initial premiums). The carrier will then mail you your contract. You’ll have 10 to 30 days to reconsider your decision and get a refund by returning the contract.
Annuity issuers: Annuities are only issued by insurance firms. Although there are hundreds of issuers, the top 25 popular names such as The Hartford, MetLife, and Prudential account for almost 90% of all annuities sold each year.
Annuity distributors include large brokerage firms (known as wirehouses) such as Merrill Lynch and Morgan Stanley, as well as independent broker-dealers such as Raymond James and LPL Financial. Annuities are also sold through the branches of banks like Bank of America and Wachovia. Between the carriers and the producers, distributors act as go-betweens. They employ or supervise producers in many circumstances, ensuring that they follow insurance and investment requirements.
Producers of annuities: Traditionally, most insurance firms used a large army of career agents to market and sell their products. While many annuities are still marketed by independent agents, brokers, and bank officers, businesses like AXA, Ameriprise, MetLife, and others still employ these representatives.
Marketers who work directly with customers. You can buy an annuity directly if you’re the self-reliant sort who doesn’t require an agent or broker to explain annuities to you. Some insurance firms, but not all, will sell you a no-load (no sales commission) contract directly.
Vanguard, Fidelity, and T. Rowe Price, for example, sell no-load annuity contracts directly to the public over the phone, the Internet, or the mail. Contracts are issued by third-party insurance firms in the cases of Vanguard and T. Rowe Price. However, only a small percentage of people buy annuities directly.
What can an RIA do?
- High-net-worth individuals and institutional investors have their assets managed by registered investment advisors (RIAs).
- To streamline asset allocation and reduce commission costs, RIAs can design portfolios containing individual stocks, bonds, and mutual funds; they can employ a combination of funds and individual issues or exclusively funds.
- An RIA’s revenue is often generated through a management fee, which is calculated as a percentage of the assets kept for a clientfees of 0.5 percent to 2% are very uncommon.
- An RIA must register with the Securities and Exchange Commission (SEC) as well as any states where it conducts business.
Can I sell variable annuities with a Series 7?
FINRA governs securities firms in the United States, and every securities professional hired by a member is required to register with the organization. Agents who are licensed to offer annuities, such as life insurance agents, fall into this category. After passing the Series 6 exam, insurance producers are permitted to market variable annuities, mutual funds, and other similar products. The Series 7 license allows agents to sell annuities and mutual funds, as well as a variety of other assets.
Are variable annuities exempt securities?
The way the benefits are funded distinguishes variable annuities from fixed annuities. An annuitant pays a premium(s) and is promised a set rate of return over a life expectancy in a typical fixed annuity; consequently, benefit payments can be calculated with precision. Premium payments in a variable annuity are stored in a separate account or accounts. Depending on the account into which the premium is deposited, the contract holder has a number of investing alternatives. Purchasing stocks or other securities is usually one of the investment alternatives. The quantity of benefit payments is impossible to predict ahead of time because it is entirely contingent on investment success.
Fixed annuities are exempt from the Securities Act of 1933’s registration and prospectus requirements. As a result, the Securities and Exchange Commission (SEC) has no authority over or authority to regulate fixed annuities. Fixed annuity contract issuers are not required to file securities registration statements or offer a prospectus to prospective buyers. Under the McCarran-Ferguson Act, state insurance departments have primary jurisdiction over fixed annuity transactions.
Variable annuities, on the other hand, are subject to SEC regulation because they have been determined to be securities that are not exempt under the Securities Act of 1933. According to the United States Supreme Court, “The variable annuity places all investment risks on the annuitant and none on the firm unless there is some guarantee of guaranteed income.” The term ‘-insurance’ refers to a guarantee that at least a portion of the benefits would be paid in set quantities. ” Variable annuity issuers” “Nothing but an interest in a portfolio of common stocks or other equities is guaranteed to the annuitantan interest with a ceiling but no floor. There is no actual risk underwriting, the one distinguishing feature of insurance as it is usually understood and applied.”
In the mid-1980s, the Securities and Exchange Commission (SEC) promulgated Rule 151, which established a “Annuity contracts are free from federal securities laws and regulations under the “safe harbor” provision. There has been a boom of annuity products on the market since then. Every product that is presented raises the question of whether it should be regulated as a security. To date, an annuity contract is eligible for safe harbor if the following conditions are met: (1) the contract is issued by a corporation that is regulated as an issuer of insurance contracts by the state; (2) the issuer assumes the investment risk under the contract; and (3) the contract is not marketed primarily as an investment. Even though an annuity contract is not variable, it may be refused safe harbor treatment if it lacks specific accounts. As a result, unless they guarantee a minimum level of payments or otherwise fall within the SEC’s jurisdiction, issuers of variable annuities must file federal registration statements with the SEC, provide a prospectus to a potential purchaser, and adequately disclose the risks of the annuity product, issuers of variable annuities must file federal registration statements with the SEC, provide a prospectus to a potential purchaser, and adequately disclose the risks of the annuity product “a “safe harbor” provision
As previously stated, the premiums paid by the holder of a variable annuity contract are usually placed in a separate account or accounts. As a result, they aren’t counted as part of the issuer’s (or insurer’s) general assets. As a result, variable annuities are not exempt from the Investment Company Act of 1940’s requirements.
State securities authorities have typically been prohibited from investigating complaints involving variable annuities because most state laws still classify variable securities as insurance products. However, a few states have recently passed legislation allowing state securities regulators to handle variable annuity complaints.
Do financial advisors recommend annuities?
Almost half of advisers polled by InvestmentNews Research say they want to boost their use of annuities this year. More VAs and fixed-indexed annuities would be recommended by 20% of respondents, while registered index-linked annuities would be recommended by 15%.
Why do financial advisors push annuities?
The goal of the bank and its securities division is to make money. This would be acceptable if all of the bank’s product offers were compensated equally, allowing for unbiased advise. This is not the case, as annuities offer the bank and its sales force with the most money (6-7 percent average commission for the salesperson).
Annuities are expensive because they are insurance-based products that must cover the cost of the benefits they provide. Many annuities, for example, guarantee that your principal will never be lost while still allowing you to gain money through separate accounts comparable to mutual funds. The reality is that your beneficiaries, not you, are guaranteed your principle at your death, which is a better explanation of this offer. If you were nearing retirement during the financial crisis, this assurance was of little use.
A variable annuity’s average expense, according to Morningstar, is 2.2 percent. If you put $10,000 into an annuity and the market yields 8%, you should have $30,882 after costs in 20 years. Instead, you might have $44,498 if you invested in a 0.20 percent index portfolio; that’s an extra $13,616!
The annuity is marketed to younger investors as a tax-deferred investment vehicle. A variable annuity will provide you all that, but at a price. I’ve discovered that the best vehicle for investors who have maxed out their 401ks and IRAs and are looking for tax-sheltered retirement savings is a taxable, tax-efficient portfolio. With the growing popularity of Exchange Traded Funds (ETFs), an investor can establish a tax-efficient portfolio for less than 0.30 percent of their portfolio value.
Why do people fall for annuity bait and switch schemes? It all boils down to the salesperson’s persuasion and the bank’s play on the customer’s anxieties of investing. Many bank customers would never invest in the stock market because they believe it is too hazardous. The annuity looks to provide the consumer with the protections he or she seeks. Always keep in mind that there are no free lunches. If something sounds too good to be true, it probably is. There are several options for managing investment risk that cost a tenth of what an annuity does. These solutions can be explored with the assistance of a fiduciary fee-only advisor.
Is a variable annuity right for me?
If you’ve already maxed out your 401(k) and IRA contributions both of which provide tax deferral without the extra layer of fees associated with annuities variables can be a way to boost your retirement savings, though you should first look into index funds and tax-managed funds, which can provide tax-advantaged returns at a lower cost.
If you do decide to purchase a variable annuity, look for one with modest annual fees and avoid costly alternatives that limit your long-term development potential.
A variable annuity may be a good option if you desire a higher potential payout than a fixed annuity and want to profit from market performance while maintaining control over your investments.
Can I sell variable annuities with a Series 65?
We’ve received hundreds of questions concerning the DOL Rule, its impact on annuity advisors, and what it means to operate as a fiduciary under the rule since Americans for Annuity Protection launched its AskAAP program in August (offered as a free benefit to AAP members).
Do I need a Series 65 to sell a qualifying annuity IRA? is the most frequently asked question this week.
In a nutshell, the answer is no. We’ll explain why later, but first, let’s go over the several types of licenses available to annuity advisors and what they allow the licensee to accomplish. We’ve gathered data from the FINRA, SEC, and other sources.
Websites of Investopedia. State Insurance Departments, FINRA, and the NASAA are the three types of regulators who regulate licensure.
Naturally, all annuity consultants must be licensed as insurance agents in the state where they offer annuities. The license state is often chosen based on the annuity buyer’s address. If the annuity buyer lives in Arizona, you must have a current life insurance license granted by the state.
You can only sell fixed annuities, including fixed indexed annuities, as an advisor or agency with a valid state insurance license.
Representatives and supervisors need a variety of licenses, which are available from FINRA. Each license is associated with a particular sort of business or investment. While there are various licenses that focus on specific types of securities, the bulk of agents and advisors typically receive three general licenses:
Limited-investment securities license (Series 6): The Series 6 license is also known as the limited-investment securities license. It permits its owners to sell their shares “Mutual funds, variable annuities, and unit investment trusts are examples of “packaged” investment products (UITs). Principals who supervise representatives who hold a Series 6 license must get the Series 26 license in addition to the Series 6 license.
The general securities representative (GS) license is known as the Series 7 license. It gives licensees the ability to sell almost any sort of individual securities. This encompasses all types of bundled goods, as well as common and preferred stocks, call and put options, bonds and other individual fixed income instruments (except for those that also require a life insurance license to sell).
Commodities futures, real estate, and life insurance are the only major categories of securities or assets that Series 7 licensees are not permitted to sell.
Those who have this license are listed on the government’s website as “FINRA refers to them as “registered representatives,” but they are more commonly referred to as stockbrokers. Many insurance agents and other sorts of financial planners and consultants also have the Series 7 license, which allows them to assist certain types of transactions. General representatives who hold a Series 7 license must additionally obtain a Series 24 license.
The Series 3 license allows representatives to sell commodities futures contracts, which are widely regarded as the riskiest publicly traded investments.
Representatives that hold a Series 3 license tend to concentrate in commodities and rarely handle any other form of business.
Licensing by NASAA (North American Securities Administrators Association)
FINRA does not administer all securities licenses. The North American Securities Administrators Association (NASAA) is in charge of three important licenses:
Each state requires the Series 63 license, also known as the Uniform Securities Agent license, which allows licensees to conduct business inside the state. This license is required for all Series 6 and Series 7 licensees.
Anyone planning to provide non-commission financial advice or services must have a Series 65 license. Stockbrokers or other registered representatives who deal with managed-money accounts, as well as financial planners and advisors that give investment advice for an hourly fee or a flat charge % of assets, come into this category.
Series 66: The Series 66 is NASAA’s most recent exam. The Series 63 and 65 tests are combined into a single 150-minute exam.
Licensees must register their securities licenses with a broker-dealer that has been approved. If the assets under management are less than $25 million, those who want to hold themselves out to the public as Registered Investment Advisors (RIAs) must register with the state in which they conduct business, or with the SEC if the assets are more than $25 million. RIAs are not required to be affiliated with a broker-dealer.
So, in order to sell compliantly under the DOL’s Fiduciary Rule, what license do you need? That is dependent on the goods and services you provide.
You’ll need a 65 if you provide continuous financial advice and charge a flat price for your services. You’ll need a Series 6 and 63 if you wish to sell variable annuities or mutual funds.
If all you want to do is sell fixed annuities and life insurance for guaranteed income and asset protection, you’ll only need a life insurance license in the states where you’ll be doing business.
If you want to provide detailed, specialized, and customised advise about the securities, mutual funds, or variable annuities that your customer owns, you’ll need an additional license.
If you limit your recommendations to basic information about diversification, various investment markets, market risk, and recent or previous economic activity, however, your state insurance license authorizes you to have those general conversations and you do not require extra FINRA or NASAA licenses.
Of course, as required by suitability and, if appropriate, fiduciary compliance, the insurance-only advisor must and should discuss the client’s objectives, needs, risk tolerance, liquidity, and time horizon.
You might wonder why AAP is so certain that in a DOL fiduciary world, you don’t need a Series 65 to continue selling annuities. Because the DOL explicitly specifies this in the rule:
The Department proposed new and amended exemptions from ERISA and the Code’s prohibited transaction rules, allowing certain broker-dealers, insurance agents, and others who act as investment advice fiduciaries to receive common forms of compensation that would otherwise be prohibited, subject to appropriate safeguards.
While the fiduciary obligation is triggered by a recommendation to move (or not move) eligible money to an annuity, this does not mean you must suddenly be Series 65 licensed. Don’t be fooled by deceptive marketing or shady recruiters.
Obtain the licenses you’ll need to assist your chosen clients with the products and services you provide.
Yes, due of insurance company suitability requirements or licensing constraints, you may be leaving assets on the table as an insurance-only agent. Yes, you will need to be licensed if you wish to provide ongoing financial planning services.
However, if you wish to examine your client’s insurance needs and provide knowledgeable and professional analysis on which insurance solutions would best meet those needs, you should become an insurance-only advisor. In our exaggerated world of market risk and financial product worship, your talents and abilities are desperately needed.
Americans for Annuity Protection’s vice chairman and CEO is Kim O’Brien. She’s worked in the insurance industry for 35 years. O’Brien led the National Association for Fixed Annuities (NAFA) to battle the SEC’s Rule 151A over a period of approximately 12 years.
How do you sell variable annuities?
You can sell your variable annuity in two ways: by relinquishing it to the business from which you purchased it, or by selling the payments you are getting to a third party. The insurance company will reimburse you the account value less any surrender charges when you relinquish your annuity.
When you sell payments to a factoring company, you will receive a lump sum payment that reflects a discount rate.
How Much Do You Surrender Your Variable Annuity For?
For 7 to 10 years, most variable annuities contain a surrender charge. If you relinquish your annuity during that term, you will be charged anything from 1% to 10% of the account value.
Any profit you make will be taxed at standard income tax rates by Uncle Sam. If you are under the age of 59 1/2, he will charge you an additional 10% penalty.
How Much Do You Sell Your Variable Annuity Payments For?
You can sell your variable annuity payments to a third party if you are receiving or qualified to receive them. By charging a discount rate, the factoring company will pay you a lump sum that is less than the value of your payments. The lower the payment, the higher the rate.
Uncle Sam will still tax the annuity gain, plus a 10% penalty if you are under 59 1/2 years old.
Why You Can’t Sell Your Variable Annuity
You cannot sell payments from a variable annuity that is part of a pension plan or an IRA to a third party. If you are under 59 1/2 years old, you can surrender the annuity, but you will have to pay tax on the proceeds as well as a penalty.
Does T Rowe Price sell annuities?
When you purchase an instant annuity, you pay a large sum of money to an insurance company in exchange for a promise that you will receive a monthly check for the rest of your life or for a set length of time. The size of the check will be determined by a number of criteria, including your life expectancy and the estimated return on your investment.
More immediate annuity options and reduced costs have resulted from competition. Even yet, an immediate annuity’s stability comes at a price. What to think about before you buy:
Control of your money.
Even proponents of instant annuities agree that they should only be used for a portion of your retirement assets. The reason for this is that after you hand over your money, you’re committed to making the agreed-upon monthly payment. You’re out of luck if you overestimated your spending or need money to buy a new car.
Some businesses will allow you to cash out your annuity early, but you’ll have to pay a surrender charge. During the first five years, T. Rowe Price, for example, will allow you to withdraw any or all of your investment in its immediate variable annuity. The first year’s surrender fee is 5% of the amount withdrawn, and each subsequent year’s fee is 1% of the amount withdrawn.
Your heirs.
If you purchase an immediate annuity that pays out for the remainder of your life, the payments will stop when you pass away. Even if you die soon after purchasing the annuity, none of the money you invested will go to your family. According to Andrew Keeler, a financial counselor in Columbus, Ohio, many annuity owners are unaware of this element of immediate annuities.
There are a few things you can do to make sure your annuity outlasts you. If you’re married, you can purchase a joint and last survivor annuity, which pays out as long as either you or your spouse lives. An annuity can also be purchased for a set amount of time, ranging from 10 to 30 years. If you die before the time ends, your beneficiaries will continue to receive payments.
The disadvantage is that your payments will be cut. When you acquire a joint and last survivor annuity, the payments are calculated based on your and your spouse’s life expectancies.
Inflation.
For the duration of the annuity, fixed immediate annuities pay the same monthly payment. That’s OK if you plan on keeping your costs constant for the remainder of your life. However, if the cost of groceries or utilities rises due to inflation, your annuity payouts may be insufficient.
Variable instant annuities, which are linked to the performance of stock mutual funds, are now available from several insurers. Returns are calculated using the funds’ performance over the previous month or year.
You accept more risk in exchange for higher earnings. Your income could plummet during a stock market slump.
Some insurance companies allow you to have it both ways. According to Farrell Dolan, executive vice president of Fidelity Investments Life Insurance, an instant annuity allows you to designate part of your money to a fixed portion that guarantees a specified amount of income each month while investing the rest in a variable portion. T. Rowe Price offers a floored instant variable annuity: Your payment must never be less than 80% of your original monthly payment. If the stock market rises, you can earn more if your starting monthly payment is $1,000. However, no matter how much your investments fall in value, you’ll never get less than $800, according to spokesman Steve Norwitz.
Fees.
When you acquire an immediate annuity, you’ll have to pay the insurance firm a “mortality and expenditure” fee. To cover the costs of managing the underlying investments, you’ll pay an investment management charge. There is also the option of paying an annual account maintenance charge.
