Nationwide Turns to Strategy to Encourage Fee-Based Sales for Annuities
April 16, 2011 by Fran Matso Lysiak
Copyright: | (c) 2011 A.M. Best Company, Inc. |
Source: | A.M. Best Company, Inc. |
Wordcount: | 556 |
Nationwide Financial Services is using some innovative ways to encourage financial professionals to sell its annuities.
With the decline of employer-provided defined benefit pension plans and ongoing uncertainty over Social Security, Americans are having to take responsibility for their own retirement, said Hutch Schafer, associate vice president of individual investments at Nationwide Financial.
The company has been working with financial sales professionals to help clients better prepare for retirement by adopting variable and immediate fixed annuities, said Schafer, who spoke with BestWire at the retirement industry conference in Las Vegas.
The industry has encountered hurdles in getting sales professionals, including registered investment advisers and brokers, to recommend their clients buy an annuity, he said. Ninety-six percent of Nationwide Financial’s annuity sales are through its unaffiliated distribution channels — wirehouses, independent broker-dealer firms and banks, Schafer said.
Sales professionals don’t understand annuities because they’re complex, he said. But another big hurdle is the only way an annuity can provide guaranteed lifetime income for a client is for the client to annuitize the contract, Schafer said. If annuitized, the asset is no longer being managed by the financial sales professional, Schafer said, noting few people have annuitized deferred annuities.
“Annuicide” is the term some registered representatives and investment advisers use because they and their clients fear losing control of the asset once a deferred annuity contract is annuitized, according to Beacon Research, which tracks sales of fixed annuities (BestWire, Aug. 6, 2007).
The guaranteed lifetime withdrawal benefit on variable annuities came into play because they offer liquidity to a client while the sales professional can still advise on assets, Schafer said.
Nationwide Financial has been using various retirement income strategies that encourage financial services professionals to sell its variable annuities with the GLWB, he said. The annuities are designed for commission-based and fee-based financial sales professionals, said Schafer, who spoke on a panel at the conference on such strategies.
One strategy involves demonstrating the value of using a variable annuity inside a client’s portfolio and suggests taking a portion of the client’s retirement portfolio and allocating it to variable annuity with a GLWB, Schafer said.
With the commission-based annuity, the sales professional can receive a full up-front commission or a smaller up-front commission with a larger trail, he said, noting they can choose how they want to be paid for selling the product.
The National Association Insurance Commissioners Suitability in Annuity Transactions Model Regulation of 2010 is intended to stop misleading practices by some agents and brokers when they sell annuities to senior citizens and others.
Nine states have adopted it, and 14 states have introduced legislation or regulations mirroring the model, with three states already having specific training requirements, according to the Insured Retirement Institute. The National Conference of Insurance Legislators recently passed a resolution calling for uniform adoption and implementation of the NAIC model (BestWire, March 8, 2011).
A concern for the industry is the training aspect — at the state level and product training — of regulation, Schafer said.
The conference, sponsored by LIMRA, LOMA and the Society of Actuaries, ends April 15.
To listen to a separate interview with Schafer, where he discusses more on the company’s strategies to sell annuities, and the impact of the NAIC suitability model on the industry, go to http://www.ambest.com/media/media.asp?RC=185504
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)