Responding to the Demands of
Evolving Annuity Suitability Standards
Michelle Holmes
Director, Minot Compliance
ING
Carla Strauch
Director, Insurance Compliance
Thrivent Financial for Lutherans
2009 ACLI Legal and Compliance Sections Meeting, Boston, MA
Agenda
 Survey Responses
 Forms and Tools
 Hot Topics (as time permits)
2
Survey Responses
 Survey Responses
 Forms and Tools
 Hot Topics (as time permits)
3
Annuity Suitability Model Adoption
7
6
5
4
3
2
1
0
Model States Only
All States Except
Those with Conflicting
Regulations
Other
Captive
1
7
0
Independent
3
7
2
Comments Noted on Survey:
 “Other”: All states-- it complies with the model and any other state laws/regulations regarding suitability.
 “Other”: Implemented across the board, even in states with no regulations.
4
Controls: Seniors vs. Non-Seniors
10
9
8
7
6
5
4
3
2
1
0
Captive
Independent
Yes
2
2
No
6
10
Comments Noted on Survey:
 Senior sales receive a heightened suitability review; non-senior sales receive a heightened review if there are flags.
 Suitability profile forms are collected at all ages for Fixed and Fixed Index annuity sales through IMOs. Annuitants age
65+ are run through an exceptions database to identify any red flags indicating a need for escalated review.
 Additional forms used with seniors. Calls to some seniors.
 Same process but some of the controls differ for senior applicants.
5
Routine Client Contact With Review
10
9
8
7
6
5
4
3
2
1
0
Captive
Independent
Yes
1
2
No
7
10
Comments Noted on Survey:
 “No”: Producers are contacted.
 “Yes”: Routine contact for seniors but not routine for other ages.
 “Yes”: We use post-issue LIMRA survey for all non-group deferred fixed annuity contracts.
6
Non-Senior Fixed Deferred Reviewed
20
18
16
14
12
10
8
6
4
2
0
5%
10 %
20 %
100 %
Captive
0
1
20
6
Independent
1
1
1
5
Comments Noted on Survey:




No difference in process for seniors vs. non-seniors. Up to 50% of sales subject to review by the suitability team.
100% of captive except those who opt out.
We don’t track the percentage reviewed by BDs when a registered producer makes the sale.
For independent producers, suitability is delegated to the banks and BDs, and have monitoring procedures in place.
7
Senior Fixed Deferred Reviewed
6
5
4
3
2
1
0
10 %
20 %
100 %
Captive
1
1
6
Independent
1
1
6
Comments Noted on Survey:
 100% captive except for those who opt out.
 We don't track the percentage reviewed by BDs when a registered producer makes the sale.
 100% go through the automated Red Flag review, approximately 50% are escalated for additional review by Compliance
Team.
8
Use of Fixed Product Disclosure (ACLI)
7
6
5
4
3
2
1
0
Yes
No
Captive
4
3
Independent
7
6
Comments Noted on Survey:
 No: Strongly suggested; perhaps not required.
 Yes: We have our own product disclosure with required state variations (e.g., NJ).
9
Use of Variable Product Disclosure (ACLI)
12
10
8
6
4
2
0
Yes
No
Captive
2
4
Independent
1
11
Comments Noted on Survey:
 No, we have our own disclosures for associated registered reps who only sell nonproprietary variable products. Each
issuer also has its own product-specific disclosure, none of which are the ACLI templates.
 Currently not offering new variable annuity contracts.
 The variable annuity product disclosure follows FINRA guidance.
10
Area Responsible for Suitability Reviews
8
7
6
5
4
3
2
1
0
Operations/
Home Office
Law or
Compliance
Field
Supervisors
Automated
Suitability
System
Other
Captive
6
4
2
3
0
Independent
5
8
1
2
2
Comments Noted on Survey:
 Other: Suitability review is delegated to the outside firm. At this time, we are only conducting suitability reviews for one
firm because the firm informed us that they had no plans on reviewing fixed annuity suitability.
 Other: Third party for select bank sales.
11
Trend Reporting: Board/ Senior Management
7
6
5
4
3
2
1
0
Yes
No
Captive
5
3
Independent
5
7
Comments Noted on Survey:






Volume reviewed, decline rates - quarterly reporting.
Updates based on significant state activities and trends.
No Board review.
Provided in quarterly report to Business Unit heads.
Certain information is provided to Senior Management; however not to the Board.
We provide an annual summary regarding certification response trends of the various BD respondents to the annual
suitability certifications.
 Population, sample, number of potential red flags: Age over 75, initial consideration > 50% of liquid net worth,
replacement involved, missing information on suitability forms, customer did not provide information, contract held for
shorter period than surrender schedule, low income, policy owner needs funds for emergencies, etc.
12
Trend Reporting: Field Supervisors
8
7
6
5
4
3
2
1
0
Yes
No
Captive
2
6
Independent
1
8
Comments Noted on Survey:
 No: Currently monitor at home office level. Volume is not high enough in any channel to discern reliable trending.
 No: Managers receive, field supervisors do not.
 Yes: Comments apply to variable annuity, only. Field supervisors develop information regarding trends based on
exceptions flagged by the broker dealer.
 Yes: Provide updates on state activity to everyone via intranet, and IMO management on ad hoc basis only if there is a
trend within their group.
13
One Suitability Form Used in All States
8
7
6
5
4
3
2
1
0
One Form (generally)
Multiple Versions (for differing
states)
Captive
7
1
Independent
8
2
Comments Noted on Survey:
 “One Form” Comment: Although there are separate forms for our fixed and variable products, there is only one version of
the form for each product.
 “Multiple Form” Comment: NJ.
14
Willingness to Share Suitability Form
8
7
6
5
4
3
2
1
0
Yes
No
Captive
4
4
Independent
8
1
Comments Noted on Survey:
 We have enclosed a copy of the fixed annuity Suitability Profile. The profile is to be completed and submitted with each
new fixed annuity application.
15
Willingness to Share Other Tools
7
6
5
4
3
2
1
0
Yes
No
Captive
2
6
Independent
2
7
16
Top Challenges: Most Votes by Category
12
Top Five Challenges
#
Votes
Having the resources to get the job done
12
Having the data needed to see producer
and company trends
12
Ensuring quality suitability reviews
10
Managing state variations
9
Having effective senior management/board
reporting
9
Having effective compliance oversight
7
Having the controls to manage work
delegated to third parties
5
Field supervision of individual producers
4
Other
1
10
8
6
4
2
0
Comments Noted on Survey:
 None of these stand out as a particular challenge.
17
Top Challenges: Based on #1 Vote
4
3.5
3
2.5
2
1.5
1
0.5
0
# 1 Vote
Having the resources to
get the job done
Ensuring quality
suitability review s
Managing state
variations
Having effective
compliance oversight
2
2
4
3
18
Top Challenges: Based on #1-#3 Vote
12
10
8
6
4
2
0
Votes 1-3
Having the resources
to get the job done
Having data to see
producer/ company
trends
Ensuring quality
suitability review s
Managing state
variations
12
6
7
6
19
Timing of Suitability Determination
7
6
5
4
3
2
1
0
Pre-issue
Post-issue
Both
Captive
7
0
1
Independent
6
1
1
Comments Noted on Survey:
 Both: Suitability review for our variable products is completed pre-issue. Suitability review of fixed annuity product
applications is currently conducted post-issue. We are developing plans to move some, if not all, reviews to be completed
on a pre-issue basis.
20
Collection of Suitability Data: 403b/457/401k
4
3.5
3
2.5
2
1.5
1
0.5
0
Yes
No
Other
Captive
4
3
1
Independent
2
4
0
Comments Noted on Survey:
 Yes: 457 are individual sales and follow the same suitability process.
 Other: 401K sales are exclusively group sales and follow a separate suitability protocol.
21
Annuity Replacement: Comparative Data
Comments Noted on Survey (Yes Replies):
8
7
6
5
4
3
2
1
0
Yes
No
Captive
6
2
Independent
3
8
 Variable annuities only when sold by
associated registered reps.
 It depends on the situation. Additional
information may be requested.
 The company is in the process of applying a
side-by-side comparison for all
replacements in all states. There are
three states in which the side-by-side
comparison forms are already required.
 For internals always. Externals, difficult to
get information.
 Comparative data for fixed annuities is
provided in states which require the
comparative information. Comparative
data is provided for all variable annuity
sales.
 A form used provides the necessary
information which is required in order to
determine if a switch is advantageous to
the customer. The suitability form also
offers an open-ended section so the rep
can provide comments on the reason for
the transaction.
 We may ask for this on an exception bases if
we note a possible trend.
22
Use of Automated Suitability System
9
8
7
6
5
4
3
2
1
0
Yes
No
Captive
6
3
Independent
4
9
Comments Regarding Responses:




Four companies indicated they use an automated suitability system for 100% of sales.
Four companies provided information regarding the percent flagged for a manual review: 77%, 20%, 15%, 10%.
One “no” response indicated “fixed products.”
One “no” response indicated the company was in the process of developing red flag reports.
23
Forms and Tools
 Survey Responses
 Forms and Tools
 Hot Topics (as time permits)
24
Hot Topics
 Survey Responses
 Forms and Tools
 Hot Topics (as time permits)
25
Questions
Reminder: See program binder/notebook for samples of forms and tools shared
by survey respondents.
2009 ACLI Legal and Compliance Sections Meeting, Boston, MA