By James Morris, Suitability Specialist
In the spirit of the Halloween holiday, I would like to discuss something that some people find scary, but which doesn’t have to be: fixed index annuity (FIA) suitability. I have many conversations with agents concerning suitability for potential, pending, and declined FIA business. As you know, annuities are long-term products that are highly regulated. For that reason, among others, insurance carriers have created suitability programs and guidelines with a goal of protecting and educating both the producer and customer for current and future annuity business. Though not always popular, the guidelines do not have to strike fear into the heart of your client meetings.
Certain insurance carriers provide published suitability guidelines to assist agents with writing new cases. It is important to note that these are guidelines. Each customer’s circumstance can be different and carriers may be willing to accept cases that are not significantly outside of their guidelines but provide a compelling benefit to the customer. Some carriers provide a Pre-Suitability Form that the agent can complete and submit to the carrier for a suitability determination. Other carriers provide limited suitability requirements such as liquidity, net worth, and percentage of annuities relative to net worth based on age guidelines. Finally, a few carriers do not publish their suitability requirements and require the agent to submit the case before a review will be completed.
Among all the different guidelines, I would like to take a moment to address customer liquidity. The aforementioned guidelines all involve a liquidity requirement. Liquidity is important because of the long-term nature of an FIA. Carriers need to ensure that a customer purchasing an FIA has liquid assets relative to their expenses and age for financial flexibility if the unforeseen should occur. I have this conversation often with financial professionals. So if you are discussing an FIA with a customer, please ensure liquidity requirements are part of that dialogue.
Meeting suitability guidelines is likely not a new part of your client meetings. However, the Department of Labor (DOL) rule has introduced the fiduciary standard that, in its current form, will apply to FIAs. This too does not have to be scary. The new rule does not necessarily mean carriers will do away with their guidelines on why a sale makes sense for a client. Insurance carriers and state insurance departments have developed and established suitability guidelines and programs over many years that are an important part of any FIA discussion.
Ann Arbor Annuity Exchange is committed to educating our agent partners concerning all aspects of suitability and any other related items as the regulatory landscape continues to change. If you have any questions regarding suitability guidelines, please call me and I can help take the fear out of suitability.
James Morris | Suitability Specialist
Ann Arbor Annuity Exchange
Ph: 800.321.3924 x159 | Dir: 734.786.6159
Designed for Financial Professionals.