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Focus on streamlined processing and suitability requirement to make VAs
more palatable to advisers
By Davis D. Janowski
February 25, 2008
While industry experts and broker-dealers are working to simplify
variable annuity processing and cut down on paperwork electronically,
software vendors are trying to help advisers easily compare products to
comply with suitability requirements.
Last year, the Depository Trust and Clearing Corp. of New York
electronically processed 300,000 of the nation's approximately 2 million
annuity contracts, which means that more than three-quarters are still
processed manually, said John Ziambras, managing director and general
manager for insurance services at DTCC.
"We look at insurance processing as the last frontier, at least in terms
of mainstreaming the transaction processing of them," he said.
The not-for-profit processing company handles trade processing for most
of the nation's stock and mutual fund transactions.
"We are trying to make annuities simple to process, simple to trade.
They are complicated products," Mr. Ziambras said.
The company has formed an advisory board made up of industry information
technology and operations executives from 11 of the largest
broker-dealers and 14 of the largest insurance companies.
According to Mr. Ziambras, DTCC has also worked closely with the
Financial Services Institute Inc. of Atlanta and the Reston, Va.-based
National Association for Variable Annuities (which now calls itself The
Association for Insured Retirement Solutions but retains the acronym
NAVA).
"There are lots of moving parts," Deborah Tucker, a vice president at
NAVA, said about creating standards for annuity processing.
"Distributors are awaiting the boomer avalanche or tidal wave where
straight-through processing is going to be crucial to doing business on
a timely basis."
NAVA created a set of guidelines intended to simplify and improve
electronic processing and sales of variable annuities, and is now
seeking feedback.
"Our focus now is clearly on pilots," Ms. Tucker said, noting that
several distributors have plans to begin production pilots this year.
These include Fidelity Investments, LPL Financial Services, Merrill
Lynch & Co. Inc. and Wachovia Securities LLC.
"These are production pilots on the distributor's platforms with their
vendors and their carriers," Ms. Tucker said.
SUITABILITY REVIEWS
In tackling suitability issues, several companies are piloting products
for comparing data on variable annuities to handle annuity selection.
Insurance Technologies LLC, a Colorado Springs, Colo., provider of
point-of-sale software for insurance products, is rolling out a product
called VisibleChoice at the end of March. The product will provide
advisers with an online service for conducting preliminary suitability
reviews.
"We saw that there were problems with how the [broker-dealers were
selling the annuity] products. And then Rule 2821 came along — which was
really intended for seniors, though never tacitly stated that way — but
we saw the advantages of applying this for all annuities in terms of
suitability," said chief technology officer David Fenimore.
The rule has provisions to ensure the suitability of VAs, including
recommendation requirements, additional supervision and oversight of VA
sales and training. The review process must also be completed within
seven days before submitting the sale to the carrier.
The rule goes into effect May 5.
VisibleChoice will be priced on a per-rep or per-adviser basis to the
broker-dealers each month. While final pricing is not yet available, Mr.
Fenimore said that it will probably be less than $40 a month per adviser
and added that manufacturer-carriers will probably share in paying for
the system.
"They [the carriers] will benefit from a level playing field," he said.
Mr. Fenimore said that there are plenty of benefits to both the industry
at large and individual advisers in a product like his.
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