Editor's Note: The following article is an adaptation from a recent article in Bank Insurance & Securities Marketing, the official magazine of the Bank Insurance & Securities Association (BISA).

In spite of high profile regulatory scrutiny and often uninformed negative press, market need continues to "pull" the sale of variable annuity products. Today, variable annuities (VA's) represent a significant portion of total sales for most investment programs. At the same time compliance issues coupled with product dynamics and complexity mean these products also require a significant amount of management time and focus. The purpose of this article is not to explain, critique or defend VA's or to provide specific compliance guidance. It will overview some of the issues surrounding the sale of VA's from the sales management perspective, and hopefully help readers better determine areas in which they should focus to better manage VA sales in their region or program.

Background for this article comes from discussions at BISA Sales Management Workshops and other forums and from focused interviews with a number of key front line sales management executives. The latter included a state manager for one very large bank B/D, a product manager for another large broker dealer, the overall sales manager for a regional bank B/D, and the investment program managers at a community bank and a sophisticated credit union. Our "research" highlights the point that there is no one best approach to managing variable annuity sales. While all of these programs are considered to be very "successful" the level of VA sales ranged from under 15% of total production (gross dealer concession) to around 50%.

Managers see different factors impacting VA sales including demographics, rep backgrounds and comfort with the product, compliance issues, and training and education. They generally expect sales to be higher in areas that are more affluent and/or with more (near) retirees. On the other hand, rep comfort and understanding can override, or at least impact, this. The program at the low end of the production range cited above would be considered by many to have the most "sophisticated" reps. However, a high percentage of their reps come from a wirehouse environment where VA's were not often used, and many are more comfortable with other product options. In another program, VA sales are higher in some of the less affluent areas because the reps happen to be "more analytical" and more comfortable with the process required to sell the product.

Other customer characteristics such as age and even the industry in which they work can influence annuity sales in general or the sales levels of specific VA products. Customers at or near the Retirement Inflexion Point™ will be more interested in "state-of-the-art" income features. Younger customers looking to build their own "pension" will focus on features that address both accumulation and (later) distribution. In institutions or regions with a high concentration of customers who come from industries/firms where they may have seen their company related savings/ investments go down, VA's with strong principal guarantees will be important.

How suitability/compliance is addressed can also impact sales even from one area to the next. In virtually all institutions, compliance oversight of VA sales is intense. In some it is totally centralized while in others the field sales managers play the major role. Almost all VA sales are reviewed by a (compliance) principal. In some cases they are aided by programs which screen for certain characteristics such as age, net worth, other investment options, sources of funds, etc. Based on information falling outside a very stringent set of parameters, trades would be "kicked up" to the principal immediately. In many cases, the sales manager will review all VA trades in addition to a compliance specialist. This is done to keep the manager abreast of activities, actions and trends; to indicate training needs/opportunities; and, in some cases, to provide the opportunity for the sales manager to "advocate" a (rep's) position with compliance. Some examples of guidelines or "screens" include:

• 1035 Exchanges. Some firms do not allow them at all, some will only allow in last two years of CDSC period, and some have no blanket rejection rule but look at each on a case-by-case basis.
• Age. Most firms are inclined (and some set hard rules) to reject any VA sale to persons over a certain age (65, 70, 80), yet sales managers do see situations where they believe the sale is appropriate.
• Qualified plans. This is another area that requires a high degree of scrutiny and documentation before allowing a VA sale. While there is broadening acceptance of the use of qualified dollars for retirement income, firms still (appropriately) require detailed documentation — in some cases including client acknowledgement that they may be absorbing the cost of a "redundant tax deferral."

In short, there is no one approach to suitability/ compliance from firm to firm or even within the same firm. The real keys are logical, consistent analysis/rationale and detailed documentation. Sales Managers must work closely and continuously with their compliance principals/ departments, internal and external people who provide training, and their reps. Comprehensive documentation for each transaction and decision which reflects a consistent, well grounded corporate philosophy goes a long way in this area.

The variable annuity products are changing rapidly as well. Manufacturers are enhancing their products at a frantic pace to catch up with market needs and keep up with the competition. Enhancements such as principal guarantees, guaranteed income, and increased diversity of investment and withdraw options are making these products increasingly attractive to customers and financial advisors. These features, in addition to historic tax advantages present a strong case for VA's in many situations. This requires, however, a focused effort on the part of sales managers to keep current themselves and to assure that their financial advisors fully understand the products available, their applicability for different situations, how to explain them to clients, and the requirements of complex suitability and other compliance rules. Institutions and individual sales

Often, VA focused suitability and compliance training is made part of the required firm (training) element. Some institutions use webcasts to deliver this and assure understanding with an online test. Further, a number of managers assure that a VA topic is covered at every sales meeting. The last may be in the form of peer discussion, a presentation by the sales manager or specialist from the home office, or even a wholesaler presentation. Note that many sales managers use wholesalers to educate their reps on product specifics as well as product neutral sales ideas. The manager should know in advance, however, exactly what will be presented.

A final, and often "touchy," topic is compensation. Many VA products carry a commission which is higher than most other products sold by the financial advisors. There are a number of schools of thought regarding how to handle this.

Some institutions "cap" the amount of commission that goes to the advisor's grid for VA sales. The belief is that this prevents the opportunity of an advisor to (appear to) sell the product over other options because of a higher commission. In other situations, compensation to the rep is not capped. Managers in those programs believe that the advisors earn the added compensation because of the increased complexity of the product and sales process. One manager expressed concern that, should compensation be "levelized," the reps might become "lazy" and not make the extra effort to use a VA in situations where it would be the most appropriate product.

While products are not selected by institutions based on commission level, it can be a factor. Many managers would ultimately be more comfortable if commissions on all VA's were more in line with other products and the savings to the carriers were used to enhance benefits or reduce penalties. DSG

ADD TO MAIL LIST

©2008 The Diversified Services Group, Inc., All rights reserved