This submit is a part of a collection sponsored by AgentSync.
At the peak of the pandemic, heightened fears and a higher consciousness of mortality drove shoppers away from annuities and elevated demand for all times insurance coverage merchandise. Now, because the world enters one other 12 months of “post” pandemic life, we’ve seen these fears edged out and changed with a renewed curiosity in investing for assured revenue after retirement.
Consumers’ latest elevated curiosity in annuities is largely pushed by the worry of financial uncertainty and the opportunity of a recession, very similar to throughout the 2008 monetary disaster. Multiple sources present a surge in annuity gross sales, and it appears shoppers are particularly inquisitive about buying mounted and fixed-indexed annuities – two of the decrease danger choices accessible.
With shoppers eagerly looking for annuity contracts, many producers really feel like now’s a superb time for them to hop on the bandwagon and turn into licensed to promote annuities. However, the difficult world of annuities means license necessities aren’t as easy as they’re with different traces of authority. So preserve studying as we take a deep dive into annuities and break down precisely what a producer* must promote these insurance coverage merchandise with none regulatory or authorized repercussions.
*There is a complete glossary of phrases that can be utilized to explain an insurance coverage skilled who focuses on promoting annuity merchandise. For the sake of consistency and to keep away from confusion we’ll primarily refer to those people as producers.
What is an annuity?
An annuity is a contract between a client and an insurer wherein the patron (or beneficiary) makes a cost or collection of funds in change for normal disbursements from their insurer at a later time. In different phrases, an annuity gives shoppers a assured future retirement revenue in change for a premium paid upfront.
If that definition sounds a bit of imprecise, it’s as a result of annuities are laborious to outline. This is as a result of plethora of various annuity sorts that exist primarily based on the number of methods revenue is constructed, calculated, credited, and paid out. For now, we’ll focus on three of the extra frequent sorts of annuities: Fixed, variable, and listed.
What is a hard and fast annuity?
Often considered “set it and forget it” contracts, mounted annuities pay out a set and assured quantity. Fixed annuities are excellent for as we speak’s danger averse shoppers, as they’re not tied to the efficiency of a inventory market index. Buyers don’t have to fret about market danger and might calculate their actual minimal earnings with a hard and fast annuity. On the draw back, ought to market situations enhance over time, the beneficiary doesn’t obtain a better payout than their contract specifies.
What is an listed annuity?
Taking a step into barely riskier territory, you have got listed annuities. With this kind of annuity, the customer nonetheless receives a assured minimal payout. But, in contrast to mounted annuities, with listed annuities a portion of the payout is tied to the efficiency of a market index. Indexed annuities supply consumers higher potential earnings, however usually include development caps.
What is a variable annuity?
Buyers on the lookout for a excessive danger, excessive reward choice, have the choice of variable annuities. With a majority of these annuities, earnings are primarily based solely on a purchaser’s investments – mostly in mutual funds. The volatility of mutual funds can result in loads of account fluctuation primarily based on the efficiency of the investments a purchaser chooses.
What are the professionals and cons of annuities for shoppers?
Annuities supply shoppers monetary safety however their complicated nature could be a drawback. Recently, speak of financial uncertainty and recession fears have fueled the fireplace, and skyrocketed annuity gross sales to a document excessive. Many shoppers, scared their financial savings and Social Security funds will now not be sufficient to help them by way of retirement, are turning their consideration to annuities and the advantages they’ll present.
Advantages of annuities for shoppers
- Death profit – Annuities can present monetary safety to your family members within the occasion of your loss of life. Depending on the phrases of the annuity contract, purchasers can go an annuity to a number of designated beneficiaries.
- Tax-deferred development – Consumers can use pre or post-tax funds to buy their annuity contracts and would not have to pay taxes on earnings till they start making withdrawals or receiving periodic funds.
- No obligatory withdrawals – Generally talking, so long as your annuity isn’t funded with pre-tax cash, like an IRA, there isn’t any required minimal distribution when you attain age 73.
Disadvantages of annuities for shoppers
The advantages make annuities a sexy monetary answer for a lot of. However, buying an annuity additionally comes with a number of disadvantages together with:
- Complex in nature – These days, there are extra annuity selections for shoppers than ever earlier than. As annuity sorts enhance, so does a way of confusion surrounding the complexity of the a number of contract variations.
- Hidden charges – Always learn the effective print! While variable annuities are recognized for his or her traditionally excessive charges, shoppers must also concentrate on the hidden charges buried deep inside even their mounted annuity contracts. Commission charges, underwriting charges, and penalties can add up rapidly and eat a good portion of returns.
- Risky – A giant consider what makes annuities such a sexy choice to shoppers is the assured revenue they’ll present. But not all annuities are so predictable. Variable annuities particularly hinge on market efficiency and might be dangerous for shoppers.
Selling annuities
For as a lot confusion as there may be with regards to buying annuities, there might be simply as a lot for these seeking to promote them. Which sorts of annuities can producers promote with which kind of insurance coverage license, and the way do they profit from doing so? Read on for a short overview of annuities from the producer aspect.
Who can promote annuities?
Licensed insurance coverage producers who’ve the mandatory credentials to promote life insurance coverage of their state can get began with mounted annuities. But, issues get a bit of difficult with regards to the particular licensing necessities for the various kinds of annuity contracts.
How do producers profit from promoting annuities?
Insurance producers receives a commission a fee for promoting annuities. Typically, that fee is greater than what they’ll make promoting different insurance coverage merchandise, as a result of long-term and complicated nature of annuity contracts. With a little analysis and understanding, brokers can promote these high-commission merchandise with almost the identical quantity of labor as low-commission merchandise however with 5-10 occasions the payoff.
Fixed annuity licensing necessities
When it involves promoting mounted annuities (together with single premium annuities, longevity annuities, fixed-rate annuities, certified longevity annuities, and glued index annuities) we have now some excellent news. The regulating authorities for a majority of these annuities are the state departments of insurance coverage and their governing physique, the National Association of Insurance Commissioners. Since they don’t require extra oversight, an ordinary life insurance coverage license issued by your resident state is sufficient to get the ball rolling on promoting mounted annuities.
Variable annuity licensing necessities
Things get a bit of extra complicated with regards to licensing necessities for promoting variable annuities and registered index-linked annuities (RILAs). Because they’re categorised as securities, a majority of these annuities are additionally overseen by the U.S Securities and Exchange Commission (SEC) in addition to the Financial Industry Regulatory Authority (FINRA) along with the state departments. This extra oversight means producers who want to promote variable annuities and RILAs must bounce by way of a number of extra hoops so as to take action.
Like mounted annuities, an agent will first want a legitimate life insurance coverage license. But, they’ll additionally have to register with FINRA and go particular Series exams relying on the merchandise they’d prefer to focus their promoting on.
Series 6 examination
The Series 6 examination gives producers a restricted funding securities license. Those who go can promote packaged investments together with variable annuities. Before taking the Series 6 securities examination, you’ll have to receive a sponsorship from a broker-dealer agency who will oversee your actions and shopper transactions. The examination contains 100 a number of alternative questions and with the intention to go, a candidate should rating no less than 70 p.c.
Series 7 examination
Passing the General Securities Representative Qualifications Examination, also called the Series 7 Exam permits a producer to supply nearly each kind of safety (with limitations round actual property, life insurance coverage, and commodity futures). Because this check covers so many points of securities, it’s additionally thought-about essentially the most rigorous. Once an agent has secured a sponsor from a FINRA-registered broker-dealer agency and has sufficiently studied, they’ll take the six-hour examination.
Series 63 examination
Several states additionally require producers to go the Uniform Securities Agent State Law Exam, or the Series 63 examination, with the intention to promote securities like variable annuities. The Series 63 examination focuses primarily on making certain a producer is conversant in the state securities rules outlined within the Uniform Securities Act. Passing a Series 63 examination doesn’t imply a lot by itself. Producers may even have to register with FINRA by finishing both the Series 6 or Series 7 examination with the intention to promote variable annuities.
Series 65 examination
If, as an alternative of promoting annuities on a fee foundation, you’re extra inquisitive about charging shoppers a charge for securities advisory companies, you’ll have to go the Series 65 examination. Passing this examination doesn’t authorize a producer to promote securities, however it does enable them to behave as an funding advisor to their shoppers. If a producer needs to each promote securities that require a Series 7 license and cost for securities advisory companies, they’ve the choice to skip the Series 63 and 65 exams and as an alternative full a mix Series 66 examination.
Each of those exams is difficult and covers a substantial amount of data. These assessments assist guarantee anybody wishing to promote securities has the data and experience they should act in the most effective curiosity of shoppers. And producers aren’t off the hook after passing. They’ll have to finish persevering with schooling necessities each three years to remain in compliance with FINRA rules and preserve their licenses.
Staying on prime of licensing necessities for annuities doesn’t should be laborious
The world of licensing necessities for promoting annuities really is difficult, however for good cause. When it involves annuities, particularly variable annuities and different securities primarily based sorts, shoppers put quite a lot of belief of their agent. The assessments do their half in serving to to weed out any ill-intentioned people who might want to make the most of the complexity and confusion frequent in these insurance coverage merchandise.
Of course, the complicated licensing necessities additionally make staying on prime of compliance for producers promoting annuities a bit of extra difficult too. This is the place AgentSync is available in. Our answer makes managing and validating the varied license necessities for annuity sellers easy.
While our answer can’t validate FINRA Series {qualifications}, it may well assist producers, carriers, and companies working within the life insurance coverage and annuity sector stay in compliance with regards to promoting mounted and fixed-index annuities (which, as we talked about, are sort of on fireplace proper now). If you’d prefer to take the concern out of compliance and get your licensed life insurance coverage producers leaping on the mounted annuity practice sooner reasonably than later, see what AgentSync can do for you.