By W. Andrew Unkefer
AnnuityNews.com

This is the first installment of a three-part series.

Are you an insurance agent selling indexed annuities?

Have you been approached by marketing companies claiming you must become a registered investment advisor (RIA) to protect your business?

Are you considering becoming an RIA but not 100 percent sure why?

This information is designed to help you gain some level of clarity. Recently, there has been a rash of organizations encouraging agents to become a registered investment advisor (RIA) or alternatively an investment advisor representative (IAR).

What’s it all about? The investment advice given to consumers. Those suggesting you join the ranks of the RIA or IAR are stating that the very process of selling an annuity must include investment advice. After all, the funds used to purchase the annuity must have come from something like a stock portfolio, mutual fund or bond fund. These investments are securities so, (and here is the big leap) you must be giving investment advice without the proper registration or license to do so.

Let’s think about this! Using similar logic, if the funds used to purchase an annuity came from a checking account, you must be acting as a bank without a properly filed and approved charter. If the funds came from the sale of a parcel of land, you must be practicing as a real estate agent without a license. If the funds came from the sale of a vintage car, you must be acting as an auto dealer without proper registration.

Certain organizations are pushing the RIA story as a marketing ploy to get your attention. They offer to help you get registered as an Investment Adviser Representative (IAR) and ultimately, make you a captive agent. That’s right, they want you to come under their control so they can earn an override on your sales activity. Once you are in their system, they are in essence supervising you and will then need to make sure you clear all your business, including your insurance business, through them. As an insurance agent watch out, you could lose control of your independence.

Your authority to sell annuity and life insurance products come from one regulatory body; your state department of insurance. Your insurance license does not come from the Securities and Exchange Commission (SEC) or your state securities division. You do not need a securities license or an investment adviser registration to sell fixed annuities, indexed annuities, universal life insurance of indexed universal life insurance.

By moving to the world of the RIA or IAR, you are entering a completely new world of regulation and a higher requirement for disclosure, documentation and liability for any recommendations you make.

As a licensed insurance agent, you are representing the insurance carriers and their products. These products are really contracts between the insurance company and the policy owner. Everything is defined clearly in writing. Fixed annuities (FAs) and indexed annuities (IAs) offer protection of principal, protection of past credited interest and a total guarantee that the owner will get more money back then they put into the policy at the end of the contract period. FAs and FIAs are savings vehicles, not investments.

Your duty in representing these products is to make recommendations to consumers that are suitable for them based on the information they have shared with you at the time you were meeting with them. Your guide to doing this properly is called Suitability. This has been defined by the National Association of Insurance Commissioners. Most states have adopted this regulation and even if they have not, all annuity companies have implemented a process for documenting and reviewing the suitability of each transaction.

Following a sales process that imbeds Suitability into your approach is required. The life of an RIA or IAR is quite different. An investment advisor has a legal obligation as a Fiduciary under the law.

In part two of our three-part series, we will evaluate the Fiduciary Duty and the inherent conflict of interest that arises with the sale of insurance products.  Part three will provide solutions for insurance only producers who seek ways to protect their practice and continue to grow.

W. Andrew Unkefer is the president and CEO of Unkefer & Associates, Inc., a national annuity and life insurance marketing firm.  The company’s goal is to be the No.1 resource for independent agents in their life and annuity business. He may be reached at 800.523.5851 or andy@unkefermail.com

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