How one can Navigate Producer Licensing Problems to Promote Annuities

This submit is a part of a sequence sponsored by AgentSync.

On the top 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 yr of “submit” pandemic life, we’ve seen these fears edged out and changed with a renewed curiosity in investing for assured earnings after retirement.

Shoppers’ latest increased interest in annuities is largely pushed by the concern of financial uncertainty and the opportunity of a recession, very similar to in the course of the 2008 monetary disaster. Multiple sources show a surge in annuity sales, and it appears shoppers are particularly eager about buying mounted and fixed-indexed annuities – two of the decrease threat choices accessible.

With shoppers eagerly looking for annuity contracts, many producers really feel like now’s time for them to hop on the bandwagon and turn into licensed to promote annuities. Nevertheless, the sophisticated world of annuities means license necessities aren’t as easy as they’re with different traces of authority. So hold 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 may be a whole 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 are going to primarily refer to those people as producers.

What’s an annuity?

An annuity is a contract between a shopper and an insurer during which the buyer (or beneficiary) makes a fee or sequence of funds in trade for normal disbursements from their insurer at a later time. In different phrases, an annuity gives shoppers a assured future retirement earnings in trade for a premium paid upfront.

If that definition sounds just a little obscure, it’s as a result of annuities are exhausting to outline. That is because of the plethora of various annuity sorts that exist primarily based on the number of methods earnings is constructed, calculated, credited, and paid out. For now, we’ll talk about three of the extra frequent sorts of annuities: Mounted, variable, and listed.

What’s a set annuity?

Typically regarded as “set it and neglect it” contracts, mounted annuities pay out a set and assured quantity. Mounted annuities are good for at this time’s threat averse shoppers, as they’re not tied to the efficiency of a inventory market index. Patrons don’t have to fret about market threat and may calculate their precise minimal earnings with a set annuity. On the draw back, ought to market circumstances enhance over time, the beneficiary doesn’t obtain a better payout than their contract specifies.

What’s an listed annuity?

Taking a step into barely riskier territory, you’ve gotten listed annuities. With this kind of annuity, the client nonetheless receives a assured minimal payout. However, in contrast to mounted annuities, with listed annuities a portion of the payout is tied to the efficiency of a market index. Listed annuities supply patrons higher potential earnings, however usually include development caps.

What’s a variable annuity?

Patrons in search of a excessive threat, excessive reward possibility, have the choice of variable annuities. With most 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 advanced nature is usually a drawback. Lately, speak of financial uncertainty and recession fears have fueled the hearth, and skyrocketed annuity gross sales to a document excessive. Many shoppers, scared their financial savings and Social Safety funds will not be sufficient to help them via retirement, are turning their consideration to annuities and the advantages they’ll present.

Benefits of annuities for shoppers

1. Loss of life profit – Annuities can present monetary safety to your family members within the occasion of your demise. Relying on the phrases of the annuity contract, purchasers can cross an annuity to a number of designated beneficiaries.
2. Tax-deferred development – Shoppers can use pre or post-tax funds to buy their annuity contracts and should not have to pay taxes on earnings till they start making withdrawals or receiving periodic funds.
3. No necessary withdrawals – Typically 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. Nevertheless, buying an annuity additionally comes with a couple of disadvantages together with:

1. Complicated in nature – Lately, 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.
2. Hidden charges – At all times learn the high-quality print! Whereas variable annuities are identified for his or her traditionally excessive charges, shoppers also needs to pay attention to the hidden charges buried deep inside even their mounted annuity contracts. Fee charges, underwriting charges, and penalties can add up rapidly and eat a good portion of returns.
3. Dangerous – A giant consider what makes annuities such a sexy choice to shoppers is the assured earnings they’ll present. However not all annuities are so predictable. Variable annuities specifically hinge on market efficiency and might be dangerous for shoppers.

Promoting annuities

For as a lot confusion as there’s relating 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? Learn on for a quick overview of annuities from the producer aspect.

Who can promote annuities?

Licensed insurance coverage producers who’ve the required credentials to promote life insurance coverage of their state can get began with mounted annuities. However, issues get just a little sophisticated relating to the particular licensing necessities for the various kinds of annuity contracts.

How do producers profit from promoting annuities?

Insurance coverage producers receives a commission a fee for promoting annuities. Usually, that fee is larger than what they’ll make promoting different insurance coverage merchandise, because of the long-term and complicated nature of annuity contracts. With some research and understanding, brokers can promote these high-commission merchandise with almost the identical quantity of labor as low-commission merchandise however with 5-10 instances the payoff.

Mounted annuity licensing necessities

On the subject of promoting mounted annuities (together with single premium annuities, longevity annuities, fixed-rate annuities, certified longevity annuities, and stuck index annuities) we now have some excellent news. The regulating authorities for most of these annuities are the state departments of insurance coverage and their governing physique, the Nationwide Affiliation of Insurance coverage Commissioners. Since they don’t require extra oversight, a regular life insurance coverage license issued by your resident state is sufficient to get the ball rolling on promoting mounted annuities.

Variable annuity licensing necessities

Issues get just a little extra advanced relating to licensing necessities for promoting variable annuities and registered index-linked annuities (RILAs). As a result of they’re categorised as securities, most of these annuities are additionally overseen by the U.S Securities and Trade Fee (SEC) in addition to the Monetary Trade Regulatory Authority (FINRA) along with the state departments. This extra oversight means producers who want to promote variable annuities and RILAs should bounce via a couple of extra hoops so as to take action.

Like mounted annuities, an agent will first want a sound life insurance coverage license. However, they’ll additionally have to register with FINRA and cross particular Collection exams relying on the merchandise they’d prefer to focus their promoting on.

Collection 6 examination

The Collection 6 examination gives producers a restricted funding securities license. Those that cross can promote packaged investments together with variable annuities. Earlier than taking the Collection 6 securities examination, you’ll have to acquire a sponsorship from a broker-dealer agency who will oversee your actions and consumer transactions. The examination contains 100 a number of selection questions and as a way to cross, a candidate should rating not less than 70 %.

Collection 7 examination

Passing the Normal Securities Consultant {Qualifications} Examination, often known as the Collection 7 Examination permits a producer to supply virtually each kind of safety (with limitations round actual property, life insurance coverage, and commodity futures). As a result of this check covers so many facets of securities, it’s additionally thought of essentially the most rigorous. As soon as an agent has secured a sponsor from a FINRA-registered broker-dealer agency and has sufficiently studied, they’ll take the six-hour examination.

Collection 63 examination

A number of states additionally require producers to cross the Uniform Securities Agent State Regulation Examination, or the Collection 63 examination, as a way to promote securities like variable annuities. The Collection 63 examination focuses primarily on making certain a producer is accustomed to the state securities rules outlined within the Uniform Securities Act. Passing a Collection 63 examination doesn’t imply a lot by itself. Producers may also have to register with FINRA by finishing both the Collection 6 or Collection 7 examination as a way to promote variable annuities.

Collection 65 examination

If, as a substitute of promoting annuities on a fee foundation, you’re extra eager about charging purchasers a charge for securities advisory companies, you’ll have to cross the Collection 65 examination. Passing this examination doesn’t authorize a producer to promote securities, but it surely does permit them to behave as an funding advisor to their purchasers. If a producer needs to each promote securities that require a Collection 7 license and cost for securities advisory companies, they’ve the choice to skip the Collection 63 and 65 exams and as a substitute full a mix Collection 66 examination.

Every of those exams is difficult and covers an excessive amount of data. These assessments assist guarantee anybody wishing to promote securities has the data and experience they should act in the perfect curiosity of shoppers. And producers aren’t off the hook after passing. They’ll have to finish continuing education necessities each three years to remain in compliance with FINRA rules and hold their licenses.

Staying on high of licensing necessities for annuities doesn’t should be exhausting

The world of licensing necessities for promoting annuities actually is sophisticated, however for good motive. On the subject of annuities, particularly variable annuities and different securities primarily based sorts, shoppers put a variety of belief of their agent. The assessments do their half in serving to to weed out any ill-intentioned people who might want to reap the benefits of the complexity and confusion frequent in these insurance coverage merchandise.

In fact, the advanced licensing necessities additionally make staying on high of compliance for producers promoting annuities just a little extra sophisticated too. That is the place AgentSync is available in. Our answer makes managing and validating the assorted license necessities for annuity sellers easy.

Whereas our answer can’t validate FINRA Collection {qualifications}, it could possibly assist producers, carriers, and businesses working within the life insurance coverage and annuity sector stay in compliance relating to promoting mounted and fixed-index annuities (which, as we talked about, are sort of on fireplace proper now). When you’d prefer to take the fear out of compliance and get your licensed life insurance coverage producers leaping on the mounted annuity prepare sooner quite than later, see what AgentSync can do for you.