Advisers should read annuity contracts

I commend InvestmentNews for the excellent job it is doing on reporting about product developments, particularly as related to the integration of insurance and money management platforms.

I commend InvestmentNews for the excellent job it is doing on reporting about product developments, particularly as related to the integration of insurance and money management platforms.

This is a critically important trend in the financial services industry, and one, unfortunately, that appears to be sidestepping two major issues: proper disclosure and transparency.

Similar to traditional annuity products, the “wrapped” concept introduces a host of contractual complexities that are often left to poorly trained financial advisers to communicate to confused clients.

The most appropriate starting point is with the realization that regulatory standards don’t require advisers to read the contracts they sell.

Yes, there are model acts, state statutes and regulatory directives that mandate an adviser’s “understanding” of these contracts, but the level of understanding is superficial and general at best.

I was somewhat amused, though disappointed, to read the comment in the June 2 article “New annuity-wrapped managed account sparks interest, confusion,” from Jack Sharry, senior vice president in charge of alternative-investment solutions at The Phoenix Cos. Inc. of Hartford, Conn.: “We don’t use [the word ‘annuity’] a lot” when describing an annuity product design to the consumer.

I understand the marketing strategy, but I am concerned about the consequences.

As an aside, I call upon the reporters at InvestmentNews to spend time with a variable or indexed annuity with contractual provisions for guaranteed-income or guaranteed-withdrawal benefits. Similar to all contracts, a benefit conferred carries an obligation to be performed.

Now imagine the credibility of the disclosure made to a consumer by a financial adviser with the industry’s mantra: “We’re elevating the selling proposition to the point where an adviser can talk about money management and then at the end of the conversation ask the client if they want an income guarantee.” Caveat emptor has never been more important.

By the way, imagine the reaction of advisers if their attorneys presented them with contracts to sign while learning that their attorney hadn’t read the contract.

Just think about it!

David F. Sterling
Financial consultant and attorney
Sterling Capital Resources
Sarasota, Fla.