Some Pointers For Offering Clients The Right Variable Annuity
Most registered reps selling variable annuities regularly face a key decision: "Which VA offers the right investment programs and choices for my client?"
You probably have some guidance with a so-called "short-list" of VAs recommended by your firm. Unfortunately, this list may contain five, 10 or even more products. As a result, even after screening the recommended VAs for client suitability, you may still need to choose among several products.
Some reps make this choice by randomly picking one of the remaining VAs or one with handy sales materials. Others decide on the basis of incentives, commissions, the relationship with the VA wholesaler or firm quotas.
But to select the VA with the right investment programs and choices–that is another matter. To do this, you need some key information. Here are some critical questions to ask and why.
Can clients diversify broadly within the VA?
It is no longer uncommon to find 40 or more subaccounts in a VA. Thats important for investors seeking broad diversification, but be sure your client has a good selection of funds in all investment categories, particularly in categories he or she will most likely need or want.
The most popular categories–large-cap funds (value, growth and blended), balanced funds, and foreign/global funds–should be represented in depth, with several portfolios, or broad diversification becomes more difficult.
Of course, it is not enough that a category be represented by at least one portfolio. It should be represented with at least one and preferably several having a satisfactory performance record. Be particularly wary of VAs with only one poorly performing portfolio representing an important investment category.
Finally, make sure the fixed account buckets offer a broad choice of maturities. These offerings are particularly important for clients who wish to retreat to cash or diversify across asset classes.
How does the insurer manage its managers?
Find out how the insurer manages the managers of funds in the VA, how the company selects, monitors, evaluates and sometimes even terminates them. For example, what selection criteria do they use? Do they use Morningstar data or more advanced analytics to monitor and evaluate portfolio returns and risk? How do they decide to terminate a manager?
It is often helpful to know if the VA has advisor funds that the advisor manages or insurer funds where the fund manager functions as subadvisor. (Subadvisory arrangements give insurers more control and allow for greater ease in replacing a fund manager should performance falter.)
How do the fund charges stack up?
Fund charges affect reported performance; the higher the charges, the lower the return. They help determine your clients return and their satisfaction with the VA you sold them.
