Agent Qualifications to Sell Annuities
In order for an agent to sell fixed annuities, they only need a Life Insurance license issued by their state of residence. Fixed annuities are primarily represented by 5 different products: Single Premium Immediate Annuities (SPIAs), Longevity Annuities called Deferred Income Annuities (DIAs), Fixed Rate Annuities (MYGAs – Multi-Year Guarantee Annuities), Qualified Longevity Annuity Contracts (QLACs), and Fixed Index Annuities (FIAs). Fixed annuities are categorized as a life insurance product, so a life insurance license is all that is needed to solicit and sell these types of strategies.
Annuities are regulated at the state level, and each state has their own department of insurance. The National Association of Insurance Commissioners is the governing body over all of the states. Variable annuities are considered to be a security, and so they are also overseen by the SEC (Securities Exchange Commission) and FINRA (Financial Industry Regulatory Authority). It seems like a lot of oversight, but despite this oversight the annuity sales world is still considered the wild wild west where almost anything goes, especially concerning indexed annuities.
Fixed Index Annuities
In the recent past, there was a legal argument regarding Fixed Index Annuities (FIAs) being considered a security or not. Indexed annuities have a growth component that involves a call option on an index (typically the S&P 500), with a limitation (aka: cap) placed on the potential return. At the end of the day, the life insurance lobby flexed their muscles and FIAs remain as a fixed annuity, not a security.
The reason that indexed annuity gunslingers and unregulated internet promoters don’t want indexed annuities to be classified as a security is they would have to pass a real test to sell the product. Right now, if they went fast, anyone could get licensed in less than two weeks to sell indexed annuities by just passing their state’s life insurance exam. So you can work your whole life to put away money for retirement, and in less than a month, someone can pass a test and sell you an indexed annuity.
Why the annuity industry doesn’t think this is a problem is incredible. This one required test is a very low hurdle from a qualification standpoint, and the ongoing education requirements put in place by the carriers is comical at best.
There are currently hundreds of thousands of licensed individuals able to sell annuities in the United States legally. That explains a lot, doesn’t it? It is the reason that you may seem to be inundated by non-stop annuity ads, bad chicken dinner seminar invitations, and your local banker trying to move your CD money into an indexed annuity.
Variable annuities are not a perfect product by any stretch of the imagination, but the licensure process is a thousand times tougher than their indexed annuity counterparts. Variable annuities are classified as a security, so in order to sell them to an agent will have to pass either a Series 7 (overall securities) test or a Series 63 and Series 6 test in order to sell mutual funds and variable annuities. These tests are not easy (they shouldn’t be), and the continuing education requirements are a challenge as well.
My advice is to ask the selling agent about their financial background and do your research on the internet concerning their qualifications. Tenure does not always equate competence, but it is a good gauge for at least a necessary basic financial foundation of knowledge. Annuity agents (especially indexed annuity “specialists”) are becoming as common as people with their real estate license. They are a dime a dozen, and many shouldn’t be advising others on their retirement. Be careful out there, and make sure to interview many advisors and agents to find the right fit for your personality and financial situation.