Introduction To Annuities: Marketing And Regulation
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  1. Introduction To Annuities: The History Of Annuities
  2. Introduction To Annuities: Basics of Annuities
  3. Introduction To Annuities: Advantages And Disadvantages
  4. Introduction To Annuities: Marketing And Regulation
  5. Introduction To Annuities: Fixed Contracts
  6. Introduction To Annuities: Indexed Annuities
  7. Introduction To Annuities: Variable Annuities
  8. Introduction To Annuities: Conclusion

Introduction To Annuities: Marketing And Regulation

Marketing of Annuities
Although only life insurance companies can issue annuities in the United States, the investment vehicles are marketed by many different types of organizations and individuals. Some of the key entities who offer these products include:

  • Banks
  • Life insurance agents and brokers
  • Stockbrokers and Registered Investment Advisers
  • Financial planners
  • Estate and trust officers
  • Mutual fund companies
Licensing Requirements
Any person directly involved in the selling and marketing of annuities must carry an active life insurance license, regardless of which of the above categories they are in, plus a securities license if dealing with
variable contracts. Many personal bankers are licensed to sell fixed annuities to bank customers, although banks can no longer directly issue annuities themselves.

Controversial Marketing Practices
Despite their advantages, annuities are among the most misunderstood and mis-marketed financial products in existence. Although they are designed as retirement vehicles, they are sometimes used as one-size-fits-all investments. Clients and prospects should be aware that most
brokers and planners are paid a much larger commission on annuity sales than just about any other type of product that they can sell. Although the standard range of payout is usually about 4-6% for fixed and variable contracts, some indexed annuities pay commissions of up to 12-15%. For this reason, many financial professionals are biased toward selling these products to clients, regardless of suitability or other factors.

One marketing practice that has received a fair amount of negative publicity in both the financial and mainstream media pertains to indexed annuities. Some agents have aggressively pursued the senior market with long-term, high surrender charge indexed annuity products, into which they attempt to put virtually all of their clients' liquid assets. This practice has been and is being closely scrutinized by state regulators nationwide. Another debate rages over the practice of funding IRAs and qualified plans with fixed and variable annuity contracts. This strategy is controversial because the tax-deferred feature of annuities is irrelevant inside a plan or account that is already tax-deferred. This issue will be covered in greater detail in a later section.

State Regulation
The annuity marketplace is primarily regulated at the state level because all life insurance companies, and all agents and brokers who sell annuities, must have a life insurance license issued by their state of residence. Fixed and indexed offerings are regulated almost solely at this level because they are not considered securities and therefore fall outside the jurisdiction of the Securities and Exchange Commission (SEC). Every state has an insurance commissioner that oversees all of the life insurance and annuity business done within the state. The insurance commissioner's office also has a disciplinary record of every registered life insurance agent and broker in the state, and investors can call the commissioner's office to get the background on any person who sells them annuities. They can also call here to register a complaint about their agent or contract.

Federal Regulation
In addition to state regulation, annuities are ultimately defined and governed by the Internal Revenue Code (IRC). The SEC and FINRA oversee the variable annuity market as well, since they require a securities license to be sold. Indexed annuities are presently still considered a type of fixed annuity, but there is a definite possibility that these vehicles will eventually be classified as securities due to their market participation.

In the remaining sections of this tutorial, we will examine the three major categories of annuities:

1. Fixed Annuities – Appropriate for conservative investors who want or need a guarantee of principal and interest.

2. Indexed Annuities – Appropriate for moderate investors who want to participate in the markets without risking their principal.

3. Variable Annuities – Appropriate for moderate to aggressive investors who are willing to risk their principal while saving for retirement. These contracts can also be used by conservative investors with the purchase of guaranteed income riders.


We will examine fixed annuities in Section 5.

Introduction To Annuities: Fixed Contracts

  1. Introduction To Annuities: The History Of Annuities
  2. Introduction To Annuities: Basics of Annuities
  3. Introduction To Annuities: Advantages And Disadvantages
  4. Introduction To Annuities: Marketing And Regulation
  5. Introduction To Annuities: Fixed Contracts
  6. Introduction To Annuities: Indexed Annuities
  7. Introduction To Annuities: Variable Annuities
  8. Introduction To Annuities: Conclusion
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RELATED FAQS
  1. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  2. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  3. Can a variable annuity be rolled into an IRA?

    You can roll qualified variable annuities, such as other qualified retirement plan accounts, into a traditional IRA. Non-qualified ... Read Full Answer >>
  4. Are variable annuities subject to required minimum distribution (RMD)?

    Variable annuities are insurance contracts that provide tax-deferred growth of assets that can later generate a guaranteed ... Read Full Answer >>
  5. For what types of financial instruments would I want to calculate the present value ...

    Because the present value of an annuity formula relies on a consistent interest rate and identical payments for a set period ... Read Full Answer >>
  6. What exact information is included in the interest rate when calculating the present ...

    When calculating the present value of an annuity, the interest rate percentage is the rate at which future payments are discounted ... Read Full Answer >>

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