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Education of Agents Key in Equity Index Sales

ORLANDO -- Worried that equity index annuities (EIAs) are too complicated for the average insurance agent? Apparently, you're not alone in those fears, as education remains a high priority for marketers of EIAs, especially following last fall's approval of a model regulation on annuity sales to seniors from the National Association of Insurance Commissioners in Kansas City, Mo (see Annuity Market News, October 2003) and interest from other regulators.

Making sure that agents understand products and are explaining them properly to clients is critical for any sale but even more challenging with EIAs, according to a number of speakers here at the annual meeting and conference of the National Association for Fixed Annuities of Reston, Va.

"It is a complex product," said Steve Phillips, director of agent education at Creative Marketing International Corp. in Overland Park, Kan. Every year, he expects to start training on a different product, but he continues working to make sure agents understand EIAs.

Equity index annuities are certainly complex, and that makes them difficult to sell, conceded Kenny Bryson, vice president of sales in the Northeast region at Allianz Life in Minneapolis. It is important to train agents on that complexity, he said. Otherwise, it creates an opportunity for the sale to be challenged by the child of an annuitant when that child does not understand the reasoning behind the sale. This is made all the more difficult because, unlike mutual funds, most people are not familiar with EIAs and how they work.

Furthermore, the complexity of EIAs pervades every level of the distribution process, even within the marketing organizations that provide products to independent agents.

"Index annuities are not a one-hit wonder. Even when dealing with internal marketers in a marketing organization, you need a number of visits," said Sharon Havener, vice president of agency marketing for Jefferson Pilot Financial in Baltimore.

EIAs are considered fixed products, but because the crediting rate is linked to a variable index, they have an equity component reminiscent of variable annuities. In terms of features and benefits, Bryson said, EIAs and variable annuities are sometimes difficult to tell apart, noting that the USAllianz High Five Variable Annuity and Allianz PowerDex Annuity, an EIA, are extremely similar.

While Havener commented that the products are different enough that broker/dealers are interested in carrying them, Phillips said the real problem is not with registered reps that are licensed to sell securities but with insurance agents. "Some of these guys are essentially trying to sell a variable product without a license," he said.

That is exactly what the product manufacturers and marketers are trying to avoid, since Rule 151 of the Securities Act of 1933, the safe harbor rule under which EIAs are classified as fixed annuities, states the condition, "The contract is not marketed primarily as an investment."

In order to avoid situations as described by Bryson, where other family members later contest the sale, or other regulatory hassles, the marketing organizations that distribute EIAs need to make sure that sales are clearly communicated to clients and are suitable.

"My theory is that suitable sales must begin with training our agents in an appropriate way," said Rob TeKolste, vice president of marketing at The Sammons Annuity Group in Des Moines, Iowa. Furthermore, TeKolste said, "I don't think it's enough to provide training; I think we have to prove it."

To that end, his organization started a certification program on June 1, 2003, requiring all agents to receive standardized education and pass a test in order to continue selling products. While many grumbled, most were willing to meet the company's new requirements, and only a handful of contracts have been rejected because agents did not fulfill the certification requirement.

TeKolste reported that 90% of the agents licensed with Sammons in 2003 are now certified. Given that his company typically sees 10% rollover in any event, he does not feel that certification had any effect on its sales force of 6,400 independent agents.

The Web-based training for the certification covers five topics: a general product overview (including mutual funds and variable annuities), EIA mechanics, administrative procedures, product selection and the agent's responsibility, and different product features. The exam consists of 25 questions, all of which agents must answer correctly. "We didn't think it made sense to have a record that they missed something," TeKolste said.

Educating agents on the full gamut of products is critical for them to be able to help clients find the best product, said Danette Kennedy, vice president of Advisors Certifications Services in Des Moines, Iowa. "We don't want to specify training in one particular product," she said.

Furthermore, agents need to be educated on more than simply how to position an annuity to get the sale. Kennedy likened EIAs to cars. Right now, most agents are only able to get behind the wheel and steer, but they don't have a deeper understanding of how the car works. "To really change this industry," Kennedy said, "agents need to know how the engine functions."

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