Melanie Waddell at ThinkAdvisor wrote about compliance mistakes in annuity recommendations as FINRA and the SEC increase their scrutiny of documentation. I have spent years cleaning up annuity recommendations other advisers made, and the compliance problems almost always trace back to the same place: the adviser sold the product before they understood the client.
I gave her an example. A client came in holding a variable annuity inside an IRA. Nothing illegal about that. But when I asked why, nobody could tell me. The adviser could not articulate the benefit, the file did not document one, and the client was paying for tax deferral he already had.
Suitability is where most annuity recommendations fall apart, not the product itself. The fix is procedural. Start with the plan: income need, liquidity need, time horizon, tax situation. Then decide whether an annuity solves something the plan actually has. Document the alternatives you considered and rejected, because a file that shows the thinking is the best protection an adviser has.
The reason these mistakes keep happening is not fraud. It is that the annuity conversation usually starts with the product instead of the plan. Backwards from the start.
Read the full article at ThinkAdvisor →
