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There’s been a lot of sound and fury about annuity suitability in recent years. Concerned about inappropriate sales to seniors, many states have adopted new suitability standards for agents to follow. Not surprisingly, insurance companies want their agents to justify and document the appropriateness of their annuity sales.

What’s an agent to do? Get serious about annuity suitability by following these timely principles:

  1. Focus on being a true professional. True professionals make suitable recommendations to their clients. If they recommend products or services that serve other agendas, they are no longer true professionals Professionalism implies an agent has listened to a client’s desires, financial goals, and constraints. It also implies the agent’s recommendations fall within generally accepted standards of best practices. Being a  professional implies the agent strives to meet the client’s needs first, never his or her own.
  2. Rediscover the joys of fact-finding. True professionals don’t rush to close a sale in the first meeting. They patiently take the time to thoroughly assess the unique needs of their clients before making any product recommendations This may include following a measured process, spanning several interviews, of obtaining relevant client data.
  3. Make good use of your suitability forms. Yes, they can be annoying to fill out. But if you use them with every client, making sure to ask all the questions, you will almost always be on safe ground.
  4. Fully document your client meetings. Take good notes during all client meetings, being careful to record any information that supports your product recommendation. Also, ask and then record answers to questions such as when clients will need access to their money and/or when any income distributions will be needed. Then document their clear understanding of guaranteed features, including living benefit options. What the client tells you will help you select a financial product with a suitable surrender period, among other features.
  5. Maintain client records for five years or longer if your state requires it. This applies especially to information that supports your product recommendation.
  6. Broaden your in depth knowledge of multiple financial products to properly meet client needs. In other words, avoid becoming a “one-trick product pony.” Instead, master a variety of product solutions that address a broad range of customer needs.
  7. Help your clients understand how to get access to their money. In the case of annuities, make sure clients know when and under what terms they can access their money. Be doubly sure they sign off on-and fully understand-all surrender period definitions and potential surrender charges.

When in doubt about whether your recommendations are suitable, always do the right thing. The best defense against errors-and-omissions claims is to simply treat your clients ethically. This will prevent unsuitable sales, client complaints, and E&O nightmares no agent needs.

Visit our E&O Headquarters for more informational resources.