Morningstar Advisor - Summer 2007 - 24

If we have another stock market crash like 2000 to 2002, people who cash out their annuities will say they thought their principal was guaranteed, no matter what the broker told them. —Thomas Grzymala, expert securities witness automated compliance system. But there still will be interventions by staff, he says. Finding Where to Draw the Line Complying with the proposed new rules, however, can get tricky. In some cases, investment professionals may find themselves walking a fine line between appropriate and inappropriate variable annuity sales. For example, financial advisors must tell clients that the living and death benefit guarantees on variable annuities are only as good as the financial strength of the insurance issuer. The underlying reason is that state guarantee associations, the insurance funds that cover claims against insurance companies that go belly-up, do not cover variable annuity death and living benefit guarantees. That’s because the money is invested in separate accounts and is not a general obligation of the insurance company. But, on the other hand, if a financial advisor discusses the role of the state guarantee association, a client could be scared away from the insurance product unnecessarily. So what to do? Investors should stick with insurers rated A+ or A++ by A.M. Best and AAA by Standard & Poor’s. These are the financially strongest insurance companies. Abusive transactions make headline news, says NAVA’s Hasenauer, who is an attorney and partner with Blazzard, Grodd & Hasenauer, in Pompano Beach, Fla. But she says that the vast majority of financial advisors appropriately place clients in variable annuities and other investments. She believes that there is a limit to what financial advisors should consider when placing people in annuities. For example, say a financial advisor’s client, years after buying a deferred variable annuity, went into a nursing home and due to the annuity, was ineligible for Medicaid. The financial advisor, she says, can’t be held responsible for an inappropriate sale. “The rule is a notice to member firms that they have to know and understand the due-diligence process,” Hasenauer says. “But financial advisors can’t be expected to hold themselves out for a person’s entire estate plan.” Nevertheless, the new rule ensures that a system is in place to avoid unsuitable products sales. Tools to Help Playing by the New Rules of 2821 • • • • • • What’s Suitable Document every sale with a suitability checklist. Document the types of variable annuities and investments that are suitable to the investor. Review suitability with a supervisor. Have broker-dealer’s suitability guidelines in place. Review all communication between you and the client to make sure the information is not misleading. Put in place an automated suitability system to compare a client’s profile with the variable annuity’s product features and underlying investments. The system should accept or reject the sale, based on the guidelines. What’s Not Suitable Recommend a variable annuity to every client. Sell variable annuities as a short-term investment. Recommend high-risk stock funds as variable annuity investments if the client is risk adverse. Make tax-free 1035 exchanges into another annuity just so you can earn a new commission. Lack broker-dealer policies and procedures to prevent unsuitable sales and 1035 exchanges. Have poor supervisory reviews of suitability of variable annuity sales. Don’t disclose fees, surrender charges, death and living benefit rider charges, mortality and expense fees, tax consequences, risk, and liquidity. • • • • • • • Source: The National Underwriter Co. Hasenauer says that the “Customer Suitability Profile,” created by NAVA, will go a long way in helping financial advisors determine if 24 Morningstar Advisor Summer 2007

Morningstar Advisor - Summer 2007

Table of Contents for the Digital Edition of Morningstar Advisor - Summer 2007

Morningstar Advisor - Summer 2007
Contents
Letter from the Publisher
Get to Know the Bond “All-Stars”
Research Briefs
Our Stewardship Test Gets Tougher
Save It for Later
Too Many Oranges
Best of Both Worlds
No Two Clients Are Alike
When It Comes to VAs, It’s Seller Beware
Hands On: Finding the Suitable Fund Share Class for Your Client
Fund Style Can Drift Off Course
Sticking to Their Style, Through Thick and Thin
Marathon Man
Growth, With a Chaser
A Menu of Ideas to Fill Five Market Baskets
Funds: Finding Funds with Conviction
Stocks: So You Say You Want Income?
All Eyes on China
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
What’s New at Morningstar and on the Web
The Advisor’s Economic Moat
Morningstar Advisor - Summer 2007 - Intro
Morningstar Advisor - Summer 2007 - Morningstar Advisor - Summer 2007
Morningstar Advisor - Summer 2007 - Cover2
Morningstar Advisor - Summer 2007 - Contents
Morningstar Advisor - Summer 2007 - 2
Morningstar Advisor - Summer 2007 - 3
Morningstar Advisor - Summer 2007 - 4
Morningstar Advisor - Summer 2007 - Letter from the Publisher
Morningstar Advisor - Summer 2007 - 6
Morningstar Advisor - Summer 2007 - 7
Morningstar Advisor - Summer 2007 - Get to Know the Bond “All-Stars”
Morningstar Advisor - Summer 2007 - 9
Morningstar Advisor - Summer 2007 - Research Briefs
Morningstar Advisor - Summer 2007 - 11
Morningstar Advisor - Summer 2007 - Our Stewardship Test Gets Tougher
Morningstar Advisor - Summer 2007 - 13
Morningstar Advisor - Summer 2007 - Save It for Later
Morningstar Advisor - Summer 2007 - 15
Morningstar Advisor - Summer 2007 - Too Many Oranges
Morningstar Advisor - Summer 2007 - 17
Morningstar Advisor - Summer 2007 - Best of Both Worlds
Morningstar Advisor - Summer 2007 - 19
Morningstar Advisor - Summer 2007 - 20
Morningstar Advisor - Summer 2007 - No Two Clients Are Alike
Morningstar Advisor - Summer 2007 - When It Comes to VAs, It’s Seller Beware
Morningstar Advisor - Summer 2007 - 23
Morningstar Advisor - Summer 2007 - 24
Morningstar Advisor - Summer 2007 - 25
Morningstar Advisor - Summer 2007 - 26
Morningstar Advisor - Summer 2007 - 27
Morningstar Advisor - Summer 2007 - 28
Morningstar Advisor - Summer 2007 - Hands On: Finding the Suitable Fund Share Class for Your Client
Morningstar Advisor - Summer 2007 - 30
Morningstar Advisor - Summer 2007 - 31
Morningstar Advisor - Summer 2007 - 32
Morningstar Advisor - Summer 2007 - 33
Morningstar Advisor - Summer 2007 - Fund Style Can Drift Off Course
Morningstar Advisor - Summer 2007 - 35
Morningstar Advisor - Summer 2007 - 36
Morningstar Advisor - Summer 2007 - Sticking to Their Style, Through Thick and Thin
Morningstar Advisor - Summer 2007 - 38
Morningstar Advisor - Summer 2007 - 39
Morningstar Advisor - Summer 2007 - 40
Morningstar Advisor - Summer 2007 - 41
Morningstar Advisor - Summer 2007 - 42
Morningstar Advisor - Summer 2007 - Marathon Man
Morningstar Advisor - Summer 2007 - 44
Morningstar Advisor - Summer 2007 - 45
Morningstar Advisor - Summer 2007 - 46
Morningstar Advisor - Summer 2007 - 47
Morningstar Advisor - Summer 2007 - Growth, With a Chaser
Morningstar Advisor - Summer 2007 - 49
Morningstar Advisor - Summer 2007 - 50
Morningstar Advisor - Summer 2007 - 51
Morningstar Advisor - Summer 2007 - A Menu of Ideas to Fill Five Market Baskets
Morningstar Advisor - Summer 2007 - 53
Morningstar Advisor - Summer 2007 - 54
Morningstar Advisor - Summer 2007 - 55
Morningstar Advisor - Summer 2007 - 56
Morningstar Advisor - Summer 2007 - 57
Morningstar Advisor - Summer 2007 - Funds: Finding Funds with Conviction
Morningstar Advisor - Summer 2007 - 59
Morningstar Advisor - Summer 2007 - Stocks: So You Say You Want Income?
Morningstar Advisor - Summer 2007 - 61
Morningstar Advisor - Summer 2007 - 62
Morningstar Advisor - Summer 2007 - All Eyes on China
Morningstar Advisor - Summer 2007 - 64
Morningstar Advisor - Summer 2007 - 65
Morningstar Advisor - Summer 2007 - 66
Morningstar Advisor - Summer 2007 - 67
Morningstar Advisor - Summer 2007 - Mutual Fund Analyst Picks
Morningstar Advisor - Summer 2007 - 69
Morningstar Advisor - Summer 2007 - 70
Morningstar Advisor - Summer 2007 - 71
Morningstar Advisor - Summer 2007 - Undervalued Stocks
Morningstar Advisor - Summer 2007 - 73
Morningstar Advisor - Summer 2007 - Most Popular Variable Annuities
Morningstar Advisor - Summer 2007 - 75
Morningstar Advisor - Summer 2007 - What’s New at Morningstar and on the Web
Morningstar Advisor - Summer 2007 - 77
Morningstar Advisor - Summer 2007 - 78
Morningstar Advisor - Summer 2007 - 79
Morningstar Advisor - Summer 2007 - The Advisor’s Economic Moat
Morningstar Advisor - Summer 2007 - Cover3
Morningstar Advisor - Summer 2007 - Cover4
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