New Compliance Tool Will Automate Annuity Fund Transfers
by Karen Gregory
Insurance Services will begin in September to pilot-test a new service that automates the transfer of funds within annuities, bringing greater efficiency and transparency to this process.
The service addresses regulatory concerns about business practices in the broker-initiated transfer of funds within variable annuities. Called Fund Transfers, it will allow broker/dealers to monitor their represenatives’ actions and increase the number of “in-good order” transactions sent to insurance carriers.
“This solution represents a multiple win for the industry and its investors,” said John Ziambras, DTCC managing director and general manager, Insurance Services. “It addresses regulatory concerns, reduces costs and expands efficiencies through best practices, innovative technology and the consistent use of data standards.”
Addressing key concerns
Regulators have expressed concern with the lack of a standard mechanism through which reps request and complete fund transfers. In some cases, reps have been circumventing their registered broker/dealer, which has supervisory responsibility for these transactions, and going directly to the carrier, either through a carrier’s website, phone, fax or e-mail.
An added concern is whether the reps making such fund transfers receive proper authorization from customers to do so, and whether the transfers are compatible with their customers’ suitability profiles – a possible violation of FINRA (formerly NASD) rulings.
In response to these concerns, the Security Industry Association’s (now Securities Industry and Financial Markets Association, or SIFMA) Insurance Panel in August 2005 issued an advocacy paper that urged the industry to develop a standardized, centralized process that would provide a window of transparency into these transactions and leverage the technology already established by Insurance Services.
“Our solution will address these issues by automating the transfer of variable annuity funds through a single secure processing source,” said Ziambras. “And because it uses the ACORD XML data standards, carriers can maximize their current technology investments.”
Customer perspective
"This solution represents a multiple win for the industry and its investors.
It addresses regulatory concerns, reduces costs and expands efficiencies through best practices, innovative technology and the consistent use of data standards. "
– John Ziambras, DTCC managing director and general manager, Insurance Services
“With an automated process, financial advisors will find it much easier to service their clients; broker/dealers will have much more control over monitoring and documentation than they do today; and there will be a complete audit trail,” Marynowski explained. “In addition, advisors will have a single, standardized way to execute these transactions and will know immediately that the transfer has been completed properly.”
Leveraging existing solutions
The new service combines existing Insurance Services’ capabilities. Here’s how it works.
-
Policy Inquiry: Once a rep sends a request to a distributor’s front-end system, the distributor uses Insurance Services’ real-time function, Policy Inquiry, to request and receive the most current contract information on a variable annuity, in addition to any trading restrictions a carrier has established. This allows the distributor to validate that the request is in sync with its own requirements, as well as those of the carrier, and approve the transfer.
-
Fund Transfers: Using this capability, the distributor forwards the request to the carrier for immediate pre-cycle validation and confirmation that the request is either “pending approval” or rejected.
-
Financial Activity Reporting: Once the transfer is approved, Financial Activity Reporting creates a confirmation record that includes details of the completed transfer, as well as details on disbursements, rebalances and asset allocation changes, among other activities.
“This business model could have far-reaching benefits, beyond the transfer of funds, in meeting the needs of a changing industry whose customers will continue to demand better accountability,” Ziambras said. @
[For more information, contact Insurance Services at 888.382.2721.]