Unlocking annuity growth with stronger recommendation workflows

On-demand Webinar

The annuity market is no longer experiencing a temporary surge driven by favorable interest rates. Its growth has become structural.

Even as rates began to fall, annuity demand continued. It simply shifted toward products designed to offer protected growth, including registered index-linked annuities and fixed indexed annuities. At the same time, roughly 11,000 Americans are reaching age 65 every day, often without access to the traditional pensions that supported earlier generations.

Demand for retirement income, downside protection and greater certainty is therefore unlikely to disappear. Nor is supply likely to retreat. Private equity-backed insurers now represent a much larger part of the fixed and indexed annuity market, creating a strong incentive to attract premium, introduce new products and expand distribution.

The question facing wealth firms is no longer whether annuities will grow. It is whether their recommendation and supervisory infrastructure can keep pace.

That is where the industry is approaching a crossroads.

Annuities have evolved faster than the systems used to recommend them. A fixed annuity could once be understood through a relatively simple combination of rates, terms and surrender schedules. A modern RILA may offer dozens of possible combinations involving buffers, floors, crediting strategies and segment terms. These products are not sitting at the edge of the market. They are increasingly central to it.

Yet, many firms are still trying to support them through disconnected systems, static product documents and fillable PDFs. Advisors move between account-opening tools, financial-planning software, comparison processes, order-entry systems and supervisory reviews. Data is repeatedly entered, interpreted and transferred. Rules are often applied only after the recommendation has already been developed.

The result is friction for advisors and limited visibility for supervisors.

Interest in annuities remains strong, but caution is rising with it. Firms see the opportunity to meet client demand and generate organic growth. They also see regulators asking harder questions about product complexity, exchanges, compensation and the quality of the recommendation process.

The firms that scale successfully will not be those that simply make annuity applications faster. They will be those that make recommendations more defensible.

Growth is outpacing supervision

Many supervisory frameworks were designed for significantly lower annuity volumes. As activity grows, those systems face greater pressure across principal reviews, escalations, exception management and ongoing oversight.

Reviewing each transaction individually is no longer enough. Firms must also identify patterns. These can include unusually high exchange rates, repeated replacements, concentrations in certain products, representative-specific activity and recommendations that repeatedly generate exceptions.

Written supervisory procedures frequently describe what a regulation requires without explaining how the firm will put that requirement into practice. Review criteria may be unclear. Escalation responsibilities may be undefined. Documentation of surrender charges, lost benefits, rider changes and replacement considerations may be inconsistent.

A principal may approve a transaction without clearly recording why the recommendation serves the customer’s interest.

This weakness becomes especially significant with RILAs. Although FINRA Rule 2330 applies specifically to deferred variable annuities, regulatory attention is extending to RILA training, documentation, exchanges, supervision and review controls.

The distinction between regulatory coverage and regulatory risk is important. A product may sit outside the literal scope of one rule while still raising concerns under Reg BI, fiduciary standards, state requirements or broader supervisory obligations.

Firms building an annuity practice cannot design around a single rulebook. They must account for overlapping obligations under state annuity standards, Reg BI, the Advisers Act fiduciary duty, ERISA and PTE 2020-02. State variations, including requirements under New York Regulations 187 and 194, add another layer.

The most practical response is to build toward the highest applicable standard wherever possible. A consistent process reduces the risk of maintaining separate workflows for every product, account type, state or regulatory capacity.

Two decisions, not one

The rise of annuity funding through retirement rollovers creates an additional challenge.

When retirement-plan assets move into an annuity, the advisor is making two connected recommendations. The first is whether the client should roll assets out of the retirement plan. The second is which annuity or other product should receive those assets.

Those decisions cannot be treated as unrelated events.

A rollover may introduce new fees, services, investment options, conflicts and compensation. The subsequent annuity recommendation may introduce product charges, surrender restrictions, riders and long-term commitments.

Both advice layers must be documented. Supervisors need visibility into how the rollover decision connects to the selected product. Without that connection, a firm may have two completed forms but no coherent record of why the overall strategy was in the client’s best interest.

The same principle applies when choosing between brokerage and advisory versions of an annuity.

The starting point should be the client’s need for ongoing advice. Does the investor want continuing management? Does the product require ongoing allocation advice? Is the client willing to pay an advisory fee for those services?

The firm must then consider total cost. An advisory fee cannot be evaluated in isolation from product-level expenses. The recommendation should explain what additional value the client receives and whether less costly or less complex alternatives could accomplish the same objective.

An advisory annuity also creates an ongoing duty. The firm must update the client’s profile, monitor whether the product remains appropriate and respond when the investor’s circumstances change.

Legacy business introduces further complications. A client may have recently paid a commission on an annuity before the product is moved into an advisory relationship. Charging an additional advisory fee can create concerns about layered compensation or “double dipping.” Continuing commission trails may also raise broker-dealer registration issues.

These are not secondary administrative questions. They are part of the best-interest analysis.

Exchanges remain the fault line

Annuity exchanges continue to generate some of the most serious enforcement concerns because they combine several risks in one transaction.

A client may face surrender charges, a longer holding period, higher product costs or the loss of valuable guarantees, living benefits, death benefits and favorable contract terms. The advisor or firm may receive a new commission.

The existence of benefits in the replacement product does not resolve the question. The firm must demonstrate why those benefits outweigh the costs, limitations and alternatives for that particular client.

That analysis cannot be reduced to a product description.

Recent enforcement patterns have highlighted exchanges completed without sufficient evidence that the new product justified surrender charges, higher fees, lost riders and extended surrender periods. They have also exposed weak exchange-rate surveillance, missing thresholds, unclear escalation procedures and commission-based annuities held in accounts that were also being charged advisory fees, despite the availability of lower-cost advisory-share alternatives.

Forms and disclosures alone cannot solve these problems.

A fully completed application may still reflect an inadequate recommendation. A signed disclosure may confirm that information was delivered without demonstrating that the alternatives were genuinely compared.

Supervisory review also comes too late when the underlying analysis never occurred. A principal cannot reconstruct a defensible comparison after the client has already received the proposal.

The comparison stage is therefore the point at which firms should invest most heavily. It is where suitability and best-interest considerations should shape the recommendation before the product reaches the client.

The Cutter warning

The Cutter case illustrates how compensation, disclosure and the scope of an advisory relationship can converge.

The central allegation was that advisory clients were directed into fixed indexed annuities generating commissions of approximately 7% to 8%, without adequate disclosure of the resulting conflicts. Approximately $9.34 million in annuity commissions was earned. Thirty-four replacements occurred before the surrender periods expired, producing roughly $640,000 in surrender charges.

The precise question of whether an advisory fee was charged directly on each FIA was not necessarily decisive. Compensation under the Advisers Act can include asset-based fees, commissions and other direct or indirect remuneration connected to investment advice.

More importantly, a firm cannot automatically separate an annuity recommendation from its advisory relationship merely by describing itself as acting in another capacity.

Services may be scoped outside an advisory relationship, but only through full and fair disclosure that allows the client to provide informed consent. The client must understand the capacity in which the professional is acting, the compensation involved, the applicable standard of conduct and the consequences of receiving the recommendation outside the advisory relationship.

Publicly presenting annuity services as part of an overarching investment strategy makes that separation more difficult.

The case also reinforces that intentional misconduct is not always required for liability. Negligent failures to disclose material conflicts can be sufficient.

That lesson extends far beyond a single case. Compensation paid by an insurance carrier can still be material even when the client does not write the check directly. The commission creates an incentive. Clients need enough information to understand how that incentive may affect the recommendation.

Build evidence into the workflow

The industry has spent years improving order entry and reducing applications that are not in good order. That investment has delivered meaningful operational benefits.

But NIGO is increasingly a processing issue rather than the industry’s most significant recommendation risk. Electronic applications and digital transfer processes can reduce missing information and paperwork delays. They cannot determine whether the recommendation itself is in the client’s best interest.

A faster application is not the same as a stronger file.

The more important investment is decision support at the point of recommendation. A defensible process should contain four elements:

• Full shelf data. Advisors and supervisors need structured information on the available products, not only the product selected by the advisor.
• Instant alternatives. Reasonably available alternatives should be compared automatically, including relevant product, rider and account-type differences.
• Lost-benefit calculations. Surrender charges, lost guarantees and foregone rider benefits should be quantified rather than buried in narrative text.
• Exception flags. The system should identify unusual exchange activity, repeated replacements, product concentrations and other patterns requiring escalation.

This evidentiary file should be created while the recommendation is being formed, not assembled after the fact.

Suitability rules should be embedded into the workflow. Advisors should see eligibility restrictions, product limitations, required comparisons and documentation prompts before presenting a proposal. The compliant path should become the default path.

That approach reduces supervisory back-and-forth. It also gives advisors greater clarity about what is required and helps prevent incomplete or unsupported recommendations from reaching the home office.

From archiving to supervision

The ideal annuity experience is a connected digital process.

Account opening, investor data collection, financial planning, rollover analysis, product comparison, order entry and supervision should operate as parts of the same decision.

That process requires structured and current product data. Supervisors may need to understand segment timing, interim values, withdrawal risks, buffers, floors, rider differences and exchange implications. A static PDF cannot reliably provide that level of analysis.

A document can record what happened. Structured data can help determine whether it should happen.

That distinction will increasingly separate firms that scale safely from those that add volume without strengthening oversight.

The annuity market does not appear to have a demand problem. Nor does it lack product innovation. Its greatest limitation is an operating model that often forces modern recommendations through legacy processes.

The opportunity is substantial. So is the exposure.

Firms do not have to choose between annuity growth and compliance. But they must recognize that compliance cannot remain a downstream approval exercise. It must become part of how the recommendation is constructed.

Speed may save an advisor a few minutes. A well-supported recommendation can save a firm from years of remediation, restitution and reputational damage.

At the crossroads of growth and compliance, the winning strategy is not to slow the business down. It is to build evidence, alternatives and supervision directly into the road ahead.

Download Slides and Poll Results:

Issa Hanna, Partner, Eversheds Sutherland

Issa Hanna helps broker-dealers, investment advisers, investment funds, insurance companies and insurance distributors in navigating the regulatory requirements applicable to their businesses.

Brian Rubin, Co-Head of Securities Enforcement Practice and Chair, US Pro Bono Committee, Eversheds Sutherland

Brian Rubin is a Partner and Co-Head of Eversheds Sutherland’s Securities Enforcement and Regulatory Investigations practice, with more than 20 years of experience in federal securities law. A former Deputy Chief Counsel of Enforcement at NASD (now FINRA) and Senior Enforcement Counsel at the SEC, he brings a unique insider’s perspective to regulatory examinations, investigations, and enforcement matters. Brian represents broker-dealers, investment advisers, asset managers, public companies, and individuals in high-stakes proceedings before the SEC, FINRA, and state regulators. A nationally recognized thought leader, he is known for his FINRA sanctions study and is ranked by Chambers USA, Best Lawyers, and Super Lawyers.

Rob Dearman, CEO and Chief Innovation Officer, DCG Insight

Rob Dearman is on a mission to help financial advisory firms build and grow the next generation of client-obsessed, fiduciary-focused, technology-accelerated strategies and platforms.

Rob’s experience includes co-founding the country’s third-largest independent broker-dealer network, National Planning Holdings, where he served as CIO and Head of Wealth Management. He was a designer and CTO for Curian Capital, the first digital TAMP, and led the Office of Strategic Initiatives for Jackson National. He served as a regulatory liaison and held a position on FINRA’s FinTech Innovation Council and contributed to the SEC Reg BI and CRS regulation, DOL Fiduciary rule, NAIC Model Suitability rule, and several NASAA state fiduciaries efforts.

Tom Reeve, Product Lead, InvestorCOM

Tom Reeve is a Product Lead at InvestorCOM, where he leads product strategy for InvestorCOM’s Rollover Platform. Tom first joined InvestorCOM while pursuing a dual degree in Business (HBA) and Software Engineering at Western University, contributing to the RolloverAnalyzer product and key platform initiatives. He then spent three years as a Software Engineer at Amazon, building applications to drive operational efficiency across Amazon’s fulfillment network. Now back at InvestorCOM, Tom combines hands-on engineering depth with a sharp product instinct to build smarter, more impactful solutions for firms and their advisors.

Parham Nasseri, President, InvestorCOM

Parham Nasseri has spent his career translating complex regulatory requirements into technology solutions that improve investor and advisor outcomes. He has over 15 years of regulatory and wealth management experience, including senior roles in regulatory analytics, digital transformation, and investment analytics.

Parham currently serves as President at InvestorCOM, a leading software solutions provider for the financial services industry. He serves on several advisory boards including Ontario Securities Commission’s Investor Advisory Panel, CFA Societies’ Canadian Advocacy Council, The Canadian RegTech Association, and Junior Achievements of Central Ontario. He is also the host of the Wealth Compliance Leaders series.