Understanding which licenses and processes are required to sell variable annuities is an essential step for financial professionals–including financial advisors, brokers or insurance agents–who are looking to grow their services with product offerings. Here’s an overview of the steps you’ll need to take to secure these licenses, why they’re necessary and how selling variable annuities differs from selling other types of annuities.
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What Are Variable Annuities and Who Can Sell Them?
Variable annuities are long-term investments designed for retirement purposes. They allow investors to receive periodic payments immediately or at some future date. However, these products are subject to market risk, which entails the potential loss of principal.
Financial professional need two types of licenses to sell variable annuities:
- State insurance license
- Series 6 or Series 7 license from FINRA (specifically for variable annuities)
Being licensed ensures that you adhere to regulatory standards and demonstrate your competence to your clients, which can also shield consumers from fraudulent practices. Hence, obtaining the necessary licenses isn’t merely a requirement but a fundamental step in establishing trust and credibility with potential clients.
Selling Annuities
Selling annuities is a task that requires more than just a basic understanding of finance. Alongside obtaining a state insurance license, you may also need a Series 6 or Series 7 license from FINRA, depending on the type of annuity that you intend to sell. The Series 6 license allows you to sell packaged investment products, including variable annuities, while the Series 7 license encompasses the sale of all securities products, including packaged investment products and individual securities, like corporate stocks and bonds.
The process of obtaining these licenses entails completing pre-licensing education, passing state insurance examinations and registering with FINRA if you’re looking to sell variable annuities. This rigorous process ensures that only well-equipped individuals, who understand the complexities and responsibilities associated with selling annuities, are granted the right to do so.
If you’re able to qualify to sell annuities then it could open up your firm for another revenue-generating opportunity. Otherwise, you’ll have to represent clients who want to buy annuities and go through a third party or help them buy directly from an insurance company. If you can sell them directly then you’ll be able to earn additional commissions.
How Selling Variable Annuities Differs From Other Annuities
As a financial professional, understanding how variable annuities vary from other types of annuities is vital.
Unlike fixed and indexed annuities, variable annuities allow investors to choose investments and bear the risks associated with those investments. Essentially, they offer more potential for growth, albeit with augmented risk.
Consequently, selling variable annuities demands a deeper comprehension of investment strategies and risk management. There is no difference in what type of annuity to sell in terms of actually selling it. The requirements are the same no matter the annuity type.
The Role of FINRA in Selling Annuities
FINRA is instrumental in maintaining the integrity of the financial markets and protecting investors. They license brokers, enforce standards for fair practices and discipline brokers who violate these established standards.
To do this, FINRA established rule 2330, which set up “sales practice standards regarding recommended purchases and exchanges of deferred variable annuities.”
As an example, imagine that John wants to secure his retirement and considers investing in variable annuities. His broker must ascertain that the variable annuity is suitable for John, based on his investment objectives, risk tolerance and financial situation.
The key term here is “suitability,” which denotes that brokers must align the financial products they recommend with their client’s needs, goals and circumstances.
FINRA explains that the rule “covers the suitability of a deferred annuity exchange for a particular customer, considering, among other factors, whether the customer would incur a surrender charge, be subject to a new surrender period, lose existing benefits, be subject to increased fees or charges, and has had another exchange within the preceding 36 months.”
Bottom Line
Selling variable annuities demands a comprehensive understanding of the product. And depending on the type of annuity, you may need to get a state insurance license, in addition to a Series 6 or Series 7 license from FINRA.
Tips for Growing Your Advisory Firm
- Grow your leads. Building a financial advisory firm can be difficult, especially as you’re trying to grow your client base. Let us help you grow your business. If you are looking to grow your financial advisory business, check out SmartAsset’s SmartAdvisor platform. We match certified financial advisors with right-fit clients across the U.S.
- If you’re just starting out then you may want to make sure you’ve thought through all the steps to reach your long-term business goals. Consider our guide on how to start an advisory business to make sure you get off on the right foot.
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