Agent Guide to Annuity Suitability Allianz Life Insurance Company of North America
NB5075
For financial professional use only – not for use with the public.
A commitment to suitability Allianz has a long-standing commitment to making sure that every contract we issue meets the client’s unique needs and financial objectives. We pioneered the development of statements of understanding. We implemented standards for suitability and made it an integral part of our ongoing product training. We also recently became the first in the industry to appoint a chief suitability officer. We do this all to earn and keep our clients’ trust.
What is suitability? Suitability ensures that the recommendation of a financial solution is based on the client’s individual needs and financial objectives. Allianz will issue an annuity when we can clearly establish suitability based on the client’s stated financial condition, needs, and objectives. Consumers’ needs and financial objectives vary widely, so no single annuity product is right for everyone. Several criteria determine whether a product is suitable for a particular client but suitability comes down to this: • The product must meet the client’s needs at the time of sale, and • The product must offer substantial benefits over the life of the contract, and • The client must not incur significant penalties from the request of a replacement (if applicable).
Your role Every recommendation you make must be suitable for the client, and it is up to you to verify suitability. Before recommending the purchase or replacement of an annuity, you must first obtain a full and accurate picture of your client’s insurance needs and financial objectives. For possible future reference, you must maintain
documentation of the client’s financial status, as well as your recommendations, in your files.
• We have developed a financial inventory worksheet for this purpose. If you have another process for gathering client data, the financial inventory worksheet is not required. However, the information contained in it may be required in further review or in the case of a complaint. (See exhibit A on inside back cover.) • You must also document any comparison you make between any policy(ies) being purchased and any policy being replaced. As with the financial inventory worksheet, if you use another form to gather this information, a replacement comparison worksheet is not required. However, the information contained in it may be required in further review or in the case of a complaint. (See exhibit B on inside back cover). You must also thoroughly understand the product you are offering and how it serves your client’s unique financial situation and objectives. This includes but is not limited to: • An analysis of your client’s income and expenses (including liquidity and net worth) • Understanding your client’s short- and long-term financial goals (including how they may need to access or how they anticipate accessing these funds in the future) • Assessing your client’s risk tolerance • Understanding your client’s tax status – For example, if a client is at a low marginal federal tax rate, deferred income will be of limited benefit. • Consideration of the client’s stage in life: – Are they at work and accumulating assets? – Are they retired with assets at work providing income? – Are they in transition with uncertainty about changes in income and/or expenses?
Agent Guide to Annuity Suitability Although no list of questions can replace your good judgment, you may find it helpful to consider and document the following every time you make a recommendation: • What is the consumer’s main financial objective or concern? • Why isn’t the consumer’s current plan meeting this financial objective or concern? • How will the purchase of an annuity help address this financial objective or concern? • If your client were a close friend or relative with similar needs and objectives, would you make the same recommendation? A completed, accurate Product Suitability form is required. If the form is incomplete or inaccurate, it is typically necessary to obtain a new form signed by your client. Please refer to the eLearning module at www.allianzlife.com on suitability for more detailed information on this topic.
Replacements You must be able to demonstrate that a replacement will offer tangible financial benefits that outweigh any losses or costs. Replacements are subject to all of the suitability guidelines we’ve just discussed. In addition, when you submit replacement business you may be asked to: • Demonstrate what aspects of the old contract do not meet the client’s needs or goals, and how the new contract will address those concerns. • Provide an impartial assessment of the comparative benefits and restrictions of both policies. • Fully explain the benefits and costs of replacing the client’s existing policy. This includes, but is not limited to surrender charges, unpaid loans, loss of bonus, expenses and fees, guarantees, product design (features and benefits), tax consequences, etc. • Produce records that reflect your discussion(s) with your client comparing both products.
Please be aware that replacements are subject to additional suitability review and that it is our company
policy to decline replacement business submitted within one year of the original purchase. All other replacement business will be reviewed on a case-by-case basis. Please refer to the eLearning module at www.allianzlife.com on replacements for more detailed information on this topic.
Disclosure Your clients need a full explanation of their options to make informed decisions. We recognize that all of you have your own methods, in discussions with your clients, for ensuring that you provide full and accurate disclosure about any Allianz products you recommend. Disclosures are included with the marketing and sales materials we provide. Please discuss these in detail with your clients, responding to any questions they may have based upon the materials provided and your own training and knowledge to ensure that they understand the features, benefits, and costs of any product you are recommending. Then, encourage your clients to carefully read the consumer brochure and statement of understanding for the product you are recommending. In some cases it may be appropriate to suggest that a client discuss the product with a tax advisor or legal professional. It may also be appropriate to engage family members who may be impacted by this financial decision. Finally, always ask the client to sign and date the appropriate disclosure documents when they purchase an Allianz product. Please refer to the eLearning module at www.allianzlife.com on disclosure for more detailed information on this topic.
Further review If an annuity application is subjected to further suitability review, the Suitability Team will contact you to gather additional information. During this review, it is our expectation that you will be able to provide the information gathered in our financial inventory and replacement comparison worksheets. Please see exhibits A and B on inside back cover for sample worksheets.
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Agent Guide to Annuity Suitability
A step-by-step guide to completing the forms The entire Product Suitability Form must be completed. Conflicting or missing information could delay the processing of the submitted application and/or the transfer process. Allianz reserves the right to contact the client to obtain additional information. Any changes made to the application form before it is submitted must be initialed by the owner(s) of the proposed contract. After submission of the application, any changes to the information will require a new suitability form.
A Owner’s name
C Product name – List the Allianz product that is being applied for
• If the owner(s) of the contract is/are also the annuitant, then the suitability form must be completed based on the owner’s information.
D Estimated premium amount – What is the total premium being used to fund this policy? E Annuity type – What type of annuity is being set up at Allianz: qualified or nonqualified? Tax status of the contract is critical for suitability. We recommend you keep accurate records of the origin of the funds in the event further review is necessary.
• If the owner of the contract is not an individual, complete the suitability form based on the annuitant’s information. B Owner’s age – Age of the person(s) who will own this annuity
Financial status 1. Approximate current monthly household income – Include the spouse’s/partner’s income in this value. Annuities in payout are considered a source of income. 2. Approximate current monthly household living expenses – Include the spouse’s/partner’s expenses in this value. Taxes (calculated as a monthly value) should be included in expenses. 3. Disposable income – This value should equal the current monthly household income minus the current monthly household living expenses. Example 1:
$2,000 monthly income - $1,500 monthly expenses $500 disposable income
Example 2:
$2,000 monthly income - $3,000 monthly expenses - $1,000 disposable income Q1 – Q2 = Q3
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A
B
C D
E
Agent Guide to Annuity Suitability
3a After purchasing this annuity, will your monthly income meet or exceed your monthly expenses? This question is directly related to the value in question 3. The yes or no answer should align with the value provided in question 3. 3b What is the surrender period or deferralplus-annuitization period (whichever is longer) of the annuity applied for?
A surrender period refers to the amount of time, in years, that a surrender charge will apply if the annuity is cancelled/surrendered. Typically, a surrender period is used in describing single-tier annuities or annuities that allow for a full withdrawal of accumulation/annuitization value without a penalty. As an example, the single-tier MasterDex 5® Annuity has a decreasing 10-year surrender schedule and has no annuitization requirement. The surrender period of this product is 10 years, so the answer to question 3b should be 10 years.
A deferral period refers to the minimum amount of time, in years, that the client must hold the annuity before beginning an income stream. The annuitization period refers to the minimum amount of time in years that the client must take an income stream from that annuity. Typically, a deferral-plusannuitization period is used to describe two-tier annuities or annuities that mandate a deferral period and a minimum annuitization period. For example, the two-tier MasterDex 10® Annuity has a 5year deferral period with a minimum annuitization period of 10 years. Because the deferral-plus-annuitization period is 15 years, the answer to question 3b should be 15 years.
NOTE: Some annuities have the choice of withdrawing the full accumulation value after the deferral period, or they can achieve an enhanced value if clients elect to take an income stream over a minimum number of years. The Allianz Endurance 15SM Annuity is an example of a product that offers this choice. If the intention of the annuitant is to utilize the Enhanced Withdrawal Benefit, the response to this question should be the deferral period (in years) plus the minimum required income stream period (in years). Using the example of the Endurance 15 Annuity, the answer to question 3b would be 20 years.
3c Do you anticipate any significant increase in living expenses or decrease in your household’s monthly income during the surrender period or deferral-plus-annuitization period (whichever is longer)? This question refers to a reduction or increase during the period (in years) listed in question 3b. If the answer to this question is yes then an explanation is required in the space provided below question 3c. 4.
Marginal federal tax rate – The marginal federal tax rate is the rate at which the client will be taxed if he/she earns additional income. See Table 1 on page 6. Review your client’s previous year’s tax return, compare their taxable income to the table, and enter the appropriate percentage. 3
Agent Guide to Annuity Suitability
5. What is the client’s approximate household
net worth? Total household assets – Total debt = Net worth Total assets: Include the premium that is being used to purchase this annuity but exclude primary residence and personal belongings. Total debt: Exclude the mortgage on the primary residence but include credit card debt, student loans, mortgages on other properties, etc. 6. What is the approximate amount of the client’s household liquid assets? Liquid assets that are being used to purchase this annuity should not be included.
Liquid assets
Nonliquid assets
• • • • • •
• • • •
Checking Savings Money market accounts Securities sold without penalties Cash value of life insurance policies CDs that are less than one year from maturity
Real estate Automobiles Jewelry/Furnishings CDs that are more than one year from maturity
7. What percentage of household liquid assets will be used to purchase this annuity?
10. Does the owner reside in a nursing home or assisted living facility?
Example:
• A nursing home is a licensed facility that provides 24-hour skilled medical and nursing services under the supervision of a physician or RN. Daily medical records are maintained.
Your client has $100,000 and uses $20,000 to purchase the annuity. Because the annuity purchase price isn’t included in calculating your client’s liquid assets, in this example your client has $80,000 in approximate household liquid assets (line 6 of form) and has used 20% of their total liquid assets to purchase the annuity (line 7). $100,000 total assets - $20,000 (20%) liquid assets used to purchase annuity = $80,000 approximate household liquid assets 8. Do you anticipate any significant reduction in your liquid assets during the surrender period or the deferral-plus-annuitization period (whichever is longer)? This question refers to a reduction in liquid assets during the period (in years) listed in question 3b. If the answer to this question is “Yes,” then an explanation should be documented in your sales file. 9. What is the total value of all annuities (including the purchase of this annuity)? What is total accumulation/annuitization value of all annuities owned by the client? 4
• Assisted living facilities provide unskilled assistance and supervision and have at least one trained staff member on duty 24 hours per day. An assisted living facility may include dementia care facilities, adult foster homes, and residential care facilities, but does not include a private home, independent living facilities, congregate housing for adults, or an unlicensed assisted living facility (or something similar to an assisted living facility) where licensing is required. Note: The answer to this question is used to determine if some specific product benefits may not be available to the client if they are currently living in a nursing home or assisted living facility (for example, the Nursing Home Benefit option).
Agent Guide to Annuity Suitability
Financial objectives 1. Financial objectives – What are the client’s objectives for purchasing this annuity? Check all that apply. If there are objectives not listed, specify in the “other” section. The answers in this section should align with the client’s intentions in the “Accessing Your Money” section of the form. 2. Other financial products – Check all that apply. 3. Source for this annuity premium – Check all that apply. 4. Is this transaction considered a replacement? • A replacement occurs when a new policy or contract is purchased and, in connection with the sale, the client discontinues making premium payments on the existing policy or contract, or an existing policy or contract is surrendered, forfeited, assigned to the replacing insurer, or otherwise terminated or used in the financial purchase. • If yes, what type of policy is being replaced? Check all that apply. • Does the client incur a surrender charge for this replacement? It is important that the client is aware of the impact of surrender charges compared to the benefits of the replacement.
Here is an example of how to calculate surrender charges: Current accumulation/ annuitization value: $100,000 Current surrender value: $90,000 Surrender charge dollar amount: $10,000 Surrender charge dollar amount divided by current accumulation/annuitization value will equal the surrender percentage: $10,000/$100,000 = 10% surrender charge Note: For purposes of disclosure, do not use the bonus on the product being purchased to offset the surrender penalty the client is incurring in the replacement.
• If there is a surrender charge, list the percentage of the charge on each policy being replaced. Please document your files with the original contract value and surrender charge for each replacement in case further review is necessary.
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Agent Guide to Annuity Suitability
Accessing your money 1. How does the client anticipate taking distributions? Check all that apply. If the client is unsure of how he/she will take distributions, select the most likely choices. The client’s responses are not binding. Immediate income is to be used with annuities that provide an immediate income stream. Answers provided in this section should align with the client’s financial objectives and the answers previously provided in the form. 2. When does the client anticipate taking the first distribution? Check only one choice. If the client is unsure or does not anticipate taking distributions, select “none anticipated.”
Signatures – You and your client should sign this form – If the proposed owner is a trust, then the trustee must sign the Product Suitability form.
3. Does the client understand how the beneficiaries can receive the maximum contract value?
– If the proposed owner is a corporation, then the appropriate corporate representative must sign the suitability form. – If the policy is an UTMA or an UGMA, then the parent/custodian must sign the Product Suitability form.
Table 1: 2007 federal income tax rates Taxable income between: Single $0 - $7,825 $7,825 - $31,850 $31,850 - $77,100 $77,100 - $160,850 $160,850 - $349,700 Over $349,700
Married filing jointly 10% 15% 25% 28% 33% 35%
Head of household $0 - $11,200 $11,200 - $42,650 $42,650 - $110,100 $110,100 - $178,350 $178,350 - $349,700 Over $349,700
10% 15% 25% 28% 33% 35%
Married filing separately 10% 15% 25% 28% 33% 35%
Current tax rates are available at www.irs.gov.
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$0 - $15,650 $15,650 - $63,700 $63,700 - $128,500 $128,500 - $195,850 $195,850 - $349,700 Over $349,700
$0 - $7,825 $7,825 - $31,850 $31,850 - $64,250 $64,250 - $97,925 $97,925 - $174,850 Over $174,850
10% 15% 25% 28% 33% 35%
Allianz Life Insurance Company of North America PO Box 59060 Minneapolis, MN 55459-0060 800.950.7372
Financial inventory Owner’s name __________________________________________________________________ Date_________________________
Monthly household* income
Monthly household* expense
$
Salary/wages
Rent/mortgage payment
Social security payments
Utilities
Pension /retirement
Debt repayment
Interest/dividend income1
Transportation
Rental income
Food
Other
Health care
$
Allianz Life Insurance Company of North America PO Box 59060 Minneapolis, MN 55459-0060 800.950.7372
Taxes2 Dependant support Charitable donations Travel Other
Total income
Total expense
$
Disposable income
$
$
Replacement comparison (Complete one for each policy being replaced by this application)
(Total income minus total expense)
Household* net worth
Owner’s name __________________________________________________________________ Date_________________________
Household* liquid assets
(Do not include primary residence, personal belongings or personal property such as jewelry, furnishings and vehicles)
Checking accounts
$
Issuing company
Checking accounts
Contract type
Savings accounts
Nonqualified securities
Securities3
Nonqualified annuities
Annuity free withdrawals4
Retirement accounts
Other
New contract
Issue date Surrender charge % at time of sale Years remaining in surrender schedule
Real estate5 Business equity6
Guaranteed interest rate
Other
Guaranteed annuity rate at age 65
Total assets Minus total liabilities7 Net worth
Guaranteed annuity rate at age 70
Total liquidity8
$
$
Annuitization/accumulation value
*Household means applicant and spouse/partner, if a member of the applicant’s household. Do not include income currently earned on money that will be used to purchase this annuity. Include property taxes, income, and FICA taxes. 3 Include mutual funds with no deferred sales charges 4 Do not include free withdrawals from policy being applied for 2
Replaced contract
(Assets that can be easily converted to cash, without penalty. Do not include personal belongings or personal property such as jewelry, furnishings and vehicles)
Savings accounts and CDs
1
As we mentioned earlier, these forms must be maintained as part of your record-keeping. They are not required to be submitted with the annuity application.
Surrender value
5
Do not include the value of primary residence Document type of business and the nature of the relationship with the business 7 Do not include the mortgage on primary residence 8 Do not include the value of assets used to purchase this annuity 6
NB6022
If replaced policy was a variable contract, was there a fixed account option? I Yes I No If yes, what was the fixed rate at the time of the sale? ____________%
(12/2007)
Please provide a summary explaining why the contract being replaced in not meeting the financial objectives of the annuitant: ___________________________________________________________________________________________________________
Exhibit A
___________________________________________________________________________________________________________ ___________________________________________________________________________________________________________ ___________________________________________________________________________________________________________ Please provide a summary explaining how the replacing contract is a better solution for your client: ___________________________________________________________________________________________________________ ___________________________________________________________________________________________________________ ___________________________________________________________________________________________________________ ___________________________________________________________________________________________________________ Did you sell the replaced contract? I Yes I No NB6023
(12/2007)
Exhibit B
Our commitment to you We are committed to providing you the tools, training, and information you need to succeed. We encourage you to read the Compliance Guide to Successful Business and to complete our eLearning courses on suitability at www.allianzlife.com.
If you have questions about suitability, please call the Suitability Team at 800.950.7372 (press 2 for New Business, then ask to speak to the Suitability Team).
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Agent Guide to Annuity Suitability
Notes
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Thank you for working with us to protect your interests, your clients’ interests, and our ability to serve you both.
www.allianzlife.com Issued by: Allianz Life Insurance Company of North America PO Box 59060 Minneapolis, MN 55459-0060 800.950.7372
For financial professional use only – not for use with the public. 1Product availability and features may vary by state.
(R-2/2008)
