RAA RAA Sales Process & Suitability Analysis 2 — Questions and Answers
Question 1: When replacing an existing annuity, which regulatory requirement must typically be fulfilled?
- Filing a replacement notice with the insurer and providing a comparison to the client (Correct answer)
- Obtaining a court order
- Completing a medical exam
- Submitting a 1035 exchange tax filing immediately
Correct answer: Filing a replacement notice with the insurer and providing a comparison to the client
State regulations require that a replacement notice be filed with the replacing insurer and that the client receive a comparison of the old and new contracts to make an informed decision.
Question 2: Which sales practice is considered 'twisting' in the annuity industry?
- Recommending a higher-credited rate annuity to an existing client
- Inducing a client to replace a contract through misrepresentation (Correct answer)
- Offering a bonus crediting feature
- Providing a detailed benefit illustration
Correct answer: Inducing a client to replace a contract through misrepresentation
Twisting occurs when an advisor uses misrepresentation or incomplete comparison to persuade a client to replace an existing annuity, typically to generate a new commission.
Question 3: In the RAA sales process, what is the role of the benefit illustration?
- To guarantee exact future contract values
- To show hypothetical projections of annuity performance and help the client understand the product (Correct answer)
- To replace the need for a suitability questionnaire
- To commit the insurer to specific credited rates
Correct answer: To show hypothetical projections of annuity performance and help the client understand the product
Benefit illustrations provide hypothetical projections of how an annuity may perform under various scenarios to help clients understand the product, but they do not guarantee future values.
Question 4: Which of the following actions by an advisor would constitute 'churning' in an annuity context?
- Recommending a new product when a client's needs genuinely change
- Repeatedly replacing annuity contracts to generate commissions without client benefit (Correct answer)
- Recommending annuitization after the surrender period ends
- Explaining surrender charges to a new client
Correct answer: Repeatedly replacing annuity contracts to generate commissions without client benefit
Churning involves repeatedly replacing contracts primarily to generate commissions for the advisor, with little or no benefit—and often harm—to the client.
Question 5: What does a 'needs-based' approach to annuity sales require the advisor to establish first?
- Which product has the highest available commission
- The client's specific financial goals, gaps, and retirement income needs (Correct answer)
- The insurer's current product inventory
- The advisor's target quarterly sales volume
Correct answer: The client's specific financial goals, gaps, and retirement income needs
A needs-based approach starts with a thorough understanding of the client's goals, current financial position, and income gaps before any product is recommended.
Question 6: Under the NAIC model regulation, which party bears the primary responsibility for ensuring annuity suitability?
- The insurance company only
- The client alone
- The insurance producer (advisor) (Correct answer)
- The state insurance commissioner
Correct answer: The insurance producer (advisor)
The insurance producer who recommends and sells the annuity bears primary responsibility for ensuring the recommendation is suitable for the client.
RAA RAA Sales Process & Suitability Analysis 2
When replacing an existing annuity, which regulatory requirement must typically be fulfilled?