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The Hartford Forces Variable Annuity Investment Changes

UPDATED July 27, 2013:  The variable annuity community has been up in arms since The Hartford announced forced variable annuity changes earlier this summer.  Many of their variable annuity contract holders are being forced to change their asset allocations to a more conservative mix by October 4 or risk losing out on their living benefits.  But due to a difference in contract wording in different states, some variable annuity holders will not be subject to this new forced change.  Darla Mercado updated her Investment News piece with a new article, “The Hartford pulls back on VA pullback-in some states.”

Certain contracts in New York, Connecticut, New Jersey, and Oregon are exempt from forced portfolio changes, as long as the annuity owner lived in those states when they bought their variable annuity.  Interestingly, some of these people already received the same notice as the other variable annuity holders who do have to make the changes.  The Hartford assures us that those contract holders who are exempt will be notified of the mistake and if they have already changed their asset allocation, their contracts will be set back to how they were originally.  The SEC has been notified by The Hartford of the exemption for some annuity holders.  If you have any question about your variable annuity contract and whether you must make required changes, check with The Hartford or you financial advisor. 

Broker-dealers are rather unhappy with The Hartford right now.  According to Investment News’ Darla Mercado, they are concerned about having a lot of extra work and potential liability from their clients after The Hartford has made sweeping variable annuity changes.  “B-D execs up in arms over The Hartford’s VA plan” details the changes and the firms who want to fight back, but don’t think they can.  For starters, The Hartford Financial Services Group is no longer even selling variable annuity products.  They stopped selling all annuities and even sold their life insurance business to Prudential Financial Inc.  For their existing variable annuities, clients have to select a new investment option that is more conservative by an October 4 deadline.  Their account value will be transferred to this more conservative investment to further protect The Hartford from the losses they had previously seen.  If annuity holders do not select a new investment, they will actually lose their living benefit income rider.

These forced changes mean that broker-dealers, advisors, and clients have some extra work to do with products that they thought were set for the future.  Raymond James Insurance Group is complaining that they have around 2,300 clients affected by this change and they are upset with all of the extra work and liability they now have to take on.  Others bring up the fact that there is really nothing they can do to push back against The Hartford since they no longer offer any annuities to threaten to stop selling.  There is also a concern that this move by The Hartford is going to bring other insurance companies to do something similar with their annuities.  While The Hartford is working hard to make sure everyone knows about these changes, there will certainly be some annuity holders who don’t select more conservative variable annuity investments and lose out on their income benefits, whether they knew about the change or not.

Not all firms are fighting The Hartford though.  With a long history of working well together, Edward Jones understands the situation and is working with the insurance company to make sure that no clients are left in the dust.  They are working together to monitor the 60,000 or so Edward Jones clients affected by The Hartford’s annuity changes.  Some clients have to make the investment change while others can no longer allocate money to the their variable annuity’s fixed accumulation feature.  Each month, The Hartford sends Edward Jones a report detailing the names of clients who have successfully made their changes as well as those who have not.  While Edward Jones admits that this is causing them extra work, they seem to understand the reasoning and be willing to work with their clients and The Hartford to get through the process.  Maybe more broker-dealers can follow suit to make the changes a little less painful.

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