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Open VA Platform at Ameriprise May Be Less Than Open

Open VA Platform at Ameriprise May Be Less Than Open

00:00 01 March in In the News

by Bruce Kelly and featured in Investment News
March, 2010:

Ameriprise Financial Inc.’s plan to open its brokerage platform to outside variable annuities falls short of the open architecture favored by other independent broker-dealers.

The move, which is expected to occur by the end of the second quarter, is apparently aimed in part at boosting Ameriprise’s ability to recruit independent-contractor registered representatives and financial advisers. Such advisers are often big sellers of variable annuities and consider the in-vestment options available to them carefully before changing firms.

But Ameriprise’s shift to openness comes with strings attached, which may curb an adviser’s desire to sell variable annuities from outside providers.

For example, the roughly 9,000 Ameriprise advisers affected by the plan won’t be allowed to contact wholesalers from such VA giants as Axa Equitable Life Insurance Co., Lincoln National Corp. and MetLife Inc. That is a limitation that competitors LPL Financial and Commonwealth Financial Network don’t place on their advisers.

Also, Ameriprise intends to prohibit its advisers from accepting higher commissions from other VA providers than what is paid on variable annuities from RiverSource Life, Ameriprise’s proprietary insurance affiliate. The restrictions, which are clearly intended to put outside VA providers at a competitive disadvantage, threaten to undermine Amer-i-prise’s reason for opening its platform in the first place, according to experts.

The change “is not in the best interest of a firm, in terms of recruiting,” said Jay Nagdeman, president of Suasion Resources Inc. “Ameri-prise is trying to be aggressive in recruiting, but [this change] may not be a true arrow in its quiver.”

For its part, Ameriprise defends the restrictions.

“It is in the best interest of our clients for advisers to be paid the same commission on all annuity sales,” said Ameriprise spokesman Chris Reese. “Doing so helps our advisers carry out their fiduciary responsibilities as registered investment advisers.”

Instead of relying on external wholesalers, Ameriprise will create an internal unit that advisers can call with questions about variable annuities, Mr. Reese said.

The majority of Ameriprise advisers are limited to selling variable annuities created by RiverSource Life. For years, Ameri-prise has been dogged in the retail- securities business by a platform that is either limited or closed in terms of products and scope.

The former American Express Financial Advisors Inc. opened its mutual fund platform in the late 1980s, adding a couple of fund families to its proprietary mix. In the 1990s, it added more choices. The platform now has 11,000 mutual funds from more than 300 fund families.

American Express Co. spun off the company in 2005.

“The market doubts Ameriprise’s ability to change,” said one Ameri-prise adviser, who asked not to be identified. “It took years to expand mutual funds. But if Ameriprise makes changes [to its VA choices], it could be a really powerful player in the market.”

Mr. Reese declined to comment on the adviser’s observations.

Product limitations continue to be a part of the brokerage business, said recruiter Jonathan Henschen, who added that Ameriprise’s wholesaling restrictions were not a surprise to him. Typically, broker-dealers owned by insurance companies restrict competing wholesalers, he said.

Ameriprise’s roots are in the insurance business. IDS Life, which American Express bought and later transformed into AEFA, became RiverSource Insurance at the end of 2007.

The move by Ameriprise to open its variable annuity business is the latest salvo in the company’s battle to recruit advisers. In November, it gutted and rebuilt its recruiting staff as part of an effort to bring in more independent reps.

The company has three networks of brokers under its umbrella: employees, owners of franchises who are essentially independent contractors, and reps and advisers with Securities America Inc., an independent broker-dealer. The VA platform change affects employees and owners of franchises. Brokers acquired when Ameriprise bought H&R Block Financial Advisors in 2008 already have access to more than one VA provider, as do reps at Securities America.

E-mail Bruce Kelly at [email protected]