Smith Barney Changes Annuity Payout Policy

The firm has decided to give reps 100 percent of what insurance companies pay in trails as gross compensation.

Salomon Smith Barney has changed its annuity payout policy, Registered Rep. has learned.

The firm has decided to give reps 100 percent of what insurance companies pay in trails as gross compensation.

Previously, Smith Barney took 10 percent off the top for itself and passed 90 percent on to producers.

"Since the new compensation schedule [for 2002] excludes trails from being part of the bonusable annuity production, the firm decided to comp us on this [the additional 10 percent on annuity trails]" says a Smith Barney producer. "It actually works out better this way for us."

Says another SSB producer who did nearly $200,000 in gross annuity commission last year: "Anyone doing a substantial annuity production and who also opts for the higher trail of commission schedule on annuities is extremely happy."

Most other major brokerage firms retain commissions on annuities.

When Smith Barney informed brokers that it eliminated bonus payments on annuity trails, brokers complained to management, prompting the change.

At the time, a rep said, "It is an extreme example of bad faith to encourage us to do annuity business and opt for the low upfront high trail payout and then yank the bonus away from us. It’s a 180-degree turn in the philosophy of building ongoing fee based business."

Under Smith Barney’s 2001 production compensation bonus annuity scale, brokers received a 5 percent bonus on annuity production of $35,000 to $75,000 (gross commission, not net); 7.5 percent bonus on production of $75,000-$125,000; 12.5 percent bonus on $125,000-$250,000; and 20 percent on production of $250,000 and more. (Brokers producing less than $35,000 do not receive a bonus.)

By eliminating the bonus on trails, a broker producing $125,000 to $150,000 in annuities will see their gross commission slashed by $12,500 (12 percent).

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