The variable annuity industry kicked off its annual meeting with a call to “do the right thing.”
During the course of the annual meeting of the National Association for Variable Annuities here, speakers offered their take on what the right thing is.
For Charles Halderman Jr., president and CEO of Putnam Investments, Boston, “putting investors first must be a mindset.” The reason, he explained, is that “too often, we have put the interest of selling funds ahead of the obligation to make sure the investor is better for the long term.”
He cited three ways to advance this goal:
==Stop focusing on funds in a narrow asset class during and after a run-up in that sector;
==Disclose information to investors; and,
==Stop advertising high rates of return in a short time frame and in narrow asset classes.
These actions need to be taken, Halderman said, because watching narrow fund classes and advertising higher rates of return each discourage diversification. Disclosure needs to be practiced because it encourages investors to hold funds longer, he added.
These steps might help address one of two problems that baby boomers face: not investing properly. Coupled with boomers’ low propensity to save, this trend may result in many boomers not having enough money in retirement, he continued.
As evidence of this trend of not investing properly, Halderman said boomers and other investors are making mistakes such as switching to different funds at the wrong time and not holding equities at all. For instance, he told NAVA attendees that according to Investment Company Institute data, among the 20-30 age group, 38% had no exposure to equities. And, he continued, half of those in the 50-60 age range had either none or all of their investments in equities, a “bipolar finding.”
The industry, according to Halderman, needs to provide consistent and dependable returns because volatility encourages investors to move money among funds, an action that is not helpful for long-term savings.
Considered with other factors such as health care costs that are rising 5 times faster than the overall inflation rate and increasing longevity, the VA industry will be doing the right thing by investors by helping them alter these patterns, he said.