I’m starting to get concerned that insurance companies are so intent on making variable annuities simple and transparent that soon the products will be all but impossible to understand.
And I’m not just talking about consumers here. Advisors, too, will have to be continually on the lookout for the newest, most innovative features and how they interlock with all the other modular elements that constitute the variable annuity in the early 21st century.
To paraphrase the marketing slogan of a no longer existent automobile brand, “This isn’t your father’s variable annuity.”
Please don’t think I’m against simplicity and transparency–not at all. These characteristics are not only welcome but long overdue. But with features in VAs multiplying faster than hamsters, it’s a brave soul who will venture into the world of annuity buying without taking along the equivalent of instructions from MapQuest on how to get from point A to point B.
This development is good for those advisors who keep up to date with the latest dots on the VA landscape and how they connect. The need for advisors has never been greater than it is now to navigate through this newly simple and transparent world.
For the absolute latest information on what is happening in the VA world regarding using the product for income in retirement you won’t do better than Linda Koco’s cover story on page 12. It’s all laid out there–the innovative thinking and the results thereof.
What it shows is that insurers–contrary to the rap they often get in the media–have been remarkably responsive to consumer needs and desires. The sheer profusion of guarantees in variable annuities–especially since the early 2000s when so many investors got burned as the dot-com bubble burst and the market went down in flames–is enough to gladden the heart of even those aficionados most addicted to acronyms.
It’s almost like a cheerleading shout: “Give me a G, give me an M…” and then it’s nearly any letter you want after that. Want an A? OK, you’ve got it in the Guaranteed Minimum Accumulation Benefit. An I? How about the Guaranteed Minimum Income Benefit? A W? Then there’s the Guaranteed Minimum Withdrawal Benefit.
Another trend in the new thinking is companies realizing that even in retirement consumers’ needs are not static and they change with advancing age. Thus, you’re starting to see and will see more of products that can change/transition easily (even if for a fee) as consumers’ needs change.
Still another trend is the growing acknowledgement that the form of advisors’ compensation needs to be adjusted in order to keep them as involved in the income distribution phase of VAs as they were in the accumulation phase. Thus, you will see more and more companies institute some kind of trailer compensation to keep advisors in the loop.
All of these developments are not only good, they’re necessary in a world where people more and more are responsible for financing their own retirement. Perhaps the situation seems so complex now because we are in the VA equivalent of the Paleocene epoch of the Cenozoic era, when the number of mammals (think product features) in existence exploded.
Things calmed down after a while and clear winners and losers emerged. And that, no doubt, will happen in Variable Annuity World. Let’s hope so, anyway.