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Life Health > Annuities > Fixed Annuities

A consumer behavior primer

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A consumer behavior primer
I spent a few days reviewing consumer behavior research conducted by Baba Shiv, an associate professor at Stanford, and discovered several findings that could apply to the annuity world. Since I don’t want this article to be a page of footnotes I’m not listing the academic studies that are the basis, but I’ll be happy to send anyone the references if you drop me an e-mail.

Overcome bad annuity article
A negative message is effective, especially if a decision will be made right after hearing the ad (which is why more “my opponent is evil” ads appear the week before an election), or if the message is not challenged. But if the message is challenged, there’s a good chance the bad article vibes can be turned or at least neutralized. How? Primarily by attacking the fairness of the article.

If an article says fixed annuities have high fees and face a lot of consumer complaints, and it quotes three mutual funds saying how evil fixed annuities are, the most effective response is righteous indignation followed by rebuttals: “Why was the reporter so biased? Why wasn’t anyone from the annuity carriers interviewed? I noticed there were 14 mutual fund ads in the reporter’s publication and no annuity ads. I wonder if the reporter’s maiden name was Fidelity.” Follow that with major point rebuttals like, “Fixed annuities don’t have annual fees. There’s only been one NASD complaint involving fixed annuities in the last two years. Fixed annuities are good because they have guarantees.” If the consumer is persuaded the negative attack is unfair, he will ignore it.

Cue the consumer
Whether you call it framing or cueing or setting the stage, the lead-up to the product presentation is crucial. Open by saying, “This index annuity has a 9 percent ceiling on the interest you can earn next year,” or you could say, “Your bank has a 1-year CD rate of 5 percent; this index annuity has a 9 percent ceiling.” The reason for the latter phrasing is the consumer may have forgotten what bank rates are and has unrealistic expectations of potential safe money returns.

A study found that people thought “75 percent fat-free meat” tasted better than meat labeled “contains 25 percent fat.” Annuity features should be talked about in the same manner. It’s better to say that the annuity offers 10 percent free annual withdrawals than to say 90 percent of the value is subject to withdrawal penalties.

Paint a picture
Research shows more consumers will buy if you create a vivid picture of a product’s benefits rather than its features. You could say the annuity will hopefully generate more interest over the years than the savings account, or you could say the annuity may allow you to spend some time on a cool summer morning sitting in your 22-foot bass boat (with the inboard jet) reeling in a six-pound smallmouth bass.

You could talk about how a $20,000 premium could establish the grandchild’s college fund, or you could talk about seeing a bright young adult in cap and gown walking across that stage to receive a degree telling everyone he owes all this to his grandparents. (Maybe we should put in $30,000 today and try for magna cum laude?) Help the consumer anticipate the satisfaction he will enjoy by choosing the annuity.


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