If a customer walks into my favorite fast food eatery, In-N-Out Burger, and says “I’m hungry,” the counterperson would offer a hamburger with fries or a cheeseburger with fries. Problem solved.
If the fast food eatery acted like the financial services world, the counterperson would grab each customer as they walked in and make them sit through a 98-slide presentation featuring the process by which cows become burgers; potatoes are planted, tended and harvested; and how the restaurant was constructed. When the slideshow was finished the customer would be led on a tour of the kitchen to show how the burger was cooked, placed in a bun and wrapped in paper. At this stage, the few remaining customers that hadn’t starved to death would be allowed to order their burger and fries.
All too often a customer walks into the office of an annuity producer saying, “I want more interest,” or “I want safety.” Instead of being offered a stated rate annuity with a yield of X percent or an index-linked annuity with the potential for a Y-percent interest rate, the poor consumer is treated to a lecture on comparative safety of CDs and legal reserves, the power of tax deferral, avoidance of probate, and – if an index annuity is involved – how options are used to provide index-linked interest. The problem is the customer wants to be treated like a smart consumer, but is often treated as an annuity analyst.
This insistence on answering all questions never asked is not limited to the annuity world. It has been my experience that stockbrokers, planners and advisors also often insist that everything they know be demonstrated to the customer. I don’t know what causes this phenomenon, but it gets in the way of solving the problem.
As a smart consumer, the customer is used to stating their needs and looking at the relevant aspects of the solutions presented so that they can make an informed decision. If the desire is a higher fixed annuity interest rate, the relevant factors would include what the rate is and how long it is good for; the minimum rate; how likely it is that the carrier can continue to pay the rate (ratings and financial strength); and any potential obstacles in receiving the rate (liquidity costs and charges). The intent is fair disclosure of the facts relevant to the consumer making an informed decision. Would you normally tell that the carrier’s portfolio consists of 94 percent investment grade bonds?
Why would you? What is relevant to the consumer is whether the annuity “engine” will get them to where it is going, and not a description of every component under the hood.
This does not mean you should withhold information. If the consumer wants to know the percentage of investment grade bonds, tell them. And furnish the consumer with full disclosure about the annuity so they may dig as deep as they wish. But presenting the consumer with everything you know results in unnecessary noise that often covers-up what is relevant to the consumer. This often results in either a bad decision, or no decision being made at all.