Over the past couple of years, I have gone out of my way to attend a number of product- specific seminars to listen to wholesalers pitch the value derived from offering guaranteed benefits on variable and index annuity products.
For the most part, I come away impressed with the sales opportunities these products can generate. Unfortunately, I have been equally disappointed with the failure of every promoter to answer the same question I continually ask, which is, “How can you guarantee such attractive rates for future benefits; after all, isn’t this product subject to the same market risk as any other investment?”
I finally got so tired of hearing ludicrous responses such as, “The people who worked this out are a lot smarter than any of us in this room,” or “I’m not an actuary, but I have faith in ours and am sure we wouldn’t be saying it if it wasn’t true,” and my favorite, “Look — if you’re looking for a reason not to sell it, don’t. Just don’t come crying to me when your clients buy it from someone else.”
All of these are clever retorts. Unfortunately, none are acceptable answers to a simple yet extremely important question. They do, however, beg another question, which is, “How important is it for a producer to conduct due diligence on any product they intend to market and sell?”
Without beating around the bush, I will give you a straight answer to this question – a lot. After all, in today’s world, a producer who fails to conduct proper due diligence can create an open-ended liability, which I believe is something all producers can live without.
Another thing I have noticed is that many producers seem to be under the impression that riders guaranteeing withdrawal benefits, income benefits, and accumulation benefits are something new. In fact, they are only new in relation to the products they are associated with here in America. In fact, Europe and Great Britain have been offering these benefits on variable annuities for years.