Editor’s note: The following letters from a quartet of industry organizations were written in response to Charles Duhigg’s article in the July 8, 2007 New York Times, “For Elderly Investors, Instant Experts Abound,” calling into question advisors who market themselves to seniors with “impressive sounding credentials.” Here are a couple of excerpts from the article:
“Many of these titles can be earned in just a few days from for-profit businesses, and sound similar to established credentials, like certified financial planner, that require years of study, difficult tests and extensive background checks.”
“Many graduates of these short programs say they only want to help older Americans. But they are frequently dispensing financial counsel they are unqualified to offer, advocates for the elderly say.”
With so many different designations available with such varying degrees of difficulty, the topic invites scrutiny from the mainstream media. Unscrupulous sales tactics regarding product suitability is also a subject that has attracted media attention, and many halftruths, incomplete or inaccurate information about annuity products typically seems to accompany such coverage. Senior Market Advisor has always been a strong advocate for ethical practices and the value of annuity products. We have reprinted these responses in an effort to keep readers aware of how the industry is responding to negative, sometimes inaccurate media coverage.
ACLI RESPONSE TO
N.Y. TIMES ARTICLE
“For Elderly Investors, Instant Experts Abound” (front page, July 8) raises serious questions about the sales tactics of a handful of independent insurance agents.
Any consumers who believe that they have been misled by an insurance agent should immediately contact the insurance company backing the policy or the state insurance commissioner. Our industry does not and will not condone unsuitable sales of our products.
The confusion caused by the myriad designations for insurance professionals certainly must be addressed. But we must correct the negative picture you give of deferred annuities and industry
Annuity owners typically are not obliged to wait 10 years to draw benefits. Insurers generally offer fixed and deferred annuities that allow immediate withdrawals.
Nor is it true that deferred annuities are inappropriate for retirees. Retirees are living longer; many work part-time and earn income for years.
It is hardly inappropriate for these retirees to choose to defer a portion of their retirement income in exchange for a higher return. Indeed, many retirees still have dreams for the future that are best
financed by deferred annuities.
Retirement planning must be tailored to suit the needs of each individual retiree.
- Frank Keating
President and Chief Executive,
American Council of Life Insurers
NAIFA RESPONSE TO
N.Y. TIMES ARTICLE
On July 8, 2007, the New York Times published an article, “For Elderly Investors, Instant Experts Abound,” about allegedly improper sales of deferred annuities to seniors by licensed agents professing to be experts in giving financial advice to seniors. Their credential for making that claim was the fact that they carried the title “Certified Senior Advisors.”
It is not the intent of the National Association of Insurance and Financial Professionals to comment on the CSA designation; however, we do feel it is appropriate to point out that annuities, both deferred and immediate, can play a vital and valid role in sound financial and retirement planning. It is not the products that are abusive. It is the use or misuse to which they are sometimes put.
In fact, deferred annuities are an excellent vehicle for accumulating tax-deferred money over a long period of time in the context of a sound financial plan. Immediate annuities are outstanding products for guaranteeing a lifetime income to a retiree and, if they so choose, his or her spouse. And deferred annuities can become immediate annuities at any time the annuitant chooses.
NAIFA believes full and easy to understand disclosure of all the pertinent facts about these and all insurance and financial products are in the public interest. NAIFA members subscribe to a Code of Ethics that requires that they always act in their client’s best interest, based upon full knowledge of the facts of that client’s situation. NAIFA deplores any producer or other advisor who puts his or her own interest above that of their client.
Without full knowledge of the situations described in the article, we express no opinion about the actions of the individuals mentioned. However, we do emphasize that each person’s financial situation is unique and must be evaluated, addressed and resolved in the context of what is best for that client.
- David Woods
FSP GENERAL STATEMENT ON FINANCIAL
AND INSURANCE DESIGNATIONS
In light of the July 8 New York Times cover story “For Elderly Investors, Instant Experts Abound,” on some of the designations used by financial and insurance professionals, the Society of Financial Service Professionals is restating the criteria it uses to evaluate the credentials that make an individual eligible for membership. They are:
- The designation or degree must be awarded by a credible institution or examining body as a designation or degree.
- The credential is awarded after successful completion of an examination or series of examinations designed to measure mastery of a body of knowledge.
- Attainment of the credential should be subject to a minimum experience requirement appropriate to the field of expertise.
- The individual earning the credential should have a continuing commitment to advanced education.
- Holding the credential should entail adherence to a professional Code of Ethics.
FSP’s core values are relationships, education and ethics. We believe that these planks create a platform that enables advisors to serve their clients’ best interests and operate in the public trust. As an organization, we firmly believe that true continuing education – and designations earned as a result of such education – is highly worthwhile. We support the endeavors of all parties in the insurance and financial service profession to provide credible expertise to their clients.
For more information about FSP, call (888) 243-2258 or visit www.financialpro.org.
- Lisa Wetherby
Director, Public Relations
Society of Financial
NAFA RESPONSE TO N.Y. TIMES ARTICLE
The National Association for Fixed Annuities applauds the advocacy efforts of The New York Times and its intention to keep its readers informed about potential misleading sales practices and salespersons. NAFA strongly opposes unscrupulous or misleading sales methods including any representation of expertise or authority when there is none. However, NAFA also strongly disagrees with any implication that these activities or representations are widespread or endemic. NAFA is aware, from industry reviews of the documented consumer complaints and resolutions with insurance departments, that the vast majority of sales are not only appropriate for and desired by the customer, but are satisfactory as well.
NAFA was disappointed that the information and education your paper sought from us and from our member companies was apparently not utilized in this article. Instead of helping to educate the public on what should be known and what ought to be asked when learning about fixed annuities, [your reporter] Mr. Duhigg seemed to be more interested in vilifying the agents, the designation and the insurance companies. NAFA understands that headline journalism sells newspapers, but no one seriously believes that all insurance professionals, insurance designations or insurance companies are bad. Furthermore, the article did nothing to help readers understand fixed annuities nor to know what to look for when considering purchasing one.
You are right in differentiating the two types of fixed annuities, immediate and deferred. However, NAFA would like to offer a bit more insight into these differences to benefit your readers. Immediate annuities, like their name, are suitable for individuals who want the guaranteed lifetime payouts immediately. Deferred annuities are for individuals wanting that same guarantee but do not want to begin tapping into this savings immediately; they will receive their guaranteed payouts, but only after the deferral period. In addition, these individuals are seeking guaranteed principal protection, guaranteed prior earnings protection, guaranteed minimum interest, tax-deferred savings, longer-term savings plans, and gifting without delays and costs of probate.
Your section regarding commissions began with some information on sales numbers and offered the opinion that immediate annuities are “often sound investments” for retirees but that “the vast majority of annuity sales do not offer immediate payouts.” If you would have asked the insurance companies that you interviewed or inquired of NAFA, you would have been informed that almost all deferred fixed annuities offer payout options which are similar to and often exactly the same as their immediate annuity partner. In addition, the majority of all fixed deferred annuities allow purchasers to receive payouts of their annuities if they select a payout option between five years and lifetime payout. The deferral is just for those who want to delay their payout because they are still working or using other savings or retirement funds for their present income.
To further reinforce your alarm, you concluded that out of the total $182.8 billion sales in 2006 (NAFA informed you that LIMRA reports sales of $236 billion), “97 percent of all annuity sales were deferred annuities.” Since this article was about the sale of fixed annuities, and you interviewed companies about their fixed annuities and requested information from NAFA, the National Association for Fixed Annuities, we question why you included almost $161 billion dollars of variable annuity sales in your tally. Since variable annuities are by their very nature deferred, it would seem your intent was to sway opinion to your next point that deferred annuities offer “sales agents the richest commissions that is one reason so many of them are sold every year.” We informed you that the average fixed annuity commission is about 5 percent, not the 9 percent you used as an example. Misstatements such as those in Mr. Duhigg’s article regarding “high commissions” imply that they are used as an inducement to sell “elderly” people annuities that are inappropriate for them. You did not inform your readers that commissions are commonly reduced, generally by as much as 50 percent, for annuities sold to older individuals.
A no-surrender charge product with a typical 1 percent annual asset fee, as opposed to a 7-year surrender charge product with a 7 percent street level commission, will actually have a higher cost to the client and will thus reduce the potential return to the client, not increase it. This is as true of mutual funds and other vehicles as it is true of fixed and variable annuities. An asset-based trail must recover an increasing cost over time from the spreads, and since the spreads cannot be increased (in most cases), they start out higher at the outset than spreads on products with traditional stacked, front-end commissions and contingent deferred sales charges.
Just as a typical “A” share mutual fund will actually cost a client less if the asset is held for a longer duration than a “B” share mutual fund will, so will a stacked front-end commission on the annuity cost less than the asset-based trail over the same duration. NAFA is unaware of any other financial instrument that reduces surrender charges (or contingent deferred sales charges) because of age.
The article also claims that annuities “require buyers to wait as long as 10 years before receiving benefits.” Ignoring the fact that the average surrender period is more typically around seven years, you did not mention the 10 percent free withdrawal each and every year. You also failed to point out that, unlike mutual funds or other market risk products, surrender charges can be waived at death, for nursing home confinement, terminal illness, IRS required distributions, or, in some cases, loss of a job.
Omitted, too, was the fact that, unlike mutual funds or other market risk products, surrender charges are waived if the client chooses to receive guarantee payouts over as little as five years and up to lifetime.
Finally, no reference was ever hinted at that, again, unlike mutual funds or other market risk products, even before beginning the surrender period, fixed annuities offer the policyholder a 30-day free look when first receiving the annuity policy and full disclosure information to reverse the decision if that is what is preferred. NAFA believes that in the end the two most important maxims for insurance professionals selling fixed annuities are:
- Target safe money needs, not age or demographic.
- Diversify products as well as risk by putting savings or investments into more than one financial product.
Suitability is always a matter for individual determination. Only a well-informed client can make an appropriate decision. Therefore, it is important that all the features and benefits of the fixed annuity be fairly and accurately communicated to a prospective buyer.
Executive Director, NAFA