The past few months have seen a renewal of the usual “trashing” of annuities in the popular press, the financial press and even in broadcast media outlets.
Why do the media hate annuities so much? Why do they seem to have an unbalanced view of these products?
The simplest answer is that controversy sells magazines and newspapers, or that it increases viewers. However, this does not explain the unfair reporting that seems to prevail, not to mention the outright misrepresentation of the product that is standard in so many publications and television programs.
Going beyond the “controversy sells” argument requires delving deeper into probable motivation for the constant bad press about annuities.
There are two professions–trial law and reporting–that require in-depth knowledge about technical subjects that are not part of the professions’ mainstream business. To accomplish their objectives, both professions need (but rarely acquire) detailed knowledge equivalent to almost a lifetime of study on the subject at hand. Once the trial is over or the article written, these practitioners then depart their subject and move on to the next assignment–one likely having nothing to do with the previous subject.
Needless to say, this type of activity lends itself to merely scratching the surface about the subject in order to make the point.
Trial lawyers and reporters are, in fact, salespeople–one selling to juries, the other to readers or viewers. Neither group of recipients of these sales processes desire real depth of understanding about what is being sold. So, these salespeople tend to pick up and emphasize those facts or, in many cases falsehoods, that will catch the interests of the audience. Depth of understanding is not a requirement.
Added to this surface treatment of a complex subject like annuities is the attitude of reporters and columnists that everyone is fully informed about every subject and should be able to make independent decisions based on such information. This bias exists despite the fact that few reporters take time to be fully informed themselves on the subjects they are covering. The attitude is exacerbated by lack of understanding of the basic financial needs of the average American.
The fact that the annuity industry needs to make clear to the media is that annuities are the only products that guarantee that people will not outlive their assets. All too often, the basic feature of annuities–guaranteed lifetime income–gets obfuscated by other product features, by tax deferral or by the very process by which annuities get sold.
Since annuities are complex products, they require professional salespeople to explain them to the people who purchase them. These salespeople, like everyone else in our economy, have to earn a living. This brings commissions into play and the media often concentrate on sales compensation in their reports instead of describing the guarantees that are unique to annuities and the valuable advisory services provided by the salespeople.
Annuities, like many other products and services, can be purchased direct without the intervention of salespeople. In the real world, though, this is a rare occurrence. Hardly anyone wakes up in the morning with the idea that he or she needs to buy an annuity that day. It takes the intervention of a trained professional who can explain the need for lifetime income and describe how annuities work to provide such income.
Granted, annuity pricing is sometimes hard to understand, what with the interplay between commissions and surrender charges. Nevertheless, it is indisputable that the vast majority of modern annuities permit purchasers to have their premiums fully working from the date of purchase, without reduction for sales charges.
The media also seem to hone in on some of the abuses that various regulators have publicized regarding annuity sales–particularly with respect to exchanges of annuities and of sales to seniors.
Taking unfair advantage of anyone, let alone senior citizens, is despicable. However, the law has adequate mechanisms to deal with such abuses. Moreover, the documented cases involving sales of annuities seem to deal more with the effect on variable annuities following the downturn in the stock market in 2000-2002 than from anything else. Besides, the suitability and replacement regulations dealing with annuity sales have the potential to prevent most abuses in the annuity business.
Perhaps more discussion about this will help ensure more balanced reporting about the products in the future.
The bottom line regarding misreporting on annuities is that those doing the reporting do not understand the products and have not bothered to become informed about them and the critical need for annuities. It is an indisputable fact that the United States is faced with a longevity crisis that the government cannot resolve. The Social Security system is in crisis, and the majority who face retirement have not taken adequate steps to secure guaranteed lifetime income on their own.
If Social Security fails, or is severely curtailed, people who have not purchased annuities to secure their own futures will look back on the media reports of today–reports that perhaps spurred them not to buy annuities–and regret that the media was not better informed.
Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are attorneys in the Pompano Beach, Fla. office of Blazzard & Hasenauer, P.C. Their email address is: firstname.lastname@example.org