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The J.C. Penney Way

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Recently, my colleague Corey Dahl wrote about how the decline of Sears serves as a cautionary tale for the life insurance industry. In keeping with the retail theme, or more accurately, mature retailers struggling to stay relevant in today’s marketplace, J.C. Penney has just announced a new pricing policy that in essence slashes prices by about 40 percent and sets a regular schedule for sales. What a relief, I thought. Now I won’t get a mailbox fill of those annoying fliers announcing discounts, which usually arrived a day after the sale took place.

Will this new strategy lure more shoppers to J.C. Penney stores? Only time will tell.

But J.C. Penney’s new tactic also got me thinking about feesthe fees advisors charge for their services when selling financial products like annuities and life insurance as well as the fees included in products such as variable annuities.

Are those charges too high? Many commentators think so and warn against buying variable annuities for just that reason. Further, a sputtering economy has left many people with barely enough to buy basic necessities, let alone exotic financial products like annuities. So would lowering fees make them more palatable to the general public? If advisors lowered their charges, would they attract more middle-market retirees and pre-retirees? and Senior Market Advisor recently did a survey of advisors. One of the questions put to the participants was whether they had changed their payment model (i.e., lowered fees, commissions) to bring in more clients. An overwhelming 88 percent said they had not.

Said one respondent: “Discounting your rates devalues you and the services you provide. I am worth what I am paid.”

Yet other comments hinted that commissions are being lowered by carriers: “Commissions are set by the carriers. They’ve been lowering them without any help on my part.”

Obviously, everyone wants to buy a product or service for the lowest possible price. Are fees for financial products like annuities too high? It depends on who’s buying and what they are actually purchasing. Each of us has our own mental threshold for what we will pay for a good or service.

We know in a general sense what certain items will cost us. We know a Lexus is going to cost a whole lot more than a Ford Focus. We know that before we make a decision as to which one we want to buy. When we sell our home, we know the realtor is going to get a percentage of the selling price.

But when it comes to financial advice or financial products like annuities, most people are clueless about what they cost or should cost. As a result, any fee is automatically assumed to be too expensive. Perhaps it’s because people are handing over much of their hard-earned savings and, therefore, they believe that is enough of a payment. It may also be because fees and commissions for insurance products are opaque and not easy for most people to comprehend.

So it might not be a problem that fees are just too damn high but rather the industry and advisors not doing a good job of explaining those fees to consumers and why they are justified. Financial advice, like medical advice, doesn’t come cheap, and intricately underwritten products like annuities carry a heftier price tag than a pair of jeans at J.C. Penney.

Many advisors post their fee schedules prominently in their office, but when clients are bombarded daily by financial experts in the media hammering on what they think are too-high fees for financial products in general and annuities in particular, it’s understandable that any price put out there may be perceived as too pricey to the average consumer.

That doesn’t mean carriers and advisors should price themselves too high for the majority of Americans. There is an entire underserved middle-market of boomers that needs your services. Offering a range of product and services at different price points always makes sense. Let the consumer decide what they are they comfortable paying for and what their budget can bear.

A related question from the LHP/Senior Market Advisor survey was whether advisors had lowered their investment threshold (less than $100,000) to attract a broader client base. Sixty-six percent said they had not; yet that indicates a third have done so. Again, welcoming potential clients of more modest means could build up your practice. Said one respondent: “I never limited my client base. For lower asset clients, I would charge a flat fee rather than an AUM [assets under management] fee.”

Full disclosure of fees upfront is always a good idea. But so is explaining clearly to clients and prospects what exactly they are for and how they compare to other goods and services. (How many of your clients pay $5 a day for a latte?) And be brave enough to let your client comparison shop for other products and advisors. If you are truly offering good customer service, they won’t leave you no matter what you charge.

Help your clients understand that those fees may be a relatively small price to pay for a secure retirement. And they may even have some dollars left over for a shopping spree at J.C. Penney.

But tell us: Are you encountering more price objections lately and how do you counter them?

Maria Wood is the annuity channel editor for and managing editor of Senior Market Advisor.