Every week I receive many calls from people who have either just bought an annuity or are being pitched one. They are always hoping that I will validate their decision, or at minimum, better explain it to them. Just like a restaurant critic doesn’t like every restaurant, and a movie critic doesn’t like every movie, I consider myself a true annuity critic. There are some good annuities out there, but some bad ones as well.
The recent trend of these calls concern how agents are trying to force the wrong annuity strategy into a situation where there is a clear and simple solution. This “one size fits all” approach that a lot of agents use is one of the main reasons our industry has earned its bad reputation and ongoing negative stigma.
Case in point. Everyone in our industry knows that over 10,000 baby boomers retire every day, and with that movement comes the need for some lifetime income solutions to start immediately. Regardless of interest rate levels, the highest contractual payout for the client and the most efficient solution for immediate income is a single premium immediate annuity (SPIA). This is a mathematical fact and cannot be argued from a rational client suitability standpoint.
In spite of this obvious solution, I am getting calls from people across the country telling me that they have either purchased or are being advised to purchase a variable or indexed annuity for immediate income! There is no way that recommendation can be suitable or appropriate from a highest contractual payout standpoint. We all know the primary reason for an agent to suggest this approach is that the commission for selling a deferred annuity is much higher than for an immediate annuity.
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In addition to blaming the agent’s justification of “if you believe it’s the truth, it’s not a lie” (George Costanza – Seinfeld reference) mentality, I also blame the carriers and the FMOs for feeding into this “learn this product and go” marketing plan.
In a recent conversation with an FMO, I was told that over 95 percent of their record-breaking business in 2013 has been with one carrier and one specific annuity product. How is that possible if the industry claims to be actually listening to the client and trying to solve for each situation from a suitability and appropriateness standpoint? This one product focus has to change before any type of legitimacy is given to the world of annuities.