We all can agree that, unfortunately, annuities are still the “curse word” of the financial services industry and especially among the majority of the mainstream and uninformed financial media. This is tragic, and we the annuity industry can easily win this financial propaganda war by just focusing on one easy to remember phrase: “Transfer the Risk.”
The “market growth” mistake
In my opinion, the mistake the annuity industry is making is trying to compete in the world of growth. I understand that this is the sexy sell, and fills the “greed” factor, but annuities will never compete head to head with the full upside of equity markets. Why are we trying to compete in that growth category when we can own our own “unique message” space? Variable annuities (VAs) are the obvious argument for growth, but even fixed indexed annuities (FIAs) are trying to compete in the “market growth” category as well. Let’s break down VAs and FIAs and the growth argument, and what the annuity message should really be.
Variable annuities have the best argument to be classified as growth products, but most policies start limiting investment choices with the addition of any contractually guaranteed riders. Because most variable annuity policies are sold with these attached riders, this fund choice limitation realistically prevents this strategy from being a pound the table upside strategy when it comes to “market growth.”
One VA exception
There is really only one exception to the annuity “market growth” argument, and that’s the no load/no rider variable annuity. This pure “tax deferred growth” space is continuing to expand, and will see even more popularity if new capital gains tax proposals are implemented.
Fixed indexed annuities
Even though FIAs were initially created to compete with CD/fixed-rate returns, most annuity agents love presenting FIAs as pure market growth products via the index option strategies. Yes, I understand that the upside to an FIA is that there is no downside…and that there is limited participation in the upside and that growth can be locked in, etc., etc. I get that. All of you FIA Kool-Ade drinkers out there calm down, because I recommend FIAs as well and sell a ton of them, but primarily for contractually guaranteed target date income planning using the income riders. I just don’t think we should present them in the growth category due the index option upside limitations.
The marketing fix and message strategy: “Transfer the risk”
Picture the TV commercial that my good friends at NAFA (National Association of Fixed Annuities) could run showing a husband and wife at the kitchen table after another volatile week in the stock market (CNBC on in the background), and both of them verbally coming to a conclusion that they are tired of dealing with market risk. They want to get rid of some or maybe even all of the risk.
They want to “Transfer the risk.”
The husband turns to the wife and says that they need to “transfer the risk” to an annuity to provide an income that both of them can never outlive. The wife agrees and responds by saying that they need to “transfer the risk” to another annuity strategy that provides a guaranteed legacy to their children and grandchildren. Then the husband says that they should also look for an additional annuity to “transfer the risk” to cover them for long-term care. As they smile at each other, looking like a weight has been lifted off of their backs, the smooth commentator TV voice says in the background:
“Annuities…‘Transfer the risk’ solutions that you can depend on for the rest of your life.”
Bingo! Done! Enough said! Winner! The annuity industry radio ads would use the exact same audio, and the corresponding print ads would just repeat the above statement in big bold letters.
The goal of this coordinated campaign would be consistency, repetition, and to pound the message into the public’s subconscious:
- Annuities = Transfer the Risk
- Transfer the Risk = Annuities
Sooner than later the public would equate “transfer the risk” with annuities, and then could start properly understanding how these fantastic products could help their portfolio and their specific situation It would also make the agent and industry message simpler, more suitable and appropriate, and more client friendly.
Repeat after me: Transfer the risk….Transfer the risk…..Transfer the risk. Annuities = Transfer the risk. One simple, truthful and effective message that the annuity industry needs to adopt, embrace and implement.
It makes complete sense and is a total game changer. As Nike says, “Let’s Do It.”
For more from Stan Haithcock, see: