A long time ago, I was sitting in a meeting at Dean Witter (remember them?). Top management had flown in from New York to address the new low-cost stock trade companies that were causing a stir in the financial world.
I will never forget Mr. Intellectual VP telling us (we were called stock brokers back then) that the $7-a-trade Schwab’s of the world and the low-cost upstart Vanguard were not a threat to our “master of the universe” status. He sincerely believed that we could continue to charge $200 to $400 per stock transaction. Really? I remember thinking at the time that he might be the dumbest person on the planet because his argument for the status quo was utterly ridiculous and without merit.
I think we can agree that this Dean Witter executive was a little off on his predictions. Multiple trillions of dollars later, the Schwab/E*TRADE model and the Vanguard/Fidelity low-cost solutions are here to stay and have permanently changed the investing world. The reason that both of these business models continue to be wildly successful is because they provide low-cost, transparent and simple solutions that are customer friendly. It’s really that simple, and a definite snapshot of our annuity future.
In 1943, then CEO of IBM Thomas Watson said the following: “I think there is a world market for maybe five computers.” That stroke of genius was followed up in 1977 by Ken Olson (president, chairman and founder of Digital Equipment Corp.) saying “There is no reason anyone would want a computer in their home.” Let’s just hope their tombstones don’t include these comical epiphanies.
In more recent times, we all can remember when life insurance started to be sold directly by companies like SelectQuote. The same type of pound-the-table statements like “can’t happen” or “life insurance is not a direct sale product” are being proven wrong on a daily basis. The vast majority of life insurance is still sold by agents, but as the public gets more comfortable with computers and the Internet, the life insurance market share will continue to increase through direct buying solutions.
This is the part where you need to sit down, take a deep breath, have an open mind and remember those past predictions. In the near future, a ton of annuities will be sold direct to the consumer and the product monopoly that agents now have will be gone forever. Are you OK?