If you are a fan of the recent TV sitcom, “Seinfeld,” then you remember George Costanza (played by Jason Alexander) sitting in their local meeting place restaurant and telling Jerry, “It’s not a lie…if you believe it.” That’s pretty funny on the surface, but the annuity industry does seem to suffer from occasional annuity delusion from top executives to FMOs and all the way down to the agent. It’s time for the annuity industry, top to bottom, to clean up the message as we address the tidal wave of people needing the retirement guarantees that annuities provide.
In previous LifeHealthPro.com columns, I have addressed the need for higher agent education standards, inappropriate agent one-size-fits-all selling tendencies, and appalling bait and switch Internet advertising. So let’s address some other current annuity “whoppers,” and hope that all of these issues represent moment in time and not an ongoing “circus mirror” trend.
Blurring the line between yield and income riders
I can see George Costanza right now as an annuity agent giving a product presentation at a “bad chicken dinner” seminar and eagerly throwing out guaranteed numbers like 6 percent, 7 percent or 8 percent without the full explanation, and then piling on with the upfront bonus “cherry on the top” close. We all know that riders are not yield, and that income riders are monopoly money if not used for that specific purpose. By the way, that’s OK, but we have a duty to the annuity brand to make sure that the client totally understands income rider liquidity limitations. Agents also need to stop “leading” with these high percentage numbers in their ads and product promotions. Not only does that apply to agents, but the sizzle-selling FMOs as well.
Reasonable rate of return
I’m starting to hear this line more and more, especially in my local area and on agent (never mentioning the words indexed annuity) TV ads. What a vague piece of garbage phrase in my opinion. Sounds like an energy supplement or vitamin claim, and it means absolutely nothing. This triple RRR (reasonable rate of return) Pavlovian-drooling-dog pitch is a psychological and subtle hammer. When RRR is used, I am assuming that the agent is hoping the customer is filling in the blank with their own version of a very high RRR percent. Why not just quote the last two Beacon reports on FIA returns and have the client’s expectations in line with reality? There is absolutely nothing wrong with that, and agents need to remember that indexed annuities were developed to compete with CDs, not the stock market.
Everyone needs an annuity
Short answer…no they don’t. Annuities solve for specific issues, and not everyone needs this type of transfer of risk solution. Fortunately for all of us annuity agents, a lot of people do need them, but these strategies have to be customized for each specific situation.
Agents charge no fees
Please stop with this nonsense. This one has George Costanza written all over it, and it’s easy to envision him saying it. Semantically, annuity agents don’t charge fees like a fee-based planner, but we all know that there are fees that come with annuities. Consumers are smart enough to know that there are fees “somewhere,” so agents need to stop believing this line to be true.
Private equity and hedge funds owners are the answer
None of us know how these new annuity carrier owners are going to fare in the long run, or if they are really in it for the long run. Even though we all hope they are, promoting their “master of the universe” money-making status is just convincing yourself (and the client) that all is well. We don’t know that all is well. We hope that all is well, but only time will tell if this proves out to be true. Stop trying to subtly evoke the Wall Street/Michael Douglas “greed is good” emotion as a reason to justify your recommendation. Clients need to know the ratings and COMDEX scores, their past history, current news, and possible concerns if the annuity you are recommending is owned by these firms. It’s your duty as an agent to provide this information so the client can make an informed decision.
Commission levels are OK
Don’t even start with the correlating argument that real estate commissions are in line with annuity commissions. That’s just a ridiculous waste of time. In the very, very near future, everyone in the annuity industry will have to accept less commissions, cuts, overrides, bonuses, etc. For those of us old enough to remember the past mutual fund industry, that is the model you can refer to for future commissions being lower. The days of 7 percent commissions with another 3 percent-plus for FMOs, bonuses, etc. are going to be over soon. Ironically, I believe that lower commissions and richer products for the consumer will actually be more profitable for the industry. I welcome any wagers on that prediction.
In the movie “Crazy People” (1990), Dudley Moore played an advertising executive who had a nervous breakdown and started telling the brutal truth about the products he represented. His new state of mind created successful campaigns like: “Volvo…they’re boxy but they’re good” and one for a Greek travel agency that said “Forget Paris. The French can be annoying. Come to Greece. We’re nicer.”
The annuity industry can take a hint from this fictional comedy by choosing to believe and present the brutal contractual truths about annuities. It’s OK. It’s cathartic. And who knows, telling the brutal truth about these great transfer of risk strategies might be just what current and future annuity buyers need and want to hear. I think it is.
For more from Stan Haithcock, see: