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Retirement Planning > Saving for Retirement

Annuity perks: Don't say you weren't “Warrened”

By Steven McCarty

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Have you been following U.S. Senator Elizabeth Warren‘s investigation into the non-cash perks annuity advisors earn for sales? Her efforts have sparked political debate, which I won’t go into here. But I would like to ponder the ethical implications of her charges. Ready?

First, Warren believes “annuity agents that (sic) are more interested in earning perks than in acting in their clients’ best interest can place Americans’ savings and retirement security at risk.” She sees cruises, trips to glamorous foreign cities, and diamond-encrusted Super Bowl-style rings as conflicts of interest that can lead to unsuitable sales. She wonders why the insurance industry hasn’t banned such perks even through NASD (now FINRA) did so in 2003. And she views companies giving motorcycles and exotic cars to their top producers as wrong, period.

So does Senator Warren have a point? I think most reasonable people would agree non-cash perks can in theory pose ethical challenges at times. Getting paid extra to recommend specific products can:

- Distort your professional judgment, leading you to recommend unsuitable products in order to qualify for incentives.

- Tempt you to “gang production” with one carrier or FMO in order to meet qualification thresholds, again leading to questionable decisions.

- Get you and your spouse addicted to nice trips and prizes that distort your objectivity.

- Convince you to remain with an FMO even though their products, service, or compliance advice may be suspect.

- Put you at a marketing disadvantage with fiduciary advisors who may have sworn off perks.

Most advisors know these issues and manage them effectively. A minority ignore them, serving their own financial interests, not those of the client. And it’s these latter agents who produce the egregious violations we read about every day — and that attract regulatory scrutiny that boost compliance costs for everyone.

In fact, a spate of recent regulatory initiatives constitutes a sea change in how government (and ultimately consumers) are viewing conflicts of interest. If you ignore these warnings, don’t be surprised if regulators place a heavy hand on your shoulder quite soon.

Having said this, I don’t agree with eliminating annuity perks entirely. That’s because they serve legitimate purposes. They drive sales and profits for insurers, making them financially stronger and giving consumers greater peace of mind. This also benefits shareholders and the economy at large. In addition, perks motivate advisors to assist consumers with their retirement-income needs, something our country sorely needs.

In my personal sales experience, I didn’t have ethical issues accepting perks because I just didn’t let them cloud my judgment. Regarding conferences, my trip eligibility was always contingent on overall volume, not on sales of specific products or product types. And I found the events to be rich with educational content and opportunities to learn informally from the best of the best. I always came away from these experiences refreshed, ready to work, and ready to be a better advisor. And, of course, I had a great time (which I worked hard for).

But that’s just me. Where do you stand?

- Should you reconsider the non-cash perks you accept?

- Should you position yourself as an advisor who stands above the conflicted herd?

- Is it time to swear off pure cash or merchandise rewards that don’t make you a better advisor?

- And should you begin disclosing your non-cash sales incentives despite having no legal requirement to do so?

Now’s the time to consider these questions before others answer them for you. Don’t say you haven’t been “Warrened”!

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