On April 28, Sen. Elizabeth Warren, D-Mass., sent a letter to 15 of the country’s largest annuity providers asking for data on their sales practices. In a report issued Tuesday, Warren said the responses from the firms “reveal a widespread practice of offering agents kickbacks in exchange for promoting certain annuities” and other products, and that “such kickbacks are effectively concealed from customers.” She said 13 of the 15 responded that they did provide “kickbacks directly to agents, indirectly through third party payments, or both.”
Warren defines ‘kickbacks’ as including not the commissions from the sales of those products, but “lavish cruises, luxury car leases, and other perks to annuity sales agents to promote their products.” Her conclusion, as published in the report Villas, Castles and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry: “Kickbacks may benefit the agent and the company, but they do so at the expense of their customers.”
All 15 companies who received Warren’s letter responded, though the report notes none “provided complete answers to the questions.”
Industry groups were quick to criticize Warren’s research. Carl Wilkerson, vice president and chief counsel, Securities & Litigation, for the American Council of Life Insurers (ACLI) said in a prepared statement that ACLI was “disappointed” with Warren’s report, which “misrepresents the comprehensive regulatory framework that governs conduct in the sale of insurance products and protects consumers’ interests. Life insurers comply with laws that regulate permitted noncash compensation practices and support their full enforcement.”
The Insured Retirement Institute (IRI), which advocates for the annuity industry, also voiced its disappointment, saying in a statement that the report “lacks a full understanding of the current laws and regulations overseeing the distribution of annuities.” Moreover, IRI said “the current regulatory framework requires these products to benefit the consumer and meet his or her needs,” and that “it is because of this extensive regulatory structure that annuities are considered to be one of the most regulated financial products available to today’s consumer.”
Warren cites a White House document that such noncash compensation “costs Americans an estimated $17 billion every year,” which instead goes to “unscrupulous advisors who are more interested in collecting fees and prizes for themselves than helping families build real security.” The February 2015 document she references, The Effects of Conflicted Retirement Advice on Retirement Savings, was used by the Obama administration to support the Department of Labor’s ongoing rulemaking that would redefine fiduciary under ERISA. In her report, Warren reiterates her support for that rule, which she says would “protect consumers from these types of abuses,” and would “put an end to these conflicts of interest.”
Some industry groups, such as the Securities Industry and Financial Markets Association, have criticized the White House report on its calculations and conclusions since that report was first leaked in the spring.
In an appearance Wednesday in Washington at a Politico Morning Money breakfast (sponsored by Wells Fargo), Warren defended the steps she took in questioning a study used by Brookings Institution researcher Robert Litan in congressional testimony on the proposed DOL fiduciary rule; Litan eventually resigned from Brookings.
When asked by Politico moderator Ben White whether her questioning of Litan’s research could have a “chilling effect” on researchers whose findings she didn’t like, Warren was unapologetic.