Managing Your Clients' Reactions to the Press
Since March 2005, it seems as if a negative article on index annuities has appeared in the general media about every eight days. Why the negative publicity? It's primarily due to two lawsuits alleging bad agent behavior (neither of which actually disparage the merits of the index annuity concept) and an attempt by the NASD (National Association of Securities Dealers) to go after the approximately $118 million in fees they feel they might earn if all the index annuity premium is instead placed in security products within their revenue net.
So how can you handle your clients' reactions to all the bad press?
How to talk with clients about the media attention
The basic problem with the mainstream media is they often have strong relationships with the securities firms advertising in their publications and little with fixed annuity carriers. When a reporter wants to learn more about fixed annuities, they talk to purveyors of variable annuities (VAs) because that is who they are used to speaking with. Unfortunately, the reporter is not going to get balanced information from VA wholesalers, stockbrokers, financial planners, or the NASD about a fixed product that they feel is costing them revenues; it's like asking a Red Sox fan if the Yankees will make it to the World Series this year. The other problem is this: Instead of taking the time to thoroughly investigate and learn about fixed annuities, these reporters, in many instances, are trying to force this new fixed annuity information to match the preconceived conclusions they'd already developed from their variable annuity background. It's the old story of treating everything as if it were a nail because all you have is a hammer.
The reporter is faced with a choice. Option one is to thoroughly explore new financial concepts so that an unbiased article about fixed annuities may be written. Option two is to simply repeat what they have been told about fixed annuities.
What can individual agents do to stay out of the searchlight?
Whenever I hear someone say their concern is that index annuities are being sold as securities and I ask for proof of their contention, they grow very quiet and then they start talking about the immorality of double-digit commissions and 15-year surrender periods. Again, this attention is not questioning the merits of fixed annuities, but about lost revenues to the securities industry.
The higher the commission and the longer the surrender period, the greater your chance of being spotlighted. If you sell double-digit annuities in either years or compensation, it would be helpful to demonstrate that your annuity compares favorably with other annuities. I suggest agents subscribe to a service like AnnuitySpecs.com, which provides rates and specs on over 230 index annuities and lets agents sort products by surrender charges, bonuses, commissions, and rates to justify why a particular index annuity was selected.
However, the best way to avoid becoming the next poster child for annuity abuse is to ensure the annuity is an appropriate solution for the client. Make sure your client has complete understanding of the product before they buy. The producer should go over a specimen policy with the annuity buyer and touch on the key points. Explain how the surrender charge is calculated. Mention the various annuitization options available. Tell them that the minimum guarantee is just that; it's not what they will earn, but rather the worst-case scenario. Clarify that the maturity date is the length of time the carrier will allow them to hold the policy -- not how long they are required to keep the policy.
Folks get hung up on whether some- one is too old or too young for an annuity, but age is the wrong criteria. Consumers do not buy fixed annuities because of their age, but rather because of their aversion to risk. Is a fixed annuity appropriate for both a 30-year-old and an 80-year-old? Yes, if the annuity is a better solution than what they are currently doing. But you would also need to ask if the annuity benefits offset the under-age 59-1/2 withdrawal penalty for the 30-year-old and determine whether the annuity selected for the age 80 consumer provides necessary liquidity.
The negative annuity talk will lessen later this year as reporters find something new to talk about. In the meantime, agents need to simply continue providing appropriate solutions to consumer needs, and they can remain above the fray.
Jack Marrion is president of Advantage Compendium Ltd., a St. Louis-based research consulting firm. For more information, email webmaster@indexannuity.org.
