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?
Before the top of your head blows off and starts spinning around “exorcist style,” let’s all be realistic. This is going to happen sooner than later, and probably within the next five years. For the record, when I say direct annuity sales, I’m not talking about the Internet annuity promoters with their “bait & switch” video strategies. Recently, someone did an independent review of these sites that pretty much nailed it and is a fun and revealing read. Instead of these “hybrid evangelists,” I’m talking about legitimate companies like Fidelity, Vanguard, or someone big we’re not even thinking about taking the lead on delivering all types of annuities directly and efficiently to the consumer.
A threat to the FMO model
For all of you obsessive compulsive types (like myself) that are going to argue the semantics that someone with a license has to be at the other end of the direct annuity sale, you need to keep the Vanguard/Fidelity model in the back of your mind. For all of you out there that think that most annuity products are too complex to be sold directly, you might be right. However, I think this will be the impetus for the public demanding more simplistic and transparent products. As a side note, the FMO/SMO model will be seriously threatened in the near future and as the direct annuity models grows in popularity. Trust me on this no brainer. There will be FMOs that survive, but it will be a very small percentage that will be around five years from now.
When annuity carrier executives meet in their private board rooms, you need to know that most would love to eliminate the current agent delivery model. They would love to fully control the message, not have to grease the FMO hype machine, and lessen their legal exposure. They are waiting for the day when it will actually be feasible to flip this switch on and permanently get rid of our current archaic annuity distribution model. If you don’t believe this, then you are a probably wearing a leisure suit with big collars to your appointments and thinking that you look good.
In the very near future, there will be major changes on how annuities will be purchased and sold. As annuity agents, it’s important to prepare for these definite changes and make sure that you are legitimately bringing value and have a unique business model. If you are just pushing the “annuity of the month,” regardless of how much you are currently selling, your annuity game is over. All you are waiting on is the buzzer on your “sales clock” to go off.
For more from Stan Haithcock, see: