Coloradans have more to celebrate than legal marijuana
Colorado and its current “Rocky Mountain High” perception has ironically just sent a sobering message to the annuity industry on how agents and carriers can promote their beloved annuities.
As of July 1, the word “safe” and the word “annuity” cannot be used together in any type of advertising in Colorado. That doesn’t sound like a big deal, but trust me when I say that it is. In addition to the word “safe”, this new Colorado regulation also bans the use of the words “CDs” (Certificates of Deposit) and “security” to sell annuities. Colorado already had banned other words and phrases like “private pension plan”, “risk free”, and “retirement plan” by agents promoting annuities, but this recent move is a definite shot across the bow to the annuity industry. What this means is that current sales materials, websites, and most importantly — agent sales pitches — will have to change immediately to be in compliance with the new law.
The other word that needs to be added to the banned list by all states is “hybrid,” which is used to primarily sell indexed annuities. That’s the worst one of them all, in my opinion, because it means absolutely nothing. Hybrid is a car. Hybrid is a plant. Hybrid is NOT an annuity. To say I’m annoyed with the continuing and unregulated “hybrid hype” is an understatement.
I have now declared July 1 as an official annuity holiday, and am calling this annual celebration “Annuity Liberation Day.” July 1 seems to be the day that all the annuity planets aligned themselves for a onetime event of common sense. Not only did Colorado place restrictions on advertising, but the Treasury department and the IRS approved QLACs (Qualified Longevity Annuity Contracts) for use in 401(k)s and IRAs on that same Tuesday, July 1. I call for parades, and at a minimum, a moment of silence to recognize rational annuity thought, which until this day was very hard to find.
Finally some state action
Annuities are regulated at the state level, and until the recent Colorado ruling, there hasn’t been many significant steps to try to reel in the unregulated annuity promoters.
The NAIC (National Association of Insurance Commissioners) has done good things with issues like customer suitability during the application process, but have been relatively absent in the past few years as national annuity advertising has ramped up to such a fever pitch that it would make carnival barkers and old time snake oil salesmen green with envy.
I’m not sure if the states are all waiting on the NAIC to take the aggressive leadership role to enforce current advertising laws, or the NAIC is waiting on states to lead the way. I think Colorado had enough and was tired of waiting, and the complaints from consumers had grown to a point that they had to take some action. Regardless, immediate and proactive steps have to be taken by all parties to regulate an annuity sales message gone awry. Kudos to Colorado for pioneering this recent attempt to protect annuity consumers. Let’s hope that they have paved the way for other states to follow their progressive lead.
Carrier strength matters
We all are familiar with FDIC bank protection, and most MarketWatch readers are also aware of SIPC protection with brokerage type accounts. When it comes to annuities, the safety of the contractual guarantees are only as good as the carrier backing them up. In the wild wild world of indexed annuity sales, the agent pitch too often includes mentioning the state guaranty fund that backs annuity purchases up to a certain dollar limit, and using that perceived safety blanket to help close the sale.
Every state has different levels of protection, and state guaranty funds should never be compared with FDIC and SIPC protection. The indexed annuity sales cult continues to justify the recommendation of marginal carriers, using the safety blanket pitch of state guaranty funds as a rationalization to bottom fish companies. Even though it is this illegal in some states to use the state guaranty fund as part of the sales pitch, it’s a common agent practice to push hesitant buyers across the finish line.
Annuity sales dominoes are starting to fall
With the recent QLAC ruling, and now a state like Colorado finally trying to stop the over the top sales promotions, the annuity industry is being dragged kicking and screaming to finish line of simplicity and respectability. The agent driven annuity industry agenda has to eventually transition to the consumers running the show and dictating the type of product solutions they want to own. The sooner this needed change takes place, the better in my opinion.
The hope is that other states will follow Colorado’s lead and become more proactive and aggressive in upholding the current laws in place for annuities and adding needed statutes as well. It’s tough for me to ever call for more government intervention, but the annuity industry can only blame themselves and their premium at any cost apathy.
It will be interesting to see how Colorado addresses annuity advertising on national platforms like TV, radio, and the Internet that obviously reaches the residents of their state. If there is a national advertising loophole that the current annuity promoters are using, it needs to be closed by Colorado and then swiftly followed by the remaining states.
As Colorado has “blazed” new trails with their recent marijuana legislation, let’s hope they are also pioneering a trend in controlling the over hyped annuity sales message. Whatever they are smoking in Colorado, it’s working when it comes to the much needed regulation of annuity advertising.
Originally published 8.19.2014 by MarketWatch.com – http://www.marketwatch.com/story/coloradans-have-more-to-celebrate-than-legal-marijuana-2014-08-19