Elizabeth Warren is right about annuity sales incentives
In April of 2013, I wrote my first column on the ridiculous incentives that fuel too many indexed annuity sales. I was blasted by the industry and actually threatened and harassed by agents, which obviously confirmed the out-of-control nature of the indexed-annuity sales message.
Last week, Senator Elizabeth Warren released a report on these sales incentives and why they should end now. She is right, and anyone with common sense and the ability to leave their politics at the door has to agree with her conclusions.
Indexed annuities are life-insurance products … for now
A long-brewing fight that continues to this day is the classification of a fixed-index annuity. For now, it’s a life-insurance product and only requires a state life-insurance license to be able to sell a policy.
In most states, this means you can start the licensing crash course on Monday, pass the test on Friday, give the ‘bad chicken dinner seminar’ on Saturday, and then sell an indexed annuity after the attendees swallow the meal and the too-good-to-be-true sales pitch. Can any rational person defend this “low bar” licensing requirement?
This life-insurance product classification is one of the reasons you are bombarded with over-the-top TV, radio, and Internet ads promoting “never lose a nickel” or “market upside with no downside” misleading promises. These unregulated sales pitches, in combination with semi-ridiculous sales incentives, is creating a permanent indexed annuity black eye with the consumer.
Incentives influence recommendations
I recently had dinner with two respected industry leaders who were prepared to defend to the death that incentives don’t influence annuity sales. I could not believe that they were serious, but come to find out, most in the myopic indexed annuity world share the same misguided assumption.
Not that it’s needed, but there have been numerous academic studies and articles validating that incentives do influence the person making a sales recommendation. Within the indexed-annuity world, incentives are a driving force in both agent recruitment for distributors and how products are pushed to the salespeople. That’s an undisputed fact.
Other sales incentives can’t be compared
The predictable and shallow response from the indexed-annuity sales cult is that all other sales-driven industries use incentives as well. My answer to that is twofold. Just because other industries incentivize their sales force doesn’t make it right for indexed annuities. More importantly, we are talking about people’s retirement money, so incentives should never get in the way in my opinion.
Getting a sales perk for selling a mattress or a car is not in the same category as someone’s 401k or IRA. Consumer apples and retirement oranges in my opinion.
Annuity industry needs to look in the mirror
The indexed annuity ‘inner circle’ needs a gut check, and should stare into a reality mirror. Senator Warren has called them out, and has indisputable facts behind her argument. If the industry truly believes that indexed annuities are so good, then let the strategy stand on its own contractual merit. If it is such a pro-consumer product as promoted, then no sales incentives should be needed. Right?
Public relations ‘no brainer’
If branding experts like Donnie Deutsch or Seth Godin were advising the indexed annuity industry, I would predict that their solution would be simple and powerful. I’m sure they would both make the top indexed-annuity carriers and distributors hold a single news conference. All the major players would be there, and the unified message would be that from this day forward, there would be no sales incentives ever again. All sales incentives for annuities would be permanently eliminated, and strictly enforced by the industry.
The message would be clear. The consumer comes first. The report from Senator Warren would be in the rear-view mirror, and permanently taken off the table. Pretty much of a PR no brainer, right?
The fact that this will never happen is all you need to know about the indexed-annuity industry. Their continuation of defending the sales-incentive status quo will eventually create predictable and self-inflicted repercussions. The ball is in their court. Let’s hope they don’t drop it once again.
Originally published 11.3.15 by MarketWatch.com – http://www.marketwatch.com/story/elizabeth-warren-is-right-about-annuity-sales-incentives-2015-11-03