The one thing that drives most annuity recommendations
Bah annuity humbug. Call me Ebenezer Annuity Scrooge during this holiday season, but the annuity world needs a Christmas message of simplicity and transparency. Even though all annuity commissions are “built in” to the product so you don’t see the actual amount paid to the agent, you need to be aware of what might be motivating the recommendation.
So here’s my lump of coal in the annuity industry’s stocking with the hope that one day things will change in the consumer’s favor.
These annuity statistics don’t lie
Recent year-end sales statistics show another banner year for the annuity industry, but unfortunately it was dominated once again by indexed and variable annuities. It’s no coincidence that with over 10 different annuity types available to consumers, these two pay the selling agent the highest commission.
In the brokerage world, variable annuities are the last place an advisor can make a large commission. With indexed annuities, the licensing qualification bar is so low to sell them that it only takes a couple of weeks to get a state life-insurance license to start earning ridiculously large commissions.
Agent product blinders
Most indexed annuities are sold by agents that only sell that one strategy to every person that walks through the door. It is statistically impossible that every problem is solved by one product, but this is the common practice with indexed annuity agents and TV and radio promoters. That’s like going to a restaurant with one item on the menu, or a shoe store with only one size or style.
As for the variable annuity story, it’s a good one. It’s so good, that it is actually too good to be true. With high commission and high annual fees, this still hasn’t deterred the variable annuity product from retaining the status of being no. 1 sold annuity type year in year out.
The best annuity for you?
If an agent or advisor leads with the phrase “I have the best annuity for you” without really listening to your specific needs, then it most likely means the annuity is best for them. Whether it’s a high commission, sales incentives, or lack of overall product knowledge, you need to demand to see multiple contractual solutions from three to five different carriers.
In addition, you need to always remember that there is never an urgency for you to buy an annuity. Do your homework, and make the decision on your time frame only if the contractually guaranteed solution solves for your specific need. Never make a decision on hypothetical, theoretical, backtested, or projected-return scenarios. In other words, buy the guarantees, not the hype.
If all commissions were the same …
I’m sure that this will never happen, but if all annuity types paid the agent the same commission, you would see drastically different sales statistics. The simplistic solutions that have no annual fees and no moving parts (SPIAs, DIAs, MYGAs, and QLACs) would definitely outsell indexed and variable annuities. For example, if indexed and variable annuities had the same low compensation as immediate annuities (SPIAs), then agents would never inappropriately recommend one size fits all high commission products for income now needs.
Not rocket science
Annuity solutions typically come down to two primary contractually guaranteed solutions: income now and income later. Both of those goals can be solved with simplistic, transparent, low-fee and low-commission annuities. It’s important to know that you don’t have to buy indexed and variable annuity agent favorites. Until annuities are eventually sold direct to the consumer, you need to be aware that commissions too often drive annuity recommendations. As the saying goes, “knowledge is power.” This especially applies to the sometimes ugly world of annuity sales.
Originally published by MarketWatch.com 12.22.15 – http://www.marketwatch.com/story/the-one-thing-that-drives-most-annuity-recommendations-2015-12-22