Words Matter When it Comes to Annuities
When it comes to annuities, words matter.
The demographic tidal wave of baby boomers actually need and want a contractually guaranteed income floor. There are types of annuities and strategies that efficiently provide these contractual guarantees,but it isn’t one size fits all. Annuities continue to be misunderstood and oversold as a way to make unrealistic returns. Everyone wants an 8% return on their investments, but that isn’t happening here. Let’s not chase ghosts, but keep grounded in reality. I wear my “Got Guarantees” T-shirt proudly.
The professor knows how to describe annuities
Bo Knows according to Nike. John Knows when it comes to annuities. My colleague, John Olsen, is an “annuity professor” and involuntary ombudsman for all things in the annuity industry. His books and commentary should be must reads for both consumers and agents alike. In conversation with John, his poignant comments on how annuities should be presented and described was simple and efficient. There as so many types of annuities. John demands that you need to use more than just the word “annuity” to describe the vast array of products available. According to John, when you use the word annuity, you need to add one to three additional words to describe the specific strategy. It is misleading and incomplete to use only the word “annuity” in conversation or during sales of annuities.
Many types of annuities provide a contractually guaranteed income floor
The annuity industry needs to embrace the contractual guarantees message. Different annuity types provide transfer of risk benefits through these contractual guarantees. Annuities are not pure market growth products regardless of the sales pitches you hear. Never have been, and never will be. Consumers and agents should focus on the contractual guarantees. Annuities are not investments, but there are contracts that absolutely provide a reliable income floor. Research and education can help consumers and agents understand what annuities are useful and when.
Annuity descriptive words matter
Specific annuity product descriptions John refers to follow:
- Single Premium Immediate Annuity
- Deferred-Income Annuity
- Qualify Longevity Annuity Contract
- Multi-Year Guarantee Annuity
- Fixed-Index Annuity
- Variable Annuity
- Charitable Gift Annuity
Most of these product names are self-explanatory from how the specific strategy works. Already you have information to guide your annuity exploration. For example, a Single Premium Immediate Annuity provides “income now” based on your life expectancy for an up-front lump sum provided to the carrier. Using just the word “annuity” is not sufficient. That’s like saying “restaurant” for all eating establishments. What kind of restaurant? Annuity? What kind of annuity?
“I hate all annuities” is intellectually lazy
This popular knee-jerk comment is a good marketing strategy if you are trying to convert annuity assets to a fee-based platform and is an easy response for advisers not interested recommending specific annuity types in lieu of their master of the universe market growth strategies. Hating all annuities is like hating all restaurants or all mutual funds. Some are good, some are bad, but not all are bad.
Annuities are contracts and transfer-of-risk strategies that solve for four primary solutions; lifetime income, principal protection, legacy, confinement care/LTC. If you do not need to contractually solve for one or more of those goals, then you do not need an annuity. It’s that simple.
The annuity-industry needs leadership please
A quick solution for the fractured annuity industry is to hire John Olsen as the “CEO of Annuities” to oversee everything. Because that makes so much sense, it will never happen, so maybe the industry should start combating the misuse of the word “annuity” to inappropriately describe all the different strategies available.
The DOL ruling is an annuity messaging opportunity
With Trump’s surprising win, the annuity industry (especially indexed annuity promoters) seems to be prematurely celebrating the possible demise of the Department of Labor’s (DOL) pending rule scheduled to be fully implemented in January of 2018. I hope that the annuity industry is too far down the road to return to the Wild West sales messaging that seemed to go unregulated and unchecked. There is an opportunity now for the bar to be raised across the board, and the industry to re-brand and re-frame the consumer message.
The first step should be to educate and inform the consumer that using just the word “annuity” is a mistake, and that there are many types available that each have unique benefit propositions. Words matter when describing most financial product categories, and especially true when it comes to the diverse world of annuity products.
V1 Originally Published: Dec 6, 2016 12:24 p.m. ET