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  • Deciphering the Inequitable, Biased Coverage on Financial Services Products in the Media

    September 30, 2011 by Sheryl J. Moore

    By Sheryl Moore

    Published September 29, 2011

    The U.S. insurance industry is fighting to get equitable news coverage  in a market where securities are king. Here’s what you need to know about the  media, so that we can change it:

    Sensational, attention-grabbing headlines are the lifeblood of the newsmedia  industry. If they don’t get their readers’ attention in the first three seconds,  they are likely to lose your interest. This phenomenon has unfortunately  contributed to a grave problem in our nation’s financial services industry, as  it relates to informing the public on retirement income products. Americans  today are hard-pressed to find reliable, credible information on financial  services; particularly on life insurance products such as annuities. In the wake  of our nation’s economic collapse, this lack of factual information has the  potential to translate to devastating problems for our future retirements and  the legacies we’ll leave for our loved ones.

    Past Problems

    Initially, the problems began with the media reporting on negative issues  affecting the annuity industry. Deferred annuities, retirement accumulation  vehicles that provide tax-deferral benefits and guaranteed life-long income for  the purchaser, were getting a “bad rap” from the press, and rightfully so.

    Just before the turn of the century, distribution changes in the annuity  sales process were resulting in market conduct and suitability problems. At that  time, annuity penalties often exceeded twenty years and 25% of the annuity’s  value; commissions paid to the agents selling the products often reached as high  as 18%. Seniors were being taken advantage of by unscrupulous salespeople.  Regulators stepped-in and made sweeping changes in the name of protecting  consumers. Their actions included developing rigorous suitability processes and  implementing legislation which prevented the immoral salesperson from using  annuities as the tools of their bad behavior.

    Sixteen years later, these regulatory changes have dramatically transformed  both the products being offered, and the commissions being paid to the  salespeople that offer annuities. Unfortunately, the general press is still  under the impression that annuities are still beleaguered by the woes that  plagued the product a decade ago.

    Improper Sourcing

    One of the primary reasons for the perpetuation of inaccurate and slanted  information on annuities is how the newsmedia obtains their information. Today,  most outlets reach-out to Wall Street firms for information on financial  services products. Sadly, these firms do not sell insurance products, such as  annuities; they sell investments. For this reason, the credibility of any  information given on annuities from such a firm should be immediately called  into question.

    In addition to using Wall Street investment firms, the internet has become a  popular source for reporters looking to provide an account on annuities. The  internet obviously has a wealth of information at just the tip of your fingers.  As a result, it is not irregular for a reporter to source previously-published  articles written by their “reputable” peers in the media industry. (This is akin  to using Wikipedia as the source for your doctoral thesis.) Reporters need to  forgo the ease of using the internet, and remember that doing their own original  source work is the only way that they can maintain integrity in their reporting.  Too often, these previously-published articles are inaccurate and have used  improper sources for their data. Ultimately using such tactics can result in an  unwitting publication of outdated and inaccurate information; this is especially  so with annuities.

    Consider the Source

    It bears noting that Wall Street investment firms, who so often are the  source of information published on annuities, specialize in selling investments. Investments do not compete directly against insurance  products (such as annuities). However, the salespeople that sell investments  compete against those that sell annuities, as both parties have a desire to  control 100% of their clients’ assets. Sadly, this often translates to these  sources on Wall Street providing inaccurate and sometimes even defamatory  information on annuities to unsuspecting media outlets, who are simply looking  to inform their impressionable readers.

    At other times, the newsmagazine publishing the negative, inaccurate  information is not so “unsuspecting.” If the media outlet in question has its  pages filled with advertisements for investment products (i.e. mutual funds,  stocks, etc.), you can be certain they are not going to sing the praises of  annuities. No matter how compelling the annuity story, if the advertisers aren’t  happy, the advertisers will take their money elsewhere. Hence, the perpetuation  of negative blasts against annuities in general, as the media outlets struggle  to conserve their advertisers.

    Misunderstanding

    Ultimately, the root of the vast majority of inequitable reporting on  annuities is due to simple product misunderstanding. For so long, immediate  annuities were the retirement product under the spotlight, whenever journalists  wrote on “annuities.” These retirement products provide a guaranteed paycheck  for life within a year from purchase. However, this guaranteed paycheck has the  ability to turn readers off when discussing the high payouts on “straight life” immediate annuities.

    In exchange for a relatively high guaranteed paycheck for life, the straight  life immediate annuity purchaser runs the risk of ‘losing their annuity purchase  payment to the life insurer, should they die the day after the contract is  purchased.’ Although not the only choice for an immediate annuity payout, the “straight life” option tends to be object of intense focus during periods of low  credited rates, as consumers try to squeeze out the greatest value possible in  their retirement.

    Fortunately, the 1980s redirected insurance product development to the  deferred variety of annuity. Deferred annuities give the purchaser the ability  to continue accumulating interest on their principal, prior to receiving their ‘paycheck for life.’ Sadly, however, Wall Street has not communicated this  clarification to those reporting on annuities.

    Lack of Glamour

    Lastly, a lack of glamour has contributed to the inequitable coverage of  annuity products in the mainstream media. Can you recall the last time that you  read about the widow that was able to maintain her standard of living after  retirement, thanks to the guarantees in her indexed annuity? Would you read such  a story, if given the chance? The scenario may not be sexy, but it happens every  day.

    Let’s face it- sensationalism sells. So, providing coverage on the widow that  was bilked out of her nest egg by an unprincipled annuity salesman will likely  receive attention that the warm and fuzzy story won’t. It doesn’t matter that  the happy widows that are provided for outnumber the bilked, destitute widows by  more than ten to one. As a result, the annuity remains “unloved” today.

    Consumers can demand integrity in the press, however, and demand their right  to accurate and fair reporting on financial services products. If you find  yourself in a such a need, I urge you to do your due diligence on the party  reporting on annuities. If all else fails, seek the aid of a third-party  resource. In the end, only YOU can ensure your financial future. Make sure you  surround yourself with the tools to do it.

    Sheryl Moore is President and CEO of AnnuitySpecs.com and LifeSpecs.com,  indexed product resources in Des Moines, Iowa. She has over a decade of  experience working with indexed products and provides competitive  intelligence, market research, product development, consulting services and  insight to select financial services companies. She may be reached at sheryl.moore@annuityspecs.com.

    You can read more from Sheryl Moore at www.annuityspecs.com

     

    Originally Posted on September 29, 2011 by Sheryl J. Moore.

    Categories: Sheryl's Articles
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