Annuities — Straight Up: Opinion
October 6, 2014 by Steven A. Morelli
John Olsen has a simple answer to why consumers are confused about annuities: sellers are confusing them.
“Marketers, especially companies marketing index annuities, have a wretchedly bad reputation of fully describing their products,” said Olsen, who wrote and co-wrote many books on annuities and their sales, such as The Advisor’s Guide to Annuities. “I don’t think anyone who understands annuities would disagree with that statement.”
Olsen has a particular issue with illustrations that cherry-pick the most positive variables to show the performance of products such as fixed index annuities and variable annuities with guaranteed lifetime withdrawal benefits. Olsen was one of the people interviewed for the main feature in the October issue of InsuranceNewsNet Magazine.
He is a proponent of annuities, if they are sold correctly. Olsen said rosy scenarios are not serving the public well and are guaranteed to disappoint clients in one of the most significant purchases of their lives.
“They don’t want you to do it (the illustration) right, because somebody might not buy a GLWB if you flat out tell them, ‘By the way, the probability that you will get back more than you owe money is less than 50 percent,’ ” Olsen said. “Why? Because it’s an insurance feature. You don’t profit from insurance features — at least the average buyer can’t.”
This is a growing issue because regulators are looking into illustrations and how they are used in sales, particularly with indexed products. Other instruments have been misrepresented also. Richard Weber, former president of the Society of Financial Service Professionals, wrote Illustrated Promises: Unmet Expectations, an award-winning article for our magazine that explored practices around guaranteed universal life products.
These are the practices that invite regulation and draw suspicion from consumers. Insurance is built on trust. Consumers give money to a company for a promise. If the public loses faith in the promise, what’s left?
In the magazine feature, Olsen said he believes companies and advisors should be open about the essence of annuities. Consumers are buying an income stream, like they would purchase a refrigerator. You buy it; it keeps your food preserved; then you or it dies; and you do not expect your money back.
Simple enough. That is not a discussion of who can provide the slightly better rate or who can beat the house by receiving more out than paid in.
The magazine article features LIMRA research that shows consumers want an income stream now more than ever. Why not just give the people what they want?