An Open Letter to Preston and Lynda Pitts
January 29, 2019 by Sheryl J. Moore
Preston and Lynda,
As you know, I have been an expert in the indexed annuity market for 20 years now. One of the first habits I took up when I entered the field of product development was reading and analyzing specimen contracts on these products. In fact, I have read every specimen contract for every indexed annuity that has been available over the past 14 years (and some that never launched)! Now you can understand why I am the life of the party, right?
As different market forces have occurred (e.g., low interest rates, market volatility, etc.), product development has responded and evolved. For example, I’ve witnessed the following changes as a result of the decade-long period of historically low interest rates we’ve experienced:
- Shifting premium bonuses from the account value of the contract to the benefit base of the rider.
- Reducing minimum guaranteed surrender values from being based on 100% or 90% of premiums to being based on the statutory minimum of 87.50%.
- Reducing the penalty-free withdrawal amount from 10% to 7%, or even 5%.
- Increasing minimum initial premiums from $5,000 (NQ) / $2,000 (Q) to $25,000, $50,000, or even $100,000.
- Using participation rates and spreads to limit indexed interest, rather than caps.
- Using indices outside of the S&P 500® for indexed interest.
- Shifting Guaranteed Lifetime Withdrawal Benefit (GLWB) rider charges to be based on the benefit base value of the rider, as opposed to the account value of the annuity.
- Shifting GLWB roll-ups from compound interest to simple interest.
- Rider charges that not only invade the principal of the contract, but often the minimum guaranteed surrender value of the annuity.
What’s interesting is that, while I have seen thousands of products come and go since starting Wink, Inc., there have been so few “original” ideas when it comes to annuity product development! Here, someone would interject, “What about GLWBs?”
Yeah, we stole that from the variable annuity business.
And yet another objection: “How about the long-term care benefits some annuities offer?”
Hey, genius, that came from the long-term care industry!
But there ARE some original ideas out there. Remember: I do not endorse any company or product, nor does my third-party market research firm, Wink. Given that, I want to bring to your attention an annuity feature that definitely caught my eye as being innovative.
I know you are proud that Legacy Marketing Group® was the first company to develop an annuity that carries a distinct account value charge, which allowed Legacy to offer participation rates and caps that are relatively more competitive than comparable products. That isn’t what caught my eye though. It was the “True Up” feature on the Americo LibertyMarksm series that made me do a double-take. I have never seen anything like it before in any annuity I’ve analyzed. When educating others, I explain that the LibertyMarksm Series True Up ensures that the account value charge on these products does not reduce the account value of the policy by an amount that is greater than the interest credited on the contract. I specify that after Year 5, the True Up retroactively credits back any charges that exceed the policy’s gain.
Refreshing! A consumer-friendly feature that protects the client’s principal!
And innovative … a great solution for overcoming objections that the charge on the contract may result in the client ultimately receiving less than the funds paid into the annuity. Bravo!
I just wanted to let the two of you know that it is nice to see something in your product that is truly innovative and protects the client. In a period where I am seeing trends lean away from being “pro consumer,” it is nice to see something very different.
You caught my eye, Legacy Marketing Group®! I am definitely going to be watching for your next innovation.
Sheryl Moore is President and CEO of Moore Market Intelligence, an indexed product resource in Des Moines, Iowa, as well as the life and annuity market research firm of Wink, Inc. Her companies provide competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at firstname.lastname@example.org.