Reprint: How to Change the Narrative Around Annuities: #AnnuityAwarenessMonth
June 6, 2023 by Sheryl J. Moore
June is Annuity Awareness Month, which is basically like a big, nerdy party for an annuity evangelist like me. This is primarily because I get to be on stage more often, do more webinars and Zooms than is typical. Heck, a few years ago, I even had the opportunity to work with my former Governor to have Iowa be the first state in the nation to formally declare June as “Annuity Awareness Month.” That was a huge accomplishment for a girl that has been trying to educate both the ignorant, and the misinformed, about the unique value proposition that all annuities offer! I recognize the importance of that act as well, I mean, the #1 fear of Americans is running out of money in retirement, and yet hardly anyone has even ever heard the word “annuity!”
My, how different things would be if only the masses understood that annuities are the only instrument that can guarantee the purchaser will receive a paycheck for the rest of their life, no matter how long they live. Even if they live to be 150! (Which Time Magazine has indicated is not just possible in the foreseeable future but guaranteed to occur before today’s youth expire.) Now, I don’t know about you, but that sounds like a terrific example of a perfect solution to a catastrophic problem.
Not everyone understands annuities.
Hard to believe, I know, but there are so many out there that do not understand annuities. Yet the ones that I worry about the most are the people that are convinced that they are EXPERTS of annuities, thinking they understand well how they work, and can tell you just WHY you should never purchase an annuity.
Let’s explore an example. Assume we have an advisor; let’s call her Jane Q. Public. Jane has worked for a large brokerage firm for over 20 years. Her brokerage firm is immensely popular. They advertise extensively and even have office buildings with the company name on them in every major city in the United States. As a result, most consumers have heard of the company that Jane works for. Jane prides herself on doing “what is best for her clients.” Always. She has client solutions that leverage conservative products, appealing to risk averse, and has solutions that are aggressive instruments, appealing to those who are comfortable taking on greater risk for greater reward.
Most people walking into Jane Q. Public’s offices would naturally draw the conclusion that she is a knowledgeable expert who has subject matter experience. She probably has trophies/awards in the office, has maybe authored one or more books, and even had articles published in some financial services newspapers or magazines.
Given all of this, why shouldn’t Joe the Plumber take advice from Jane, when it comes to annuities?
Let me give you just a few reasons why it may not be a good idea to listen to an “expert.”
1. While Joe the Plumber thinks Jane is obviously a financial products expert, because of her implied authority, what he doesn’t know is there may be many products that Jane is not even educated on. Likely, Jane only sells the products that her big brokerage firm will allow her to. They do not have the ability to distribute every single product that is available in the financial services profession today. How would that even be possible, in a world where there are thousands of annuities alone?
2. If Jane gets paid 1.00% every year on the assets that she manages for her clients and feels that this is one strong piece of evidence of how she always acts in her clients’ best interests. Her logic tells her that she should never sell a dastardly annuity! Annuities pays the advisors that sell them as much as a whopping 4.00%!!! Never mind that the annuity pays the advisor 4.00% a single time, and Jane is being paid 1.00% every year that her clients keep their money with her.
3. There are MANY different types of “financial services professionals” who, generally, don’t all play well in the sandbox together. Because they are all competing to make a living from the same dollars, there has historically been a propensity to bash the products sold by other organizations, particularly those that they cannot sell. And often, this fact is legitimized. Perhaps when Joe asks Jane about annuities, she responds to the effect that “annuities are expensive, and there are other instruments that can do the same things that annuities do but perform even better, like a mix of bond funds and stock.” Yes, that solution probably will earn more than an annuity because annuities are insurance products, not investments. The entire reason that annuities were innovated 2,000+ years ago was to provide a guaranteed level of income to the annuity purchaser for the rest of their life. Can a mix of bond funds and stocks do that? No. However, what Jane doesn’t realize is that annuities are an instrument that is used to transfer the risk of living too long from the purchaser to the insurance company; not to earn more interest than other vehicles designed for accumulation.
I used to think that people like Jane were legitimate experts, badmouthing annuities out of malice. That would be terrible. But the truth is often people like Jane think they do know all about annuities when they don’t. They tell others what they “know” about these instruments, and it effectively becomes a financial services game of “telephone.”
As an industry, we need a credible source of information about annuities. A disinterested, third-party sponsored source of educational content on these products to reduce or discontinue altogether the bad information being offered to clients about products that can offer them long-term financial peace of mind. The question is, how to make that happen? If you have any thoughts, I’d love to hear them.
Sheryl Moore is President and CEO of the life and annuity market research firm of Wink, Inc. Her company provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at sjm@intelrockstar.com.
