5 Ways Bad Annuity Marketing Can Get You Sued

By Steven A. Morelli

Advisors have probably changed their tone when communicating with clients these days in light of the COVID-19 outbreak – and that should include their marketing and advertising as well.

That is not just a matter of taste, but marketing messages that made sense before the COVID-19 pandemic can be fodder for lawsuits, said Maureen James, a principal with Summit Compliance.

Faulty advertising was one of the key risks for annuity agents and advisors that were outlined in “Extraordinary Times call for Extraordinary Measures,” a National Association for Fixed Annuities webinar on compliance risks.

Marketing is effective, but it has to be thoughtful in tone as well as in the information it conveys. This is a particular issue during this crisis, because attorneys and regulators will later scrutinize advisors’ marketing and advertising as possible evidence in a complaint or enforcement action.

“If you were maybe pushing the envelope before this,” James said, “it might be time to pull back a little bit and take another look.”

The material should accurately reflect how advisors are representing products to clients.

Here are five risks to consider:

Fear-Based Advertising

“There's a fine line between motivating someone to act and creating fear, and we need to respect that more than ever,” James said. “Statements like, ‘The markets are going to make you destitute,’ or, ‘You're going to end up on Medicaid after this,’ are the types of things that are going to be scrutinized later.”

James suggested avoiding terms such as devastate, decimate, destroy and destitute. “Crisis” would be a term she would normally advise against, but considering this is a time of crisis, it might make sense. But that is not license to go crazy with the word.

“Terms like this we want to be really careful about,” James said. “You don’t want people pointing back to the fact later and saying, ‘You used terminology that really tried to increase people's fears so that they would buy something from you.’”

Disparaging Rivals

This is not a great time to be disparaging other agents and financial advisors. This is not a matter of calling other advisors names, but really badmouthing others. It might seem like just talking smack but it can get you smacked.

“When we say, ‘Hey, you know what, your financial advisor that sold you that mutual fund, he had no idea what he was doing,’” James said, “not only is it just not good business, it's actually not legal to disparage other financial professionals and products.”

Focusing On One Product

If advisors seem to be telling a specific audience what to do or not do in advertising, they could essentially be making a recommendation to everybody who's reading the ad. Advisors know that no solution is going to be the right fit for everybody, so their advertising should not be perceived as saying that a product is good for whatever financially ails the reader.

If the ad seems to say that, the client's attorney can point to it as evidence that an advisor was steering everyone to the same product. That is effective ammo for an attorney or a regulator.

“You have probably heard the phrase, ‘If you're a hammer, everything looks like a nail,’” James said. “That's the phrase we don't want to hear regulators or client attorneys making about you after the fact, especially if that one solution you're offering is the one that's making you the most commission right now.”

Focusing On One Feature

In volatile markets, it's easy for advisors to overemphasize the feature they feel are going to appeal to an audience. For example, guarantees and indexes are particularly attractive features of indexed annuities in this market.

“I've seen a lot of ads on indexing that say, ‘Here you can guarantee your money and look at all the benefits of indexing,’” James said. “These are key features and we absolutely need to discuss them, but we want to make sure that we're not leaving out other key features of the product – lifetime income and tax features.”

It is also important to balance the positive features with some drawbacks, such as tax consequences, surrender charges and costs.

“I know the word ‘balanced’ is pretty vague and hard to define, but at the end of the day, we don't want to focus on just one or two features to make the sale,” James said. “Don't make any promises you can't keep. If the guarantee requires certain actions by the consumer, then we need to say that.”

Bait And Switch

The more clinical term is “pretext marketing,” but it is commonly known as “bait and switch.” It means marketing one thing and selling someone else.

“We kind of see it with folks who are marketing, ‘I can help you increase your Social Security benefits. My only goal here today is to educate you about Social Security,’” James said. “And then later the consumer finds out that what's really happening is they're there to discuss an annuity.”

The key here for advisors is to be upfront about what they are talking to consumers about, what needs they are trying to help them meet and what products they offer for that.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].