Fixed Annuities Must Tell A Simple Story

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy

Financial commentators of all stripes harp on high-profile cases in which annuity contract holders were sold annuities ill-suited to their needs, how annuities are too complicated and expensive, and how inflexible terms make annuities unattractive to changing needs.

Enough! says Kim O’Brien, president and chief executive officer of the National Association for Fixed Annuities (NAFA).

Some of the criticism may or may not be true, O’Brien said in a recent interview with InsuranceNewsNet. Nonetheless, she believes people are not getting a balanced picture and the time has come for the industry to go on the offensive and paint fixed annuities in a more accurate light.

“There are all sorts of other reasons that annuities are valuable other than rate, and agents should stress those other advantages,” O’Brien said. “We don’t want people to go out and blindly support something either, so it’s important to have full disclosure.”

Bad apples infect all sectors of the financial industry. One look at enforcement actions by the Securities and Exchange Commission and the Financial Industry Regulatory Authority will tell you that.

What matters most, O’Brien said, is to disseminate accurate information about what fixed annuities do and why they should be considered as part of a retirement portfolio.

Years ago, when workers could count on monthly income from corporate defined benefit retirement plans, retail buyers had little contact with annuities. Indeed, few had even heard of the products, which tended to be the purview of institutional money managers.

But with baby boomers retiring and in search of guaranteed income, annuities have entered the lexicon more frequently.

Earlier this year, the Society for Annuity Facts & Education (SAFE), a nonprofit that educates consumers about annuities, and an industry coalition declared the month of June Annuity Awareness Month to help raise awareness about annuities.

Sponsors of National Annuity Awareness Month included NAFA, Beacon Research, Wink Inc., the National Association of Independent Life Brokerage Agencies, the Society of Financial Service Professionals, Allpro Direct Marketing, Insurance Insight Group, the Association of Advanced Life Underwriting (AALU) and the National Association of Professional Agents (NAPA).

Annuities have, indeed, emerged out of the shadows, whether from lawmakers on Capitol Hill mulling the merits of the Security Throughout Retirement Act, Treasury Department experts issuing the final version of the Qualified Longevity Annuity Contract rule over the summer, or state regulators cracking down on misleading guaranteed investment returns in financial advertising.

“It’s still a good story, but let’s tell the right story with annuities,” O’Brien said. “We’re going to be active in educating agents.”

Not only does NAFA see a need to educate agents, but NAFA has become diligent in questioning expert opinions about annuities.

NAFA recently posted a response to Kellan Finley, managing director of the consulting firm Insurance Decisions, who is quoted as saying that no one should buy fixed annuities “because they’re not competitive right now,” in this era of low interest rates. NAFA counters that annuities have not been developed as an interest-rate tool.

Nearly 90 percent of annuity owners buy them because they provide retirement savings and protect contract holders from losing money, NAFA said in response to the article with the headline “Annuity Sales Up, But Should They Be?”

Fixed annuities are designed to guarantee income, offer peace of mind and provide protection. The narrow question of whether retirees should hold off on buying an annuity in hopes of higher rates misses the point of buying a fixed annuity.

“It’s important to keep the story simple,” O’Brien said.

Like life insurance, fixed annuity contracts are a protection vehicle, not an investment play, and buyers should approach annuities from the protection standpoint.

With the recent explosion in sales of fixed index annuities through banks and broker/dealers, it’s important for the industry to make sure distributors distinguish the value of fixed annuities compared with mutual funds or life insurance in the minds of retail consumers.

Consumer demand for protection and guaranteed income, particularly in fixed annuities, is on the rise.

Sales of fixed annuities reached $24.3 billion, an increase of 41.6 percent over the year-ago period and an increase of 7.6 percent over the first quarter, the Insured Retirement Institute has announced, citing data provided by Beacon Research and Morningstar.

Cathy Weatherford, president and CEO of the Insured Retirement Institute, said in a news release that the fixed annuity sales numbers are the highest the industry has seen in five years.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.