Sen. Warren Targets Annuity Sales Incentives

By Arthur D. Postal
InsuranceNewsNet

WASHINGTON – Sen. Elizabeth Warren wants the 15 largest U.S. annuity issuers to send her detailed information on the expensive incentives annuity issuers use to get agents and brokers to sell their product, especially to those people nearing retirement.

Warren, D-Mass., argues that the offering of incentives such as Super Bowl “style” diamond-encrusted rings, cash or stock options to agents and brokers to sell annuities is a potential conflict of interest.

The American Council of Life Insurers immediately responded to Warren’s letter on behalf of the industry, citing the importance of annuities as part of a long-term plan for retirement, and included in the letter a long list of state and federal rules and regulation that govern the sale of annuities.

“Saving for retirement is crucial and making sure those savings last a lifetime is equally important. Annuities can do both,” the ACLI letter said. “They help people save and then provide a guaranteed stream of retirement income they can’t outlive.”

The ACLI letter argued that, “From product development to advertising to sales, life insurers offering annuities must comply with state and federal laws and rules that help protect consumers’ interests.”

Warren’s request is being seen as part of her efforts to support a proposal for an enhanced fiduciary standard requiring agents and brokers to “put your customer first” recently published by the Department of Labor (DOL). Warren attended the meeting in February where President Obama disclosed that the administration had given permission for the DOL to provide the rule to the Office of Management and Budget for review.

OMB published the rule for comment on April 20, with a 75-day comment period.

“A preliminary review by my staff reveals that annuity providers offer a vast range of perks — from cruises to international travel to Pads to diamond-encrusted “NFL Super-Bowl” style rings to cash and stock options — to entice sales of these products,” Warren said in her letter to the issuers.

“I am concerned that these incentives present a conflict of interest for agents and financial advisers that could result in these agents providing inadequate advice about annuities to investors and selling products that may not meet the retirement investment needs of these buyers,” Warren said in her letter.

She demanded a “list of all incentives” awarded by the companies to agents, brokers, sales and marketing organizations and field marketing organizations; marketing documents provided to agents; other incentives and the qualifications for earning those incentives; information on the number of these incentives awarded to these entities; the total value of the incentives; and a copy of the company policy regarding disclosure to customers of these incentives.

The 15 companies were: American International Group, Allianz, Aviva, Axa Equitable, Jackson National, Lincoln Financial, MetLife, Nationwide Financial, New York Life, Pacific Life, Prudential Financial, RiverSource Life Insurance Co., Minneapolis, TIAA-CREF and Transamerica.

In her letter, Warren quoted an unnamed financial adviser as describing his concerns with these marketing approaches: “Because the business is highly profitable, and the product difficult to sell, insurance companies pay obscenely high commissions. These commissions are just the right incentive for highly motivated product salesmen, but may not lead to appropriate recommendations for consumers. It’s not an accident that objective, fee-only advisors hardly ever recommend annuities, while commissioned sales people seem to love them.”

In its response, the ACLI the stated that, “As insurance products, annuities are regulated by the states that have laws and regulations for the content and marketing of the product.

“State regulations include extensive product disclosure, strong suitability standards, as well as truth-in-advertising and credentialing requirements,” the ACLI response stated.

The ACLI letter added that the Securities and Exchange Commission (SEC) enforces strict antifraud prohibitions, and the Financial Industry Regulatory Authority (FINRA) sets rules that govern the sales practices of broker-dealers.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].