WASHINGTON, DC -- Most consumers don’t read the prospectus they receive when they purchase a variable annuity and a new report released by the Insured Retirement Institute on Monday found that 94% of consumers would prefer to receive a shorter, printed summary prospectus online or upon request.
This is an increase from 86% in a similar report last year.
In fact, consumers said they would be 59% more likely to discuss the product with their advisors if the prospectus was shorter and written in easy-to-understand language.
“We need to get away from account statements that have too much information that causes investors to just ignore them,” said Richard Ketchum, Chairman and CEO of FINRA at the Insured Retirement Institute Government, Legal, and Regulatory Conference in Washington, DC on Tuesday. “We need to think about: How are we interacting in an effective way with investors? We need to figure out the right combination of how to capture client attention up front and remind customers the questions they should be asking again and again.”
Typically product prospectuses are between 100 to 300 pages in length. Seventy-eight percent of those surveyed say they seldom or never read their prospectuses at all, while 5% report they always read the prospectus and just 17% read it most of the time. Meanwhile, 87% of annuity contract owners rarely or never refer to their prospectuses for questions about their annuities after purchase.
IRI found that the most often-read parts of a variable annuity prospectus are the summary/highlights section and the information of fees and expenses. Deductions from accounts in the forms of sales loads and commissions are read by 88% of respondents, the institute reported.
At the same time, almost 70% of insurance industry executives believe the ideal length of a variable annuity summary prospectus is less than ten pages.