Are glossy annuity ads glossing over the issues?
A well-funded industry group is using the Rolling Stones’ upcoming tour to present annuities as the mother’s little helper needed to offset the financial drag of getting old.
Backed by 24 of the largest issuers and asset managers, the new Alliance for Lifetime Income will be the sole sponsor of the Stones’ 2019 “No Filter” U.S. tour, which sports the motto: “you can get what you need when you have protected lifetime income in retirement.”
“Knowing there are millions of Stones fans following the band or going to these concerts, and many of them are either retired or are thinking about retirement, this sponsorship is a unique opportunity to shine light on a solution that’s been hiding in plain sight,” according to the nonprofit group.
Jackson National Life Insurance CEO Barry Stowe and Lincoln Financial Group CEO Dennis Glass came up with the idea for the campaign after discussing the challenges posed by Americans’ increasing longevity. With their companies and other giants like AIG, Allianz, Invesco and the asset management units of Goldman Sachs and JPMorgan Chase as members, the organization will pitch financial advisors, the industry and the public on annuities as a solution.
Even though annuity sales are at a 10-year high, they do not lack for critics, who point out conflicts of interest from sales incentives and the degree to which fees and growth ceilings can hurt investment returns. Indeed, as annuities experts express support for the organization, they also describe the products as increasingly complex and new fee-only offerings as a sea change in products long known for steep commissions.
In its bid to put annuities in the center of the retirement conversation, the organization has tapped ad maven Jean Statler of Statler Nagle as its executive director. Some 80 million Americans do not have a pension or annuity for protected lifetime income, Statler says, calling the stat “alarming.” The organization has also enlisted academic researchers and officials from former President Obama’s administration.
“We don’t lobby, we’re not an advocacy group, we’re really about education and raising awareness,” Statler says. “When you have the power of these 24 companies behind you with one message — whether its advertising, the digital ads, the print, the events, the multiple vehicles — it’s bigger than the money that we spend.”
To counter criticisms of annuities, the organization has established a set of principles agreed to by member firms that call for the products to be less complex and more transparent, according to Statler. In response to a query, Alliance for Lifetime Income spokeswoman Latoya Veal wrote in an email that the principles were not available because the organization is still finalizing them.
“The Alliance is focused on helping to educate Americans on the risk of outliving their income so they can enjoy their retirement lives,” according to its website. “The Alliance provides consumers and financial advisors with the educational resources, tools and insights they can use to build plans for protected retirement income.”
The organization declines to state how much the two dozen firms are investing, beyond calling the sum “substantial.”
‘I hate annuities’
Annuities certainly don’t lack for supporters with deep pockets: The five issuers with the highest sales in the first nine months of 2018 spent a combined $82.6 million on ads for TV, radio, print and online publications, according to data from information consultancy Kantar. The five firms — four of which belong to the organization — purchased $126.2 million worth of ads in 2017.
The issuers also provide sales incentives like expense-paid getaway trips, dinners or sports tickets, according to a 2017 report on industry “kickbacks” by Sen. Elizabeth Warren (D-Mass). The now-vacated fiduciary rule could have cut down on such conflicts.
Still, despite the industry’s ultimately successful campaign to defeat the Department of Labor rule, insurance companies still have powerful opponents. Its main bogeyman is often Ken Fisher, of mammoth RIA and money management firm Fisher Investments, whose marketing tagline is “I hate annuities.”
“We cannot have been more clear and consistent in our position on annuities and similar ‘guaranteed’ products,” Fisher Investments said in a statement, while providing links to annuity FAQs on its website. “Simply put, investors can best meet their needs with other approaches.”
The 403(b) retirement plans for certain tax-exempt employers like schools and hospitals have also drawn flak. Such plans could save up to $10 billion each year if they altered their setup, Aon Hewitt concluded in a 2016 study.
To arrive at that figure, the global professional services company calculated the savings from using low-fee collective investment trusts rather than mutual funds and variable or fixed annuities, which would require major legislation.
Evolving distribution channels
The way annuities are presented can be problematic. Teachers, for example, are often faced with picking from a double-digit number of vendors and a multitude of products, according to Tony Isola of New York-based RIA Ritholtz Wealth Management. He and his wife Dina serve many current and former teachers who have been sold ill-fitting annuities, he says.
Tony displays anecdotal evidence on Twitter and his blog. Egregious examples include teachers in their 30s using high-priced VAs and fixed products, as well as agents who prey on even young teachers’ fears about losing their retirement nest eggs, he says.
“Annuities have their place,” Tony Isola says. “The way they are distributed is completely wrong. That's the problem. The distribution channel and the incentives for them — it couldn't be worse.”
On the other hand, the distribution of the products is rapidly evolving with platforms like Envestnet starting to offer insurance products and alterations in preparation for the rule made by issuers and intermediary firms like broker-dealers.
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A case in point is the rise in popularity of fee-only products. Insurance network DPL Financial Partners says commission-free advisors are joining in droves. The Louisville, Kentucky-based firm is adding about one new RIA member a day, and it passed the 200-firm mark only about one year after its launch, according to founder David Lau.
The number of participating insurance carriers has reached 15 and could go above 20 by the end of the year, Lau says. With so many no-load, commission-free products hitting the shelf, it “doesn't make business sense any longer” for RIAs not to offer them to clients.
“Providing commission-free products that they can get from a fiduciary like an RIA rather than a salesperson is really important and, I think, a big sea change,” Lau says. “Annuities are products that people need, particularly today, as we look at longevity risk. You can’t address longevity risk through investing alone, you need products like this to do it.”
Still, he adds, “There have been terrible products with people having deceptive sales practices, and so many people have those experiences it winds up tainting the industry.”
Down to the rep
The array of options within existing products and new offerings, like so-called buffered or structured annuities, also adds complexity. Advisors have to navigate “rules over rules over rules” to compare annuities these days, says Jeremy Alexander of Beacon Research.
“It has gotten really complex,” Alexander says. “It's all about the rep working through and understanding the products.”
“At the end of the day,” he adds, “the good news for the rep is that it's all about the rep. You have to have the ability to assess the situation.”
The variety of annuity products adds to some misconceptions, agrees Sheryl Moore of Wink’s Sales & Market Report. Critics sometimes imply that all annuities are VAs or compare insurance products to investments and recurring 1% fees to one-time 6% commissions, she says.
It’s “very clever” for the Alliance for Lifetime Income to sponsor the Rolling Stones tour given that Americans’ No. 1 financial fear is running out of income in retirement, Moore says. She adds she will be curious to see the extent to which its efforts are not focused on a product or a sale.
“It will be interesting to see what kind of content the Alliance for Lifetime Income develops, because they have numerous stakeholders at the table,” Moore says. “I’m very grateful that the organization has been developed and is heightening the awareness of annuities.”
Time on their side
The organization has produced a TV ad starring a jet car champion, a retirement checklist posted on its website and even a virtual reality game. The Stones’ U.S. tour has been postponed and will need to be rescheduled due to Mick Jagger's heart surgery procedure.
“For Stones fans and millions of other Americans, the answer could be an annuity, ” the organization’s website says. “... get a glimpse of how protected lifetime income from an annuity can help you live the life you want in retirement… with time on your side.”
The awareness campaign also has an experienced hand spearheading the efforts. Statler is an image and marketing expert who co-founded her agency. She created the “Plastics make it possible” campaign for the American Plastics Council and has also worked with the American Heart Association and the American Petroleum Institute.
The organization aims to work with advisors, IBDs and consumers to find out what works best in what Statler describes as a short-term category campaign. She and other executives do pledge to remain sales- and product-neutral in their approach.
Annuity firms have been “frustrated” by their inability to participate in the discussion around annuities, she says.
Members aim “to show up in the conversation, which was going on without them,” Statler says, citing critics. The organization predicts net gains in annuity sales will come from people at or near retirement who don’t have a pension or an annuity. They view the “best-use priority” as Americans of ages 45 to 72 years old, Statler says.
Increasing public understanding is “what’s going to overwhelm the bad apples,” she says when presented with examples from Isola’s experiences and Sen. Warren’s report. The organization later sent a statement when asked for clarification about its principles and industry sales tactics.
“Let me be clear, there is no place for deception, misinformation, or manipulative behavior in our industry,” Statler said in the statement. “Protected lifetime income products like annuities are not always right for everyone, and should always be discussed and considered between financial advisors and their clients.”
Clients and advisors appear to be doing so. Fixed annuities and FIAs reached record levels of sales in 2018, according to the LIMRA Secure Retirement Institute. Total fourth-quarter sales reached $62.1 billion, their highest level since the first quarter of 2009.
The higher interest rates of the past year and an expected jump in the population of Americans aged 65 or older from baby boomers in or near retirement prompted IRI to forecast 5% to 10% growth in sales in 2019, according to its annual state of the insured retirement industry report.
“Overall, the industry continues to have a bright future as the sole provider of solutions that can help retirees, and those planning for retirement, create lifetime guaranteed income from their savings,” IRI said, while also praising the new organization’s collaborative efforts.
The wealth management discussion about annuities involves multiple different types of companies; regulators at various levels and agencies; and the shift to passive, low-cost investments which are squeezing out product manufacturers, according to Isola.
“This is a very, very complicated issue,” he says, “or else it would be cleared up soon.”