LEESBURG, Va. - The Old Economy is meeting the New Economy in this sleepy Virginia town where the headquarters of America Online, MCI, Exodus and high-tech Internet start-ups nestle amid rolling green hills, bales of fresh hay and the estates of Virginia blue bloods.

AnnuityNet.com, a company offering no-load, low cost annuities online, based in a renovated 1890 barn which is part of quaint Market Station, a train station converted into a shopping center, is one of the new breed in the neighborhood.

The setting provides an appropriate analogy for what AnnuityNet.com is trying to accomplish - to make customers see an old product in a new light.

"An annuity is a great product idea, but it has never been brought to the general population," said Shane Chalke, president and CEO of AnnuityNet.com in an interview recently at the company's headquarters. "We are trying to make annuities modern and easy to own. Take the very fact that you have to apply for an annuity - you don't walk into Starbucks and apply for a cup of coffee."

It is only because of tradition that it is done that way, said Chalke, 43, who spoke about his vision for annuities in a first floor conference room of the barn, flooded with sunshine. AnnuityNet.com is attempting to make the language of annuities more familiar and to simplify the process of buying and owning an annuity so that it is more like mutual funds or stocks, Chalke said.

"Annuities are a very powerful investment product that just happens to be sold by the insurance industry," Chalke said.

"Traditionally, variable annuities have been built for the people that sell them, not the people who buy them," said Steve Dunlap, vice president for the independent financial advisor channel at AnnuityNet.com. "After an annuity is sold, the insurance company has no contact with the customer, except through the quarterly statement. Usually, a variable annuity is treated like an insurance policy, which an insurance company sells and then forgets about. We treat an annuity like an investment, like a tax-deferred mutual fund account. As such, it needs to have the same functionality online." The insurance part of the product is incidental; the tax deferral aspect is more important, he said.

This idea informs several avenues of AnnuityNet's business.

The company runs a consumer website, AnnuityNet.com, which sells annuities directly to consumers online. AnnuityNetAdvisor.com, launched in July, is a website for financial advisors which allows fee-based independent financial advisors to serve annuity policyholders' accounts directly. AnnuityNet also has formed partnerships with several companies, including Bank One and TD Waterhouse, to develop "Annuity Centers" on their websites that offer the same products available on AnnuityNet.com but with the individual companies' names on them. The company is now looking into forming partnerships with commission-based advisors, licensing technology to them for use in selling their own products.

AnnuityNet.com is able to offer and service annuities through these various channels with the speed and dexterity of a small, efficiently-run start up company. Altogether, there are 30 employees stationed in the barn. Including a call center staff provided by a third party and development contractors, the company employs approximately 50 people, Dunlap said.

"The fact that we are a small company makes it easier to get things done," said Kristina Meyer, vice president of partner development. "It also proves you don't need to have hundreds of people on staff to do a lot of business." Insurance companies are stunned at how fast AnnuityNet moves, she said.

"What used to take three months to bring to market now takes eight weeks," Dunlap said. "Speed to market has dramatically increased."

In 1983, Chalke founded his first company, Chalke Inc., in Chantilly, Va. and developed the PTS (profit testing system) software - an analytical risk management package that is now used in 80 percent of U.S. insurance agencies to track policies. In 1995, Chalke Inc. merged with Security Software & Consulting of Windsor, Conn. Chalke's next vision was to develop an annuity marketplace which would make the products simpler to buy and own. As an actuary and product designer, Chalke was familiar with annuities and sought to change their image.

AnnuityNet.com's open and relaxed office environment reflects Chalke's ambition to change the image of annuities.

Chalke said he chose AnnuityNet's headquarters in Leesburg, approximately 15 miles west of Dulles Airport in northern Virginia, in order to give employees an unusual work environment.

"I wanted people to have a workplace a little more unique and more funky than a three-story cinderblock building," Chalke said. Leesburg is still located close enough to the technology center in Reston, Va. to attract and retain tech employees.

Chalke said he knows that employees will inevitably have an interview at one of the tech companies down the road and hopes that the uniqueness of the AnnuityNet.com space assists in employee retention.

"When they go in to one of those offices and see the endless rows of cubicles, maybe they'll decide they like it here better," he said.

Aside for a few executives, employees work in open areas without walls. Shafts of Virginia sunshine pour in through plentiful skylights in the barn's wood and tin roof rising above exposed-beam rafters. A 15 foot spiral staircase rises to the upper level of the barn.

At least one employee's dog - Chester, a cocker spaniel belonging to the office manager - is welcome in the barn. Both kitchens spotted on a tour were well-stocked with chocolate malt balls and

caffeine.

As well as emphasizing the investment rather than the insurance benefits of annuities, and shedding annuities' hidebound image, AnnuityNet.com aims to appeal to different investors.

"Typically, annuity customers are 50 year olds who have a big pot of money," Meyer said. AnnuityNet.com is targeting the 35- to 45-year old age group. This age group is aware of the need to start saving for retirement, and is concerned about not outliving retirement income, Meyer said. Many ask about annuities' lifetime income benefits.

AnnuityNet.com's annuities have been designed to appeal to these younger investors, with minimums as low as $1,000. One product, the Stein Roe annuity, requires only $100 a month, Meyer said.

The company's latest ad campaign also reflects its offbeat approach.

One colorful, glossy ad in the campaign depicts Dolly the Cloned Sheep with eyes like AnnuityNet's logo (a black sphere with a streak of green) and the headline: "Genetic Re-engineering. What makes you think it just works on sheep?" Another ad is of a pill, resembling the AnnuityNet logo, dissolving on a person's tongue, with the headline: "It will make you forget everything you hate about annuities."

These ads started running in June 2000 to correspond with the introduction of the AnnuityNetAdvisor website. The company declined to disclose how much it was spending on the campaign. The company has been advertising the AnnuityNet.com site since March 1999 with Web banners, and began print advertising in July 1999.

AnnuityNet is in the habit of doing offbeat ads.

"All of the ads for both AnnuityNet.com and AnnuityNetAdvisor.com have had a modern sensibility that appeals to forward-thinking investors and advisors who have embraced the Internet economy," said Nancy Swanson, vice president of marketing. "It's fitting, really. Just as the products themselves are not traditional annuities, AnnuityNet's advertisements are not the kind [of ads] people traditionally associate with investing." All of the ads were created by Richardson, Myers & Donofrio of Baltimore.

The company also attempts to shake off the industry's stodgy image on its consumer website. On the site, the company tries to convey that variable annuities can be good financially, and that the problem lies in the way they are sold and distributed, Chalke said. It attempts to make the product more appealing and understandable through simplified language and comical images of, for example, an exasperated investor.

Annuities can be more efficiently sold directly over the web than through other channels, Dunlap said. The site offers no-load funds with one-quarter of the distribution costs of offline annuities, said Dunlap. The products sold charge an average of 55 to 65 basis points compared to the industry average of 124.

Currently, AnnuityNet.com offers five annuities, each of them designed specifically for sale on the site. Lincoln National Life Insurance Company of Fort Wayne, Ind., AnnuityNet's primary sponsor, agreed to provide the test product. Lincoln National's eAnnuity was the first product on the marketplace in 1998, and the first annuity sold online. Online, customers can fill out applications, view their current asset allocation and account balances, transfer sub-accounts and add money to their accounts. The site also has tools showing the advantage of compounding interest on tax-deferred investing.

"No load annuities are what no load mutual funds were 20 years ago," said Chalke. "In 1980, no load mutual funds were an exotic product. Everyone was asking: what are they and where can you buy them?" Chalke believes the no load annuity business is approximately five years away from where no load mutual funds currently are and that the development of no load annuities will foster their evolution. The technology is now available so that for the annuities industry to catch up depends solely on customer acceptance of the direct sales of the product, said Chalke.

"It is really more the adoption rate of humans, not the technology," said Chalke.

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