Getting Beyond Negativity: Shining a Light on the Facts
May 16, 2014 by NAFA
NAFA has declared June as National Annuity Awareness Month. NAFA believes that we need to join forces in a national, public, and very loud way to shout about the benefits of annuities and their role in financial planning and retirement. Since our mission is to promote the awareness and understanding of fixed annuities, we decided to declare June as the month to do so. NAFA will be leveraging our relationships with fellow trade associations, our membership and industry leaders to make sure that consumers across America enter July more attentive and responsive to annuity professionals. We are pleased that the board of directors of SAFE, the Society for Annuity Facts & Education (which just received official 501c3 status approval from the IRS), has approved the Society’s participation as our first sponsorship partner!
The entire month will be spent educating regulators, legislators and journalists about fixed annuities and the strong consumer protections that make the annuity marketplace one of the safest environments for financial planning and retirement. This is due in no small part to the robust and effective oversight that state regulators have over annuity suitability, advertising and disclosure. With that in mind, we are devoting this column to discussing why consumers can trust the annuity marketplace.
ADVERTISING & DISCLOSURE
As an educational association, we’ve produced a number of articles and training publications on advertising. NAFA’s Guiding Principles for Advertising & Disclosure states:
One of the most important elements in making consumers aware of a product is advertising. Advertising is used to sell nearly every product produced or service delivered in our society. The powerful effect that advertising can have on consumers has caused it to come under increased scrutiny to ensure that advertising does not mislead consumers. Misleading advertising can cause consumers to make decisions that are not in their best interests. Even worse is the prospect of advertising deceiving or luring consumers into making harmful decisions. As a result, accurate, honest, understandable, appropriately informative advertising is an important goal for the financial services industry, along with corresponding regulation.
NAFA is always concerned when advertisements, marketing materials or media articles are false, misleading or inappropriately positioned for consumers. Our Guiding Principles discuss the importance of truthfulness and accuracy, argue that ads or advertising materials should not be disparaging of competitors or products or suggest false urgency, and assert that all advertisements clearly identify, with appropriate disclosures and disclaimers, the product or products being recommended. These Principles were developed by NAFA’s Education Committee with a close adherence and reliance on the NAIC Advertising Model.
However, not everyone adheres to these principles. It is very troubling when an advertiser, marketer or writer who makes a living from the security industry misleads the customer with false or incomplete claims or provides an unbalanced portrayal of the advantages of the securities products over annuity products. In our rigorously-regulated insurance industry, mischaracterization or marketing using fear or disparagement is not permitted by either the state regulators who enforce the laws or by the insurance carriers who must comply with the laws. Not only would they not be allowed, those engaging in these tactics would be held accountable.
Making false claims about a competing product is clearly an intent to generate confusion and fear. This is not helpful to promote consumer confidence, nor is it conducive to an efficient and safe market environment that allows consumers to make sound and considered decisions about their financial future. NAFA believes that the disparagement or misleading portrayal of any financial product erodes the public trust and public trust is necessary to ensure consumers make good decisions.
The Gallup Organization reports in their 2013 Study that ninety-three percent of those who own annuities still own the first annuity they purchased, and between 85% and 90% believe that annuities are an effective way to save for retirement and that they like how annuities protect against losing money. Facts that many negative portrayers of annuities conveniently ignore or may suggest that annuity owners are not satisfied or happy with their annuity.
SUITABILITY
We’ve devoted much space in this magazine and elsewhere to our position on suitability versus the fiduciary standard and why NAFA believes the Suitability Standard is the GOLD STANDARD in consumer protection. For those interested, please get more information at www.nafa.com or at www.annuityoutlookmagazine.com. For now, let’s reveal another facet of that Gold Standard – Detection, Accountability and Recovery. Whether the standard is Suitability or Fiduciary, there is little real consumer protection when the standard is not met unless it is DETECTED in time to hold the legally responsible party ACCOUNTABLE, and that party is not only liable but has the means to make the consumer whole and RECOVER their money.
Just by the very nature of the state insurance regulatory model, with fifty different state insurance departments with their myriad regulators overseeing multi-state insurers and marketing organizations, detection has a better chance to begin with. However, coupled with the annuity Suitability Standard, detection is put on steroids because insurance carriers are held responsible to have a system of review over each and every sale BEFORE the policy is issued and the premium is paid. In fact, this is a secondary review because the NAIC Suitability Model Regulation requires the insurance professional recommending the annuity to conduct a suitability review before submitting the application.
With the annuity Suitability Standard, the law is very clear that the company issuing the annuity is held accountable by the state regulator and is liable for the premium and for making the consumer whole if it is determined that an annuity sale is unsuitable. Because the premium for a fixed annuity is held in the general account of the insurance company, the consumer is protected from losing money in the annuity to investment losses, and the premium must be returned to the consumer when the company is directed to so do.
IN CLOSING
NAFA is not concerned with healthy and fair competition or the recommendation of other financial products over annuities or in addition to annuities. We apply these same principles to insurance advertisements disparaging securities or other financial products and to unsuitable annuity sales. Neither NAFA nor its members believe that fixed annuities are for everybody or should be viewed as an individual’s sole retirement savings or wealth accumulation solution. NAFA believes that there is a role for every financial product and financial strategy available today and that the more choices consumers have the better off they are to compile the best set of products to meet their financial objectives. NAFA supports a regulatory structure that is robust, fair and even-handed, regardless of the financial product recommended or sold. Otherwise, consumers will not have a safe and comprehensive sales environment to make sound financial decisions.
Annuity professionals are held to very strict laws and regulations surrounding advertising, disclosure and suitability, and we support strict adherence and enforcement by state insurance regulators. We only wish that securities-only advisors were held to the same consumer protections and standards of truth and fairness in advertising to which we hold insurance-licensed professionals and companies.
Here’s a quick checklist to help your clients separate unbiased and factual information about fixed annuities from biased and self-interested information disparaging them. (And, as they say, to be “fair and balanced,” this same checklist can also be used where there is unbalanced information about fixed annuities or only disparaging information about other financial products.)
1. Is the advertiser or writer open about their own interests and business gain? Advertising by its very nature is self-serving and intended to sell you something, but:
a. If the ad is disguised as merely informational or instructional – BEWARE!
2. What annuity background, licenses, and education does the writer or advertiser have?
a. If they don’t hold an insurance license or have spent most of their careers selling or promoting non-annuity products (e.g., a syndicated “financial” columnist who spent his career as a writer for the garden and home section) – BEWARE!
3. What sources and studies does the writer or advertiser use to support their claims and are they credible, academic and respected?
a. If they don’t source a claim (e.g., “most people who own a fixed annuity…”) or they cite outdated information or a source that is not academically recognized as unbiased and credible – BEWARE!
Here’s Why We Love Annuities
Insured Savings
Safety: Fixed annuities have no investment risk. They guarantee that the money in your annuity is safe from the financial market’s ups and downs.
Certainty: Fixed annuities provide a variety of ways to receive income for life – and your income check is guaranteed no matter how long you live.
Protection: Fixed annuities protect both your premium and interest as your annuity grows AND the lifetime payments from your annuity throughout retirement.
Tax Deferral: Fixed annuities are tax deferred and the power of tax deferral helps to increase interest earnings.
Minimum Premiums: Fixed annuities allow you to save regularly with modest premium amounts.
Consumer Safeguards
- State laws and regulations require insurance companies to review the sale of fixed annuities before a contract is issued in order to determine the suitability of the recommendation based on an individual’s financial situation and retirement goals.
- Fixed annuity contracts must have a “free look” period so that you can be certain you want to proceed with the purchase.
- Fixed annuity salespeople must be specifically trained about the actual product before making a recommendation.
Industry Strength
Life insurers provide the products that protect against life’s uncertainties, helping individuals and families manage the financial risks of premature death, disability, long-term care, and outliving their savings.
Life insurers have paid out billions in insurance benefits, including $97 billion in annuity payments – offering peace of mind to Americans when they need it most.
Life insurers are the single largest source of bond financing for American business, holding 17% of all U.S. corporate bonds.
