When it comes to annuities, why words matter
December 7, 2016 by N/A
Annuities continue to be misunderstood, oversold, and actually needed by the demographic tidal wave of baby boomers wanting contractually guaranteed solutions. Using just the word “annuity” to describe a category of many unique products is a semantic travesty.
The professor knows
Bo Knows according to Nike. John Knows when it comes to annuities. I am referring to my colleague, John Olsen, as the industry’s “annuity professor” and involuntary ombudsman for all things in the annuity world. His books and commentary should be must reads for both consumers and agents alike. I recently had a conversation with John, and his poignant comments on how annuities should be presented and described was both simple and efficient. Because there as so many types, John demands that you should use more than just the word “annuity” to describe the vast array of products available. According to John, when you use the word annuity, you need to add one to three additional words to describe the specific strategy.
Below are some specific annuity product descriptions that John is referring to, and the reason that is misleading and incomplete to use only the word “annuity.”
- Single Premium Immediate Annuity
- Deferred-Income Annuity
- Qualify Longevity Annuity Contract
- Multi-Year Guarantee Annuity
- Fixed-Index Annuity
- Variable Annuity
- Charitable Gift Annuity
Most of these product names are self-explanatory from how the specific strategy works. For example, a Single Premium Immediate Annuity provides income now based on your life expectancy for an up-front lump sum provided to the carrier. Using just the word “annuity” is not sufficient. That’s like saying “restaurant” for all eating establishments. What kind of restaurant? Annuity? What kind of annuity?
“I hate all annuities” is an intellectually lazy statement
This popular knee-jerk comment is a good marketing strategy if you are trying to convert annuity assets to a fee-based platform and is an easy response for advisers not interested recommending specific annuity types in lieu of their master of the universe market growth strategies. Hating all annuities is like hating all restaurants or all mutual funds. Some are good, some are bad, but not all are bad.
Annuities are contracts and transfer-of-risk strategies that solve for four primary solutions; lifetime income, principal protection, legacy, confinement care/LTC. If you do not need to contractually solve for one or more of those goals, then you do not need an annuity. It’s that simple.
Looking for annuity-industry leadership please
A quick solution for the fractured annuity industry is to hire John Olsen as the “CEO of Annuities” to oversee everything. Because that makes so much sense, it will never happen, so maybe the industry should start combating the misuse of the word “annuity” to inappropriately describe all the different strategies available.
As I continue to wear my “Got Guarantees” T-shirt, the annuity industry also needs to embrace the contractual guarantees message and transfer of risk benefits that these different annuity types provide. Regardless of the sales pitch, annuities are not pure market growth products. Never have been, and never will be. The focus should be on contractual guarantees in my opinion. Annuities are not investments. They are contracts.
DOL messaging opportunity
With Trump’s surprising win, the annuity industry (especially indexed annuity promoters) seems to be prematurely celebrating the possible demise of the Department of Labor’s (DOL) pending rule scheduled to be fully implemented in January of 2018. I hope that the annuity industry is too far down the road to return to the Wild West sales messaging that seemed to go unregulated and unchecked. There is an opportunity now for the bar to be raised across the board, and the industry to re-brand and re-frame the consumer message.
The first step should be to educate and inform the consumer that using just the word “annuity” is a mistake, and that there are many types available that each have unique benefit propositions. Words matter when describing most financial product categories, and especially true when it comes to the diverse world of annuity products.
