The Society of Annuity Facts and Education (SAFE) responds to “Trump Could Cost Future Retirees Billions”
Dear Misters Schwartz and Whitehouse,
We are longtime readers of Bloomberg, and are always interested in discussing the facts about annuities. That said, we found some errors in your article “Trump Could Cost Future Retirees Billions,” and would like to clarify some misconceptions.
It is important to establish that annuities are insurance, not intended to perform favorably against investments. Insurance has a cost. For that reason, the performance of even variable annuities (which offer the greatest potential return of all annuity types) will not be similar to investments with no insurance component. Therefore, it is disingenuous to compare annuities to investments; these products are not intended to perform similarly. Further, it is reckless to suggest that a mix of 10-year Treasury bills and S&P 500 index funds be able to provide guaranteed income that the purchaser cannot outlive, a hallmark feature that only an annuity can provide.
Some of the points we would like to make are as follows:
• Indexed annuities guarantee that the purchaser will receive no less than 0.00% interest crediting each year. In addition, these products have a secondary guarantee, in the event that the index doesn’t perform, or the annuitant dies. These guarantees are not available in the investments your article suggests be used as alternatives to indexed annuities; your readers deserve to know as much.
• Indexed annuities have no more or less “fine print” than any other type of annuity. All annuities are insurance contracts, and prospective purchasers should read them, along with their product disclosures, prior to purchase. These documents specify (in minimum font size, no less) the products’ features, including any surrender charges.
• The suggestion that indexed annuities have “high commissions” should be taken into context. The commissions collected by insurance salespeople are a fraction of what those selling mutual funds are. On a ten-year annuity, the salesperson would receive an average commission of 6.23% at point-of-sale. This is less than 0.62% annually over the annuity’s term, yet mutual funds typically pay the seller 1.00% annually.
• The suggestion that “insurance agents’ behavior suggests…these products” don’t “serve clients’ best interest” is disingenuous. The -7.24% decline in 2017 indexed annuity sales is attributable to insurance companies and distributors being consumed laying the administrative groundwork to comply with the Department of Labor’s Fiduciary Rule, and not having enough time to market their products.
• New York’s best interest Regulation 187 is not set to take effect until August 1, 2019. As a result, the level of sales of indexed annuities in New York has absolutely nothing to do with New York’s best interest rule. Indexed annuities are sold less in the state of New York largely because of their stringent standard non-forfeiture laws, in addition to other regulation that impacts annuity pricing.
• The Suitability in Annuity Transactions Model Act that has been enacted by the vast majority of the National Association of Insurance Commissioners (NAIC) mirrors the Financial Industry Regulatory Authority’s Rule 2821. These regulations are used to ensure suitable annuity sales. However, it is preposterous to suggest that every unsuitable sale would be eradicated through the passage of a Fiduciary Rule. Interestingly, consumer complaints on indexed annuities were averaged less than two per company the last I pulled the statistics from the NAIC. I would hardly find that to be sufficient fodder to suggest that indexed annuities are not “in savers’ ‘best interest’ or that they are “questionable” purchases.
You suggest that “some” indexed annuities “can be useful for tax and insurance planning.” This is precisely what indexed annuities are used for. These products are strategically-designed to address American’s concerns for outliving their income, while still providing preservation of principal. In addition, indexed annuities provide the purchaser the ability to potentially outpace fixed money instruments, such as Certificates of Deposit and fixed annuities, by 1.00% – 2.00%. This is the value proposition that has found appeal with so many, since indexed annuities’ debut in 1995.
The #1 fear of Americans is running-out-of-money in retirement. Annuities are the only financial instrument that can guarantee the purchaser an income they cannot outlive. As a result, it would seem appropriate that annuities are strategically, and solely-positioned to properly address the concerns of our nation.
While a mixture of stocks, bonds, and/or treasuries may be appropriate for some, this combination will not solve the purchasers’ needs for a guaranteed paycheck for the rest of their lives. SAFE supports that idea that it is best to listen to each individual consumer’s concerns, needs, goals, and objectives, before suggesting products as a solution. No solution is omitted for consideration prior to such a discussion. This method ensures that each client’s purchase is truly what is in their best interests.
As with all financial products, we encourage consumers to do their research, understand all the terms and, based on their own circumstances, decide what is best for them. Whenever possible use a trusted financial adviser and understand their licenses, know their background and their experience.
Sheryl J. Moore
Chief Research Officer
The Society for Annuity Facts & Education (SAFE)
The Society for Annuity Facts and Education (SAFE) is a non-profit organization committed to educating consumers about annuities, and providing them with the information they need to consider whether an annuity is appropriate or not. For more information visit us at www.SAFEannuityeducation.org or call us at (800) 952-SAFE (7233).