If you are reading this blog, you should already know my position on EIAs and my take on the buzz that has surrounded them in recent years. If not, go back and read some of the previous posts and you will find that I am a strong supporter of the current use and present regulation of EIAs and believe that when used properly, they are a valuable financial tool for use with any age market, especially seniors.
Having said that, I want to address ALL agents who are currently selling indexed annuities and I hope that you take seriously what I am about to say. I recently wrote my own state insurance commissioner about my concerns why insurance departments are not being more vocal in defense of the measures they have already put into place to govern the proper sale and use of indexed annuities. I received a personal response from him rather quickly, and it provided me a slight change in my view of this entire issue.
The most shocking comments I read in his response was that he DOES believe there is a crisis in the sales activities of agents, and that his office, the Attorney General, and the Secretary of State Securities Division are opening numerous cases from complaints involving the lack of adequate disclosure with clients, and even some predatory activities of agents for all types of annuity sales, including indexed annuities.
This disturbing news brings the blame back to only one place, in my opinion, and that is with any agent who crosses the line and is less than truthful in describing and disclosing the full details about the products they are selling, is promoting a blanket product solution, without understanding the complete financial needs and concerns of their client, or in any other way is deceiving the client about the full impact of their actions. False statements are not the only way to leave the wrong impression and mislead a client. Failure to give them, or sometimes point out, important information, is JUST as wrong as saying something that is not true or clear. For instance, if you fail to encourage them to review their contract carefully when you first deliver it, because you are hoping the “free look” period will expire before they can raise any concerns or questions so you won’t lose the sale, you are still deceiving them by way of omission.
The entire insurance industry is built upon nothing more than the promises made by the companies we represent and whose products we sell. Think about it. For all the money a client turns over when they buy an annuity, ALL they get back to hold in their hands is a piece of paper which details the promises made by a company they never see, other than through us. If WE break the trust of the prospects and clients we see, then we are actually harming EVERY SINGLE AGENT out there as we lower the confidence of the public about the integrity of buying insurance products. While I know that most agents ARE trying to do a good job, unfortunately, it does not matter if you intentionally or accidentally made a bad recommendation, or failed to provide the client the level of information they needed to be comfortable about their decision. If a client complains to the insurance department about YOU, your livelihood is on the line. If enough of these complaints are made, as indicated by the letter from my insurance commissioner, then all of our livelihoods are on the line.
Let’s be more proactive as insurance agents. If you know of questionable sales activities in your area, don’t be afraid to do some self policing of your territory. Ultimately, doing nothing can have more impact on your business than you care to admit. Individually, I challenge each agent to review every sales action you currently use, and clean up your act. Go to your FMO, your GA, or whoever you view as having some supervision above you, and ask them for help in reviewing the professional and ethical methods of your sales practices. If you have a peer in the business, use each other to more objectively figure out if you have problems that need to be changed. Join professional organizations and become involved in community work, to keep you more focused on the needs of others and less concerned about what is in it for you.
The alternative is that we will only see more paperwork required, more regulatory intervention into our businesses, or worse, we may lose the ability to sell these products at all with just an insurance license and will have to become registered or otherwise further licensed in some way. With further licensing requirements come more opportunities where we will face considerably more oversight and the potential for fines and penalties for all levels of infractions. If we, as agents do everything we can do individually to STOP the concerns of sales practices of indexed annuities from arising in the first place, then we may avoid some of the more serious adjustments that I can assure you are inevitable, if nothing else changes
Wednesday, June 28, 2006
WIll Someone PLEASE Shut That Man Up?
InvestmentNews.com recently featured an article whose Headline read, NASD eyes regulation of insurance products. The opening statement of this article is that the NASD "continues to press for more clarity in the oversight of insurance products." If you have been following the comments of NASD chairman and Chief Executive, Robert Glauber, you know that this headline about sums it all up, and the opening sentence clearly identifies the intentions of the NASD are to force their way into the insurance business no matter what it takes. Glauber’s repeated use of the precise statement about equity indexed annuities being a "jump ball" because "no one seems to know whether they are a security or insurance product," is his continued effort to justify his intrusion into a complete industry in which he has no authority or jurisdiction.
In spite of what Glauber keeps repeating, equity indexed annuities are a pure insurance product. That leaves ALL of the regulation of every aspect about them to the individual state insurance departments, headed by a different elected insurance commissioner for each and every state. Within each state, the licensing and supervision of agents who are allowed to sell indexed annuities, the approval of the companies who offer them, the approval of the products and their specific features and designs, along with all sales literature, forms, and paperwork required to be used with buyers, and the handling of all concerns and complaints by consumers, is all under the jurisdiction of the state insurance department in which the product is being sold.
It could not be clearer than this. The only person who keeps raising any question about the identity of indexed annuities and who should be regulating them is Glauber. And in so doing, he is insulting each insurance commissioner from every state, the entire staff of every department that works so hard to provide the review, the approval, and the oversight of the dozens of companies and products who offer them; and every licensed insurance agent who is following each procedure and sales process honestly and professionally when they present and offer indexed annuities to their clients.
Since it only takes an insurance license to sell indexed annuities, Glauber’s only chance at getting back the hundreds of millions his NASD members and broker dealers have lost to these popular insurance products, is to attempt to confuse their identity in his efforts to garner control of them. It reminds me of the political joke about, if it walks like a duck, and quacks like a duck, then it must be a duck. Indexed annuities are pure insurance products and no matter how much Glauber tries to suggest they are otherwise, their true identity is clear to every insurance department and agent in the country. In addition to his constant statements that erroneously and illegally call indexed annuities securities, he also has resorted to harassing every properly licensed insurance agent who is also a registered representative and offers indexed annuities, by trying to scare them into either ceasing sale of them, or intimidating them into believeing that they should only access them only through their broker dealer, when they are actually free to go directly to the issuing company, or use any GA or FMO they desire, to access ANY insurance products they are duly licensed to sell.
It is time for Glauber to cease his attacks on the insurance industry, and spend that effort and energy to clean up the securities industry. Remember the proverb about trying to remove the speck in your neighbors eye, when you have a log in your own eye. Glauber would do well to take note and heed this bit of wisdom. If he wants to protect investors, there is plenty he can do in his own industry. Perhaps after he retires from the NASD, he may want to run for insurance commissioner in some state and maybe then he will finally come to understand about the difference between insurance products and securities, and the real function and purpose for keeping regulation of each insurance department separated by state.
In spite of what Glauber keeps repeating, equity indexed annuities are a pure insurance product. That leaves ALL of the regulation of every aspect about them to the individual state insurance departments, headed by a different elected insurance commissioner for each and every state. Within each state, the licensing and supervision of agents who are allowed to sell indexed annuities, the approval of the companies who offer them, the approval of the products and their specific features and designs, along with all sales literature, forms, and paperwork required to be used with buyers, and the handling of all concerns and complaints by consumers, is all under the jurisdiction of the state insurance department in which the product is being sold.
It could not be clearer than this. The only person who keeps raising any question about the identity of indexed annuities and who should be regulating them is Glauber. And in so doing, he is insulting each insurance commissioner from every state, the entire staff of every department that works so hard to provide the review, the approval, and the oversight of the dozens of companies and products who offer them; and every licensed insurance agent who is following each procedure and sales process honestly and professionally when they present and offer indexed annuities to their clients.
Since it only takes an insurance license to sell indexed annuities, Glauber’s only chance at getting back the hundreds of millions his NASD members and broker dealers have lost to these popular insurance products, is to attempt to confuse their identity in his efforts to garner control of them. It reminds me of the political joke about, if it walks like a duck, and quacks like a duck, then it must be a duck. Indexed annuities are pure insurance products and no matter how much Glauber tries to suggest they are otherwise, their true identity is clear to every insurance department and agent in the country. In addition to his constant statements that erroneously and illegally call indexed annuities securities, he also has resorted to harassing every properly licensed insurance agent who is also a registered representative and offers indexed annuities, by trying to scare them into either ceasing sale of them, or intimidating them into believeing that they should only access them only through their broker dealer, when they are actually free to go directly to the issuing company, or use any GA or FMO they desire, to access ANY insurance products they are duly licensed to sell.
It is time for Glauber to cease his attacks on the insurance industry, and spend that effort and energy to clean up the securities industry. Remember the proverb about trying to remove the speck in your neighbors eye, when you have a log in your own eye. Glauber would do well to take note and heed this bit of wisdom. If he wants to protect investors, there is plenty he can do in his own industry. Perhaps after he retires from the NASD, he may want to run for insurance commissioner in some state and maybe then he will finally come to understand about the difference between insurance products and securities, and the real function and purpose for keeping regulation of each insurance department separated by state.
Monday, June 12, 2006
Why Isn’t LTC Insurance Getting the Same Critical Attention as Annuities?
As I scour all the industry news sources every morning looking for articles to inspire a new blog, I search for the word annuity to appear. Many days I find nothing at all mentioned about annuities. Most days there are some comments about retirement issues in general, but nearly every day there are some articles about Long Term Care (LTC) insurance. These articles are usually about how some company is creating a new version of this product; some reference to how important LTC insurance will be to a secure retirement for baby boomers; or, how planners need to become more fluent in their understanding of these products to make sure they cover all bases.
The thing I find interesting is the lack of critical comments about LTC insurance products. Don’t misunderstand me, I am a strong proponent of this product, and for five years I was a company rep for CNA, then one of the industry leaders in selling a series of top quality policies, where I trained agents in the importance and the techniques of selling LTC insurance. There is a saying that if you really want to understand something, teach it to someone else. During that time, I became a LTC expert, and I found the main reason most agents shy away from offering LTC insurance is that they are intimidated by the intricacies of the product, and they fear they will not be able to adequately explain it in a sales setting.
The reason I mention this is that I want to compare the sale of LTC insurance to that of annuities. Both are sold primarily to the senior market. Both are insurance products that are designed to protect a senior’s assets and provide a degree of control and management to the unpredictability of retirement financial obstacles. Both contain a degree of complexity in their inner workings that require explanation, and the subtle variations in product features from one company to the next can be overwhelming and requires an in depth comparison of all the features to fully understand the differences. And LTC insurance forms have long included a simple suitability statement that effectively puts the burden of the financial appropriateness of the sale on the buyer, and even allows them to purchase the product against the recommendation of the agent, simply by checking a particular box on the form.
Yet, I cannot recall EVER reading of one complaint voiced by the NASD or any other securities regulatory agency about LTC insurance in the way they regularly do about annuities. Given the very similar natures of both products, you would think that if the motivation of the NASD were truly for the concern of the senior buyer, they would be concerned for ALL financial products offered to seniors. But the truth is that the sale of LTC insurance does not directly dip into the pockets of NASD members and broker dealers. Fixed and indexed annuity sales often result in the liquidation of brokerage accounts and moving money from broker dealers to insurance companies. Long Term Care insurance premiums are often paid from current or interest income, but usually do not result in the liquidation of huge blocks of securities business.
So, the bottom line here is that this disparity in the interest of the NASD between these two insurance products is easily identified as a purely financial motivation. Once again, it is clear that the issues the NASD has with indexed annuities are not about the safety and security of the buying public, as it wants us to believe, but it is ALL ABOUT THE MONEY.
The thing I find interesting is the lack of critical comments about LTC insurance products. Don’t misunderstand me, I am a strong proponent of this product, and for five years I was a company rep for CNA, then one of the industry leaders in selling a series of top quality policies, where I trained agents in the importance and the techniques of selling LTC insurance. There is a saying that if you really want to understand something, teach it to someone else. During that time, I became a LTC expert, and I found the main reason most agents shy away from offering LTC insurance is that they are intimidated by the intricacies of the product, and they fear they will not be able to adequately explain it in a sales setting.
The reason I mention this is that I want to compare the sale of LTC insurance to that of annuities. Both are sold primarily to the senior market. Both are insurance products that are designed to protect a senior’s assets and provide a degree of control and management to the unpredictability of retirement financial obstacles. Both contain a degree of complexity in their inner workings that require explanation, and the subtle variations in product features from one company to the next can be overwhelming and requires an in depth comparison of all the features to fully understand the differences. And LTC insurance forms have long included a simple suitability statement that effectively puts the burden of the financial appropriateness of the sale on the buyer, and even allows them to purchase the product against the recommendation of the agent, simply by checking a particular box on the form.
Yet, I cannot recall EVER reading of one complaint voiced by the NASD or any other securities regulatory agency about LTC insurance in the way they regularly do about annuities. Given the very similar natures of both products, you would think that if the motivation of the NASD were truly for the concern of the senior buyer, they would be concerned for ALL financial products offered to seniors. But the truth is that the sale of LTC insurance does not directly dip into the pockets of NASD members and broker dealers. Fixed and indexed annuity sales often result in the liquidation of brokerage accounts and moving money from broker dealers to insurance companies. Long Term Care insurance premiums are often paid from current or interest income, but usually do not result in the liquidation of huge blocks of securities business.
So, the bottom line here is that this disparity in the interest of the NASD between these two insurance products is easily identified as a purely financial motivation. Once again, it is clear that the issues the NASD has with indexed annuities are not about the safety and security of the buying public, as it wants us to believe, but it is ALL ABOUT THE MONEY.
Friday, June 09, 2006
Not Concerned About the NASD? You SHOULD Be!
If you are an agent holding seminars in order to meet new prospects for your senior financial business, it is important that you pay close attention to the clamor that is going on in the media about how luncheon seminars are being used to deceptively sell inappropriate investments to seniors. While I am sure that the majority of seminar sponsors are attempting to follow the appropriate regulations for their type of license or registration, there are some areas you may still be missing.
Agents who are securities licensed have come under extreme scrutiny by the NASD and their broker/dealers for their “non-securities” business, such as the sale of insurance products like fixed and indexed annuities. While the sale of non-registered insurance products are not under the jurisdiction of any securities regulators, the general outside business and ethical practices of registered agents are within some grasp of the NASD and an agent’s broker/ dealer through a number of back door means of discipline. If you don’t believe me, just ask those agents in Massachusetts who were fined and strongly disciplined by the securities regulators when they were promoting indexed annuities through seminars, but because of their registration, they failed to meet all the compliance requirements of sales materials. It is extremely important to check with your broker/dealer for proper compliance requirements for EVERY SINGLE WORD you provide in print or speak to prospects and clients.
Insurance agents who are not securities registered and are only selling pure insurance products may feel they are out of reach of the SEC and the NASD. If that agent is using the proper presentation of financial concepts at seminars and in client interviews that fully discloses the character and nature of indexed annuities as an insurance product, and does not venture off topic, then that is true. But the warning to these insurance agents comes from their possible misuse of terminology and in their illegal comments and evaluations of registered securities' products.
Many have been fighting very hard to maintain the insurance definition of indexed annuities and keep them out of the control of the NASD. But when an agent refers to an indexed annuity as an “investment,” or decides to embellish his descriptions with a few words about how they work that imply that the returns of indexed annuities are “tied to the stock market,” or that you can get “market, or market-like returns,” then this agent is stepping over the boundary of properly identifying an indexed annuity as an insurance product and is implying that it is some kind of investment.
The earnings on an indexed annuity is INTEREST, that just happens to be credited by using the “change” in the measurement of the related index as the measuring stick to determine how much interest is credited in any given period. To refer to the earnings in any other way could be construed as a false representation of an insurance product as a type of investment.
Non-registered agents also need to be careful to what extent you can refer to information regarding the stock market or mutual fund performance. This line is critical and if you cross it, you can find yourself suddenly subject to the authority of the SEC for practicing securities business without the proper registration. Whether they have the full right to intervene or not may be of little concern once you have been publicly humiliated and your local or regional reputation ruined.
When you recommend a client liquidate investment assets and move them into annuities, it may be construed as a violation of SEC law, especially if you provide any opinion about the investments themselves or if your actions hint at you acting as a registered investment advisor without that designation. The fine line of difference between recommending the purchase of an indexed annuity versus the specific recommendation to liquidate securities in order to do so, may only be in the difference of a word or two, but it could make all the difference as to whether you are breaking any laws. My suggestion is that you contact your FMO or general agent, to provide you with “written” explanation about any areas of question you may have regarding what specific comments you are allowed or disallowed to make regarding investments.
Remember the old adage, an ounce of prevention is worth a pound of cure.
Agents who are securities licensed have come under extreme scrutiny by the NASD and their broker/dealers for their “non-securities” business, such as the sale of insurance products like fixed and indexed annuities. While the sale of non-registered insurance products are not under the jurisdiction of any securities regulators, the general outside business and ethical practices of registered agents are within some grasp of the NASD and an agent’s broker/ dealer through a number of back door means of discipline. If you don’t believe me, just ask those agents in Massachusetts who were fined and strongly disciplined by the securities regulators when they were promoting indexed annuities through seminars, but because of their registration, they failed to meet all the compliance requirements of sales materials. It is extremely important to check with your broker/dealer for proper compliance requirements for EVERY SINGLE WORD you provide in print or speak to prospects and clients.
Insurance agents who are not securities registered and are only selling pure insurance products may feel they are out of reach of the SEC and the NASD. If that agent is using the proper presentation of financial concepts at seminars and in client interviews that fully discloses the character and nature of indexed annuities as an insurance product, and does not venture off topic, then that is true. But the warning to these insurance agents comes from their possible misuse of terminology and in their illegal comments and evaluations of registered securities' products.
Many have been fighting very hard to maintain the insurance definition of indexed annuities and keep them out of the control of the NASD. But when an agent refers to an indexed annuity as an “investment,” or decides to embellish his descriptions with a few words about how they work that imply that the returns of indexed annuities are “tied to the stock market,” or that you can get “market, or market-like returns,” then this agent is stepping over the boundary of properly identifying an indexed annuity as an insurance product and is implying that it is some kind of investment.
The earnings on an indexed annuity is INTEREST, that just happens to be credited by using the “change” in the measurement of the related index as the measuring stick to determine how much interest is credited in any given period. To refer to the earnings in any other way could be construed as a false representation of an insurance product as a type of investment.
Non-registered agents also need to be careful to what extent you can refer to information regarding the stock market or mutual fund performance. This line is critical and if you cross it, you can find yourself suddenly subject to the authority of the SEC for practicing securities business without the proper registration. Whether they have the full right to intervene or not may be of little concern once you have been publicly humiliated and your local or regional reputation ruined.
When you recommend a client liquidate investment assets and move them into annuities, it may be construed as a violation of SEC law, especially if you provide any opinion about the investments themselves or if your actions hint at you acting as a registered investment advisor without that designation. The fine line of difference between recommending the purchase of an indexed annuity versus the specific recommendation to liquidate securities in order to do so, may only be in the difference of a word or two, but it could make all the difference as to whether you are breaking any laws. My suggestion is that you contact your FMO or general agent, to provide you with “written” explanation about any areas of question you may have regarding what specific comments you are allowed or disallowed to make regarding investments.
Remember the old adage, an ounce of prevention is worth a pound of cure.
In Defense of the “FREE LUNCH” Seminar
The National Ethics Bureau recently issued a Red Flag Reminder about Government Regulators “Hungry” for Senior “Free Lunches.” I have read references in a number of articles lately that insinuate that if an agent is holding luncheon seminars in order to meet new prospects for their senior financial business, then that SHOULD be a red flag as to their legitimacy and ethics. The fact that this notice is given in the first place is indication enough that there are growing critics who would seek to eliminate, or somehow control the marketing methods an agent chooses to use.
The core of this issue reminds me of the discussion about gun control. The question is whether it is the “free lunch” seminar that is the problem; or, if it is the few agents who choose to use the medium of seminars to fraudulently further their business with misleading information and deceptive business practices. I am all for eliminating the con artists from this industry, since this is a business of trust. The more reputable ALL agents are perceived; the better it will be for everyone. But let’s don’t throw out the baby with the bath water. The luncheon seminar is good for both agent AND seniors.
I find the claims by critics of the luncheon seminar, that simply by filling up the stomachs of seniors they will drop all of their good judgment and somehow lose their ability to evaluate financial decisions for themselves, is a naïve and offensive insinuation. Contrary to the indications in the Red Flag Reminder, the purpose of a financial seminar presented to seniors is NOT education. At least, it is not for the purpose of educating anyone about a particular financial topic. In fact, agents who attempt to provide too MUCH information about some financial concepts will more often do harm than good when attendees believe they have received enough information to make informed decisions and take action on their own. The seminar should merely open up awareness to important topics with the identification of potential problem areas, and the suggestion of possible solutions; but always with the clarification that each person’s financial situation is different and must be carefully evaluated by a professional before suitablity can be determined, and that more detailed information is required before any major decisions should be made.
But the real value of the seminar, lunch or not, is that it allows the senior attendee to privately and anonymously evaluate the agent who is speaking, BEFORE they decide if they want to consent to an individual consultation with them or disclose any personal financial information. At the same time, for the agent, it allows them to reach a large number of qualified people at one time, and THEN only have to spend time individually with the ones who specifically have a stated interest in discussing their detailed financial affairs further with the agent.
The intrusion of the government into the use of seminars as an introductory marketing method is a discriminatory affront to the thousands of honest financial professionals who use them and are diligently working hard to provide the best service possible for their clients and are simply attempting to expand their client base. All industries have used seminars, including legal, financial, investment, as well as insurance. Each industry has the interest and the means to supervise the resulting business practices of the seminar sponsors. Rather than attack the seminar as a structure, why not focus more on the inappropriate business and trade practices? Lets go after the con artists and leave legitimate business professionals alone.
The core of this issue reminds me of the discussion about gun control. The question is whether it is the “free lunch” seminar that is the problem; or, if it is the few agents who choose to use the medium of seminars to fraudulently further their business with misleading information and deceptive business practices. I am all for eliminating the con artists from this industry, since this is a business of trust. The more reputable ALL agents are perceived; the better it will be for everyone. But let’s don’t throw out the baby with the bath water. The luncheon seminar is good for both agent AND seniors.
I find the claims by critics of the luncheon seminar, that simply by filling up the stomachs of seniors they will drop all of their good judgment and somehow lose their ability to evaluate financial decisions for themselves, is a naïve and offensive insinuation. Contrary to the indications in the Red Flag Reminder, the purpose of a financial seminar presented to seniors is NOT education. At least, it is not for the purpose of educating anyone about a particular financial topic. In fact, agents who attempt to provide too MUCH information about some financial concepts will more often do harm than good when attendees believe they have received enough information to make informed decisions and take action on their own. The seminar should merely open up awareness to important topics with the identification of potential problem areas, and the suggestion of possible solutions; but always with the clarification that each person’s financial situation is different and must be carefully evaluated by a professional before suitablity can be determined, and that more detailed information is required before any major decisions should be made.
But the real value of the seminar, lunch or not, is that it allows the senior attendee to privately and anonymously evaluate the agent who is speaking, BEFORE they decide if they want to consent to an individual consultation with them or disclose any personal financial information. At the same time, for the agent, it allows them to reach a large number of qualified people at one time, and THEN only have to spend time individually with the ones who specifically have a stated interest in discussing their detailed financial affairs further with the agent.
The intrusion of the government into the use of seminars as an introductory marketing method is a discriminatory affront to the thousands of honest financial professionals who use them and are diligently working hard to provide the best service possible for their clients and are simply attempting to expand their client base. All industries have used seminars, including legal, financial, investment, as well as insurance. Each industry has the interest and the means to supervise the resulting business practices of the seminar sponsors. Rather than attack the seminar as a structure, why not focus more on the inappropriate business and trade practices? Lets go after the con artists and leave legitimate business professionals alone.
Tuesday, June 06, 2006
MassMutual's Innovative New Variable Annuity is a Wolf In Sheep’s Clothing
MassMutual has just introduced a new Variable Annuity product called Equity Edge. That may not seem like news, since nearly every single insurance carrier already offers variable annuities, a hybrid of insurance and securities features (which are often confused with indexed annuities, which are NOT securities but are pure insurance products.) So, what is new about the MassMutual product?
Previously, most variable annuities, regardless of the company who issued them, were similarly structured. In exchange for the ability to choose the underlying investment options and with the potential for market gains, the client assumed ALL investment risk on the value of a variable annuity. The only guarantee in these products was usually a death benefit, for which the client actually paid anyway as an expense deducted regularly from the contract principle to purchase term life insurance. Therefore, the big draw to variable annuities was the high market-based potential return aspects of the securities side, that were also tax deferred as part of the insurance aspects of the product. When the market was rising, those gains could be comfortably deferred inside the annuity and the client could enjoy additional compounding on the earnings they otherwise would lose annually to pay taxes.
For this reason variable annuities became very popular during the huge market increases of the late 90’s. But when the market began to correct in 2000, clients learned that the contract really DID NOT guarantee the account value, and many people suddenly were sitting on an annuity whose value was worth only a fraction of their original deposit. This dissatisfaction in the performance of these products has lead to some variations of variable annuities, the latest of which is this MassMutual version.
The common element of any changes in variable annuities involves the appearance of guarantees. One such product was so confusing that agents themselves were telling clients the product had an underlying guarantee of a fixed rate, at the time about 7%, with the potential of earning more if the market did well. What the truth was, however, was much different. The client only received the guaranteed interest IF, and only IF they left their money in the contract for the full 10 year deferral period followed by a required 10 year systematic withdrawal. When you did the math, essentially what you got was about a 3 ½ % overall return, and then only if you were willing to wait 20 years to get it. Amazingly, this product has been voluntarily withdrawn from the market.
The MassMutual product has similar illusory elements that must be mentioned to avoid client deception. It is called a simplified variable annuity, which in this case means much of the typical flexibility and a number of client options are simply removed. In other words, in the MassMutual product the benefit period is absolute or all guarantees are off. For instance, if someone selects a 10 year period, if for any reason they must withdraw their money before the 10 years is up, they receive NONE of the guaranteed benefits. Ironically one of the simplifications also removes all direction of investment choices from the buyer, previously one of the major selling points of variable annuities. Instead, the product is designed to be managed by MassMutual to integrate fixed interest earnings with equity investments and rebalance them each year in order to attempt to mimic the returns of the S&P 500 on the investement side, with a minimal attempt to just simply preserve the original principle of the entire account.
If you carefully examine it, this product seems remarkable structured like all of the negative aspects that indexed annuities are confusingly accused of having by those who are critical of them, but really don’t. Considering that with an indexed annuity over the contract term you can also get the general potential performance of the S&P 500, BUT the client retains the guaranteed return of 100% of their principle AND a minimum guaranteed interest return, regardless of how the market performs. In addition, with an indexed annuity your gains are locked in annually, and you have penalty free withdraws, usually in the amount of 10% per year throughout the surrender period. If they need more than the penalty free withdrawal, the client can always access whatever amount they need, usually without affecting previous earnings, but simply by paying the applicable surrender charge only on the amount withdrawn over the free amount. Indexed annuities also usually carry a nursing home waiver where in extreme circumstances, such as a nursing home stay, the free withdrawal is increased, or the early withdrawal penalty is removed altogether.
It is clear to me that the MassMutual product is a poor attempt to mimic what the uniformed believes indexed annuities to be on the surface, without really understanding them or how they work. But by missing the REAL features that make an indexed annuity the very appealing and valuable retirement vehicle it is, this MassMutual product is just a piece of crap, and the only way it can be sold is to some unsuspecting buyer who simply trusts the agent or the product because of the MassMutual name. If only that same person was able to have any of the many good indexed annuities to compare to, they would wisely choose the indexed annuity over this MassMutual variable annuity every time.
Previously, most variable annuities, regardless of the company who issued them, were similarly structured. In exchange for the ability to choose the underlying investment options and with the potential for market gains, the client assumed ALL investment risk on the value of a variable annuity. The only guarantee in these products was usually a death benefit, for which the client actually paid anyway as an expense deducted regularly from the contract principle to purchase term life insurance. Therefore, the big draw to variable annuities was the high market-based potential return aspects of the securities side, that were also tax deferred as part of the insurance aspects of the product. When the market was rising, those gains could be comfortably deferred inside the annuity and the client could enjoy additional compounding on the earnings they otherwise would lose annually to pay taxes.
For this reason variable annuities became very popular during the huge market increases of the late 90’s. But when the market began to correct in 2000, clients learned that the contract really DID NOT guarantee the account value, and many people suddenly were sitting on an annuity whose value was worth only a fraction of their original deposit. This dissatisfaction in the performance of these products has lead to some variations of variable annuities, the latest of which is this MassMutual version.
The common element of any changes in variable annuities involves the appearance of guarantees. One such product was so confusing that agents themselves were telling clients the product had an underlying guarantee of a fixed rate, at the time about 7%, with the potential of earning more if the market did well. What the truth was, however, was much different. The client only received the guaranteed interest IF, and only IF they left their money in the contract for the full 10 year deferral period followed by a required 10 year systematic withdrawal. When you did the math, essentially what you got was about a 3 ½ % overall return, and then only if you were willing to wait 20 years to get it. Amazingly, this product has been voluntarily withdrawn from the market.
The MassMutual product has similar illusory elements that must be mentioned to avoid client deception. It is called a simplified variable annuity, which in this case means much of the typical flexibility and a number of client options are simply removed. In other words, in the MassMutual product the benefit period is absolute or all guarantees are off. For instance, if someone selects a 10 year period, if for any reason they must withdraw their money before the 10 years is up, they receive NONE of the guaranteed benefits. Ironically one of the simplifications also removes all direction of investment choices from the buyer, previously one of the major selling points of variable annuities. Instead, the product is designed to be managed by MassMutual to integrate fixed interest earnings with equity investments and rebalance them each year in order to attempt to mimic the returns of the S&P 500 on the investement side, with a minimal attempt to just simply preserve the original principle of the entire account.
If you carefully examine it, this product seems remarkable structured like all of the negative aspects that indexed annuities are confusingly accused of having by those who are critical of them, but really don’t. Considering that with an indexed annuity over the contract term you can also get the general potential performance of the S&P 500, BUT the client retains the guaranteed return of 100% of their principle AND a minimum guaranteed interest return, regardless of how the market performs. In addition, with an indexed annuity your gains are locked in annually, and you have penalty free withdraws, usually in the amount of 10% per year throughout the surrender period. If they need more than the penalty free withdrawal, the client can always access whatever amount they need, usually without affecting previous earnings, but simply by paying the applicable surrender charge only on the amount withdrawn over the free amount. Indexed annuities also usually carry a nursing home waiver where in extreme circumstances, such as a nursing home stay, the free withdrawal is increased, or the early withdrawal penalty is removed altogether.
It is clear to me that the MassMutual product is a poor attempt to mimic what the uniformed believes indexed annuities to be on the surface, without really understanding them or how they work. But by missing the REAL features that make an indexed annuity the very appealing and valuable retirement vehicle it is, this MassMutual product is just a piece of crap, and the only way it can be sold is to some unsuspecting buyer who simply trusts the agent or the product because of the MassMutual name. If only that same person was able to have any of the many good indexed annuities to compare to, they would wisely choose the indexed annuity over this MassMutual variable annuity every time.
NASD Needs to Concentrate on the Proverbial Log In Their Own Eye
I do not understand why the NAIC is not up in arms at the continued slams by NASD chairman, Robert Glauber about their job of regulating fixed and indexed annuities. A quick factual study of the consumer complaints regarding indexed annuities will reveal that these products have the least number of complaints of any other insurance product. So why isn’t Glauber concerned about other insurance products? BECAUSE OTHER INSURANCE PRODUCTS AREN’T TAKING BILLIONS OF DOLLARS OF ASSETS OUT OF THE CONTROL OF BROKER DEALERS!
It was recently reported that the complaints that were made against indexed annuities were not in reference to the product performance, but regarding something about the sales process. With $25 billion in sales last year, I am sure that there are some cases where the agent did not do a good job of explaining the product details or recommending the best product to the client. Still, in each of those cases, if you looked at the facts, it would be found that regardless of what the client claims regarding their questions and confusion, ALL of the product details WERE FULLY DISCLOSED, if not in the agent interview, at least in the required paperwork every client must sign upon application. Then, once again every legal commitment that the client AND the insurance company agree to is furnished upon delivery in the actual contract, where a state mandated “free look” period gives ANY client adequate time to read, review, get outside input, or whatever they need in order to make sure of their decision, and if during this period they are dissatisfied for ANY reason, they can get out of the contract without incurring any cost or penalty.
What comes to mind here is the familiar proverbial passage about the human tendency to find the speck in someone else’s eye when there may be a log in their own eye. For their own financial reasons, the NASD is conveniently finding fault in the sale of indexed annuities, while their own industry is filled with misconduct, fraud, deceit, and mismanagement. There are numerous instances of the mutual funds themselves being bogus; the information provided by the brokers to clients being wrong, the financial reporting of the underlying companies that affect stock and fund values being falsified, or the client’s money being fraudulently stolen in schemes. Besides these obvious illegal activities, we all know the sales habits of brokers to “churn” accounts simply to generate a commission for themselves, all under the guise of making “recommendations.” Investors have been so conditioned NOT to hold their broker accountable for their bad advice, that the securities industry has averted potentially thousands, if not millions of consumer complaints; only because consumers have learned to simply accept losses in their investment account value as part of being in the market. Yet, these same brokers want the credit if their client’s make gains in their accounts.
This double standard by the NASD is a skillful manipulation of the public attention away from the many problems in the securities industry. The underlying goal of Glauber and his cronies is not just redirection, however, but to garner control over indexed annuities and bring those billions in lost assets back to broker dealers, and thus hundreds of millions in lost commissions.
It was recently reported that the complaints that were made against indexed annuities were not in reference to the product performance, but regarding something about the sales process. With $25 billion in sales last year, I am sure that there are some cases where the agent did not do a good job of explaining the product details or recommending the best product to the client. Still, in each of those cases, if you looked at the facts, it would be found that regardless of what the client claims regarding their questions and confusion, ALL of the product details WERE FULLY DISCLOSED, if not in the agent interview, at least in the required paperwork every client must sign upon application. Then, once again every legal commitment that the client AND the insurance company agree to is furnished upon delivery in the actual contract, where a state mandated “free look” period gives ANY client adequate time to read, review, get outside input, or whatever they need in order to make sure of their decision, and if during this period they are dissatisfied for ANY reason, they can get out of the contract without incurring any cost or penalty.
What comes to mind here is the familiar proverbial passage about the human tendency to find the speck in someone else’s eye when there may be a log in their own eye. For their own financial reasons, the NASD is conveniently finding fault in the sale of indexed annuities, while their own industry is filled with misconduct, fraud, deceit, and mismanagement. There are numerous instances of the mutual funds themselves being bogus; the information provided by the brokers to clients being wrong, the financial reporting of the underlying companies that affect stock and fund values being falsified, or the client’s money being fraudulently stolen in schemes. Besides these obvious illegal activities, we all know the sales habits of brokers to “churn” accounts simply to generate a commission for themselves, all under the guise of making “recommendations.” Investors have been so conditioned NOT to hold their broker accountable for their bad advice, that the securities industry has averted potentially thousands, if not millions of consumer complaints; only because consumers have learned to simply accept losses in their investment account value as part of being in the market. Yet, these same brokers want the credit if their client’s make gains in their accounts.
This double standard by the NASD is a skillful manipulation of the public attention away from the many problems in the securities industry. The underlying goal of Glauber and his cronies is not just redirection, however, but to garner control over indexed annuities and bring those billions in lost assets back to broker dealers, and thus hundreds of millions in lost commissions.
Glauber, Head of NASD, Loves the Assumptive Close
In a lengthy article I recently read in Financial-Planning.com, entitled “NASD Agenda: Regulatory Harmony for Annuities,” the primary focus of the article is actually on the efforts of the NASD to address the problems with honesty and credibility we all have read about in the securities industry over the past number of years, such as deceptive mutual fund sales disclosure, improper fund management and doctored reporting. According to the article, items on the NASD agenda also include the “harmonization of rules governing fixed, variable and equity indexed annuities.” Glauber once again took this pubic opportunity to breach the boundaries of the NASD authority and make intruding comments about insurance products to which he has no jurisdiction whatsoever.
The article continues that the NASD is “considering the possible integration of regulations for popular financial products…fixed, variable and equity indexed annuities.” Can’t anyone put Glauber in his place and remind him that not only does he not have the right to insist on regulatory changes for fixed and indexed annuities; he does not have the NEED to do so? But once again, by making his regular statements about the need for uniformity of regulation over variable annuities, (which are a securities product), and fixed and indexed annuities, (which are NOT securities products but are insurance products), by making his comments assumptively, as if he had some authority to do so, he is attempting to condition the pubic to assume that he and the NASD do have some power over indexed annuities. But in truth, he is continuing to stick his nose into business for which he has no reason to get involved; unless you are concerned about the loss of $25 billion in assets by broker dealers in each of the past several years to insurance companies through the sale of indexed annuities. That is the REAL and ONLY interest Glauber has in fixed and indexed annuities. It is ALL about the money. It always has been, and it always will be.
The article continues that the NASD is “considering the possible integration of regulations for popular financial products…fixed, variable and equity indexed annuities.” Can’t anyone put Glauber in his place and remind him that not only does he not have the right to insist on regulatory changes for fixed and indexed annuities; he does not have the NEED to do so? But once again, by making his regular statements about the need for uniformity of regulation over variable annuities, (which are a securities product), and fixed and indexed annuities, (which are NOT securities products but are insurance products), by making his comments assumptively, as if he had some authority to do so, he is attempting to condition the pubic to assume that he and the NASD do have some power over indexed annuities. But in truth, he is continuing to stick his nose into business for which he has no reason to get involved; unless you are concerned about the loss of $25 billion in assets by broker dealers in each of the past several years to insurance companies through the sale of indexed annuities. That is the REAL and ONLY interest Glauber has in fixed and indexed annuities. It is ALL about the money. It always has been, and it always will be.
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