Here We Go Again

Now it is the Massachusetts Secretary of State who is trying to stick his nose into things which is none of his business. I guess Mr. William F. Galvin didn’t like the Minnesota state officials getting all the publicity. Those “M” states must really have a competitive thing going on because these charges are as ludicrous as those made by the Minnesota Attorney General against a prominent insurance carrier.

In an article recently published in telegram.com, about 2 men charged in an investment scam in central Massachusetts, the actions of public officials, in racing to conclusions, and the assumptions of wrongdoing, when there is no evidence for such misdoings, are incredible. In case you did not read about it, the two men in question sold annuities, an insurance product, to some elderly people who voluntarily attended a financial seminar they held. For some, this simple statement is enough to motivate them to cry fowl, but let’s look at the real criticisms made in these particular cases, because they have no merit whatsoever.

The basis for the claim by the Secretary of State is that the men were giving unauthorized advice to seniors. First of all, what in the world is the Secretary of State doing jumping into this role of financial police. Yes, I know that the Securities Division is the one taking this action, but still, the products sold to these people were insurance products, so this is not a securities issue for them to chase.

Anyway, the claim is that the advice these men were giving was investment advice, and that they were not properly registered to give investment advice. Interesting enough, the products these men actually did sell to these seniors are not investments, but insurance products, and it is actually unlawful for insurance agents to call insurance products investments. Too bad that rule does not apply to financial journalists, securities officials, and Secretary’s of State.

So the real question is why would these men offer investment advice, only to end up selling the clients an insurance product, which by the way, both agents were properly licensed to sell, and the products they sold were approved insurance products for sale in that state to people of that age group. The sale that was made was completely valid and lawful under the insurance laws of Massachusetts, the only jurisdiction responsible for oversight in such matters. And if you look closely, you do NOT see the state insurance department joining in this complaint, because they do not have one against these agents.

The complaint by the Secretary of State also indicates that one of the men was “dishonest and unethical in presenting himself to seniors as an objective and unbiased financial advisor.” It seems to me that this conclusion is a very assumptive one, given that the man was presenting an approved product for which he is properly licensed to sell. If an outside observer, such as the Secretary of State, is going to judge the motives and intensions of a salesperson selling ANYTHING, then unless they were there to witness exactly what was said, there has to be clear evidence that their presentation was dishonest, and that their intent was solely for personal gain, at the expense and harm of the prospect. Come on, every salesperson selling every product wants to earn a commission from that sale, but that fact does not in any way support that they were willing to somehow “force” the person to buy.

So, this argument made by the Secretary of State, has to make the following false assumptions in order to hold water:

*The buyers of the annuities are in fact harmed by their purchase of them, and
*The agent was able to get the buyers to buy against their will.

If you go back and read some of my previous blogs, you will see that I strongly support the sale of guaranteed, safe, and secure indexed annuities to elderly clients. There is no more suitable financial product for a senior. ANY securities product WOULD be an unsuitable sale, but these agents were not selling securities, as claimed, but were selling fixed, guaranteed annuities. So, that negates that part of the argument completely.

The sales process for presenting and selling an annuity is also regulated by the state insurance department, so these agents had to use approved sales materials, approved full disclosure forms and applications, signed by the buyers BEFORE the insurance company would issue the policy, and the buyers would have been given all details of the product in the contract, with a “free look” period where they could change their mind and get out of the deal without penalty. This information eliminates the possibility that the agent would be able to be dishonest in his representation of the product to the client. Every buyer is required by law to sign all of the documents which disclose in complete detail exactly how the policy works.

If a policy was issued, that signed documentation can be produced to show that the client saw that disclosure and had every opportunity to read all of that information and plenty of opportunity to change their mind if they wanted to, before becoming bound by the terms of the contract. So, there is no way that a person can be forcibly coerced to buy an annuity against their will, unless they are just plain stupid and can be manipulated to do anything the salesperson wants them to do. To assume that this is possible is an insult to the intelligence and integrity of the individuals involved, and every other elderly person who is lumped into this category of gullibility.

As far as a salesperson being unbiased, let me ask you to consider that when you go to a Toyota dealer, do they suggest you also check out Honda, before making up your mind on which car to purchase? Does a stock broker suggest to their senior clients that they call their insurance agent to see what kind of guaranteed insurance products are available, before entering into the unsuitable risky investment which they are recommending? Insurance agents sell insurance, brokers sell securities, and Toyota salespeople sell Toyotas.

Insurance products are financial products that offer numerous financial solutions to many financial problems. In many cases, insurance is the ONLY solution to some problems or concerns, because of the guaranteed nature of many insurance products. To represent that information to a potential client is not an exaggeration, or an empty and misleading sales pitch, but a fact.

Independent insurance agents are responsible for their own training and continued education. They already had to take a class and pass an exam to get licensed, and most states have annual continuing education requirements, but most professional agents want to go further in an effort to be better informed and prepared for their areas of specialty. The rub here is that when an agent takes the time and trouble to receive more training or education, so that they can be better at what they do, many of the certifications they pursue are criticized as inferior, because some of the higher powers do not want to recognize anything but a few select designations. Agents who are willing to seek more training, no matter what the source, should be applauded and supported in that quest, not chastised for taking the wrong course.

It is time for the issue of selling annuities to seniors to be removed from the political arena because the real victims here are the seniors. But the ones inflicting the harm on them is not the insurance industry, but the media, the securities industry, and these trigger happy politicians in unrelated state departments who are trying to put another notch on their guns by stepping into areas where they do not belong. Who is there that can stop this madness and protect our elderly from this dissemination of apparantly official misinformation?

The telling sign in this is that the visible cases you hear about are not being brought forward by unhappy annuity owners, but by others who are seeking out poster children for their selfish campaigns. Let’s leave the seniors alone and give them the respect they deserve to make sound financial judgments on their own, without the need for any head of state to baby sit them. After all, they made it where they are today by a lifetime of good decisions. Until they reach the point where they cannot manage their own affairs, they should be allowed to continue to make their own decisions. And then, only on a case by case basis, led by the family and loved ones who truly care about the well being of the senior as a person, not as a political football.

Did EVEYRONE forget what Annuities Are All About?

In the race to sue insurance carriers over alleged inappropriate sales of indexed annuity products to seniors, and in the ongoing attacks by the securities industry leaders about confusing product structure and sales methods, it seems to me that this clamor has totally diverted attention from what an annuity is really supposed to be. A fixed or fixed indexed annuity is an insurance product meant to provide individuals a way to guarantee a steady source of income for retirement from an accumulated asset base. As people are delaying retirement until much later in life, insurance companies have been looking for ways to get people to commit their dollars to an annuity sooner in life, by offering distinctive deferral features in the early stages of policy ownership. Nevertheless, the primary function of any annuity is always meant to be income, not accumulation.

In recent years, insurance companies have reacted to the growing interest of annuity buyers in deferring the start of a retirement income stream, by designing annuities to include creative deferral features that can allow for the annuity to double as an accumulation vehicle until the owner decides to activate the income features, even if that deferral last for a number of years. This trend has evolved into a marketing effort that has promoted the savings and deferral features of an annuity more than the income features. To further enhance the deferral benefits, liberal annual withdrawal privileges can actually become a substitution for the guaranteed income and cause annuity owners to keep their annuity in deferral without ever annuitizing them at all.

Still, the basic guaranteed features of an annuity, which can provide an income stream that a person can never outlive, are always present, even in these newer products which offer creative interest crediting strategies during the deferral phase. So, no matter how an annuity is viewed by its critics and detractors, it is still the only way an individual can take a fixed cash asset and create a guaranteed stream of income that can last them for the rest of their life, no matter how long they live. And if they so choose, they can have that income benefit transfer, after their death, to a surviving spouse or other individuals.

If you can go back to the basics and begin to see this unique and powerful benefit that every fixed and indexed annuity can provide, you will see them in a different light in the context of current criticism. And in the case of the possible class actions suits which lie ahead for several carriers, in the function of their original intent, all of the annuities in question are perfectly suitable for even the oldest of clients who purchased one. The fact that a senior can buy an annuity and then decide when or if they want to use it to create a guaranteed stream of income, is actually providing these people a powerful financial tool. To offer them a way to earn a respectable interest return during that deferral period, with all of their money guaranteed during whatever amount of time they may choose to wait, is an incredible plus, not a negative, as some are mistakenly trying to show. And to protect their hard earned savings from market risk and interest risk by guaranteeing their principal and guaranteeing a minimum interest return, is a very positive feature that makes fixed and indexed annuities perfect for a retired individual of ANY age.