NAFA Conference Concludes with a Bang; Candor and Insight Overflow
The talks given during day two of NAFA’s Annuity Summit opened and closed strongly with one excellent presentation after another sandwiched in between.
ING’s Harry Stout led off with a compelling analysis of current industry dynamics and challenges. Low rates, a flat yield curve and a 13,000 level for the Dow Jones Industrials conspired to make the first quarter of 2007, “the most challenging in eight or nine years.”
Stout eloquently described the urgency for the annuity industry to, “grow the pie”, while also pointing out that of the $250 Billion in annuity sales during 2006, only 25%- $50 Billion- was attributed to new flows.
In describing the probable impact of Boomer retirement security on the annuity business, Stout said that, “The sleeping giant has yet to awaken.” He cited clarity, transparency and ease of doing business as vital necessities in order for the annuity industry to maximize its potential in serving the retirement income needs of Boomer clients.
In describing the inherent differences among different channels of distribution, Stout said that, “Psychology, culture and expectations change across channels.” He also talked about ING’s efforts to accommodate strategic partnerships between IMOs and broker-dealers, and he followed this with a side-by-side comparison of each channel’s core competencies and respective strengths.
Stout talked about the importance of, “reducing the risk of outliving income” and predicted the introduction of, “new models that help illustrate how annuity products can reduce that risk.”
Stout was quite clear on the point that agents, “must change their competitive positioning and sales practices”, and that their biggest challenge is education on complex products such as indexed annuities. He asserted that the indexed annuity product has been “stress tested.”
Stout indicated that there should be an urgency to, “push indexed annuities into the mainstream”, and called for the industry to embrace new ideas for retirement solutions. He also said that the industry is at the “infancy stage in product innovations and services for upcoming and continuing retirees.”
After his prepared comments, Stout fielded a number of questions. I asked him for his views on the ongoing efforts to recruit annuity agents into RIA status. Stout responded that agents should move into this area with great caution. He said that if the motivations for becoming an RIA have to do with sidestepping regulation and oversight, then such a strategy would not be successful.
While time does not allow for a detailed analysis of all the presentations that followed Stout’s, I want to mention several additional highlights. Lincoln Financial’s, David Kittredge, described the magnitude of the money-in-motion in the context of Boomer retirement. He shared statistics that recognized the assets that Boomers have earmarked for providing retirement income apart from their formal retirement accounts. When these assets are considered Kittredge said that the total volume of money-in-motion becomes a staggering $32 Trillion.
The ACLI’s Carl Wilkerson delivered a comprehensive review of ongoing task force initiatives. And NAVA’s Mike DeGeorge presented an excellent primer on the current menu of living benefits available on VA contracts. A person sitting near me listened to this presentation on VA riders and murmured, “And they say fixed annuities are complex!”
An amazingly candid presentation by Iowa Deputy Insurance Commissioner, Jim Mumford, closed the day. Mumford pulled no punches in commenting on many, many contemporary industry challenges. He had no hesitation in citing a lack of cooperation among regulators for worsening the current marketing environment. He reserved special criticism for the North American Securities Administrators Association (NASAA) – of which he is a member- for, “placing turf protection above consumer protection.” Wow.
He described the recent actions by Minnesota Attorney General, Lori Swanson, against some carriers as “purely political” and stated that regulators’ actions can serve to, ‘harm consumers more than help them.” Mumford also stated that, “class action lawsuits usurp state regulation.” He called for regulators to, “work together.”
In commenting on the NASAA’s intense criticism of annuity seminars, Mumford revealed that in order to test the validity of the criticism, representatives of the Iowa Insurance Department and the Iowa securities regulator have attended more than 20 such seminars. He said that some sales practices problems have been uncovered with only two cease and desist orders issued.
NAFA provided a terrific program today, one chock full of worthy insights. Kim O’Brien and her colleagues should be pleased. Due to the absence of the industry press, this analysis is likely to be the only such reporting of today’s events. It’s too bad; there was much which was revealed that fits the definition of “news worthy.”
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During breaks I was able to corner three different NAFA Board members and give them my view that NAFA now finds itself at a critical juncture. I believe that two years from today NAFA can be either substantially irrelevant, or, indisputably vital. What will drive one or the other possible outcomes will be NAFA’s will or lack thereof to confront some very tough issues.
That said, NAFA cannot accomplish this without the strong support and participation by the majority of insurance carriers that wish to manufacture and market quality annuity products. For these carriers it’s past the time when even benign defense of the industry’s worst practices can be justified. With necessary support, NAFA has the opportunity to step-up and wear the mantle of leadership at this pivotal moment.
©Copyright 2007 David A. Macchia. All rights reserved.