Which Industry Will Grab the Brass Ring of Consumer Confidence and Principal Protect Boomers’ Retirement Assets?
In spite of its warts, the indexed annuity industry and the products it provides may well play an important role in helping Boomer investors maximize their capacity to generate retirement income. People like me who advocate for an improved annuity industry hope that the indexed annuity industry will meet its varied challenges head-on and ultimately realize its full market potential.
Today I’d like to share some information about Wealth2k’s efforts to promote improvement in the indexed annuity industry in terms of sales practices, consumer education, product quality, suitability and agent productivity. As I see it these are the five main problem areas which cry out for improvement.
Armies of Virtual Agents In Response to 05-50
Largely in response to the publication of NASD NTM 05-50, about 18 months ago Wealth2k developed a vision for a new and better way for annuity agents to market, present and close indexed sales. We believed that by fostering improvement in key areas we could help lift the fortunes of those indexed product providers that wished to be perceived as being tangibly separated from the poor sales practices and inferior product designs that were driving significant business to some providers.
In part, Wealth2k’s new strategy was designed to help annuity agents increase their productivity, thereby making it possible for them to begin to transition to selling indexed annuity products that offered greater consumer value albeit with lower commissions on a percentage of premium basis. Increasing the productivity of annuity agents is an elusive goal that has not received the attention it deserves.
Annuity agents typically do not connect with enough prospects for the products they sell. So, among other things, the Wealth2k strategy would have utilized our Traject network’s capacity to dynamically create virtual agents for each human agent, technological alter egos designed to extend the human agents’ reach and brand.
The virtual agent’s job would be to support and strengthen the human agent’s capacity to prospect and educate on indexed annuities. The virtual agent meets with prospects at their web browsers and utilizes streaming video presentations to deliver high quality education on indexed annuity products. The engaging video presentations are fair and balanced and they serve to help prospects gain realistic expectations of an indexed annuity’s performance potential.
No human agent is capable of working 24 hours a day, not to mention working without salary and benefits. But that’s what the virtual agent offers as a non-stop “sales assistant” toiling away on behalf of its human boss.
Not bound by constraints of geography and time, the virtual agent meets with prospects at any place and at any time the prospect chooses. It’s the prospect who’s in control of every interaction with the virtual agent without ever being subjected to sales pressure.
After meeting with the virtual agents the prospect may click on a button to send a message to the human agent:” I just watched the movie at your website and this product seems to make a lot of sense. Let’s get together and talk about it for some of my retirement money. Are you free on Tuesday? 7:00?”
Growing the Pie
Growing the entirety of the indexed annuity pie was and is a major aspect of Wealth2k’s strategy. I’ve long stated and have written in published articles that the $27 Billion high-water mark for indexed sales has the potential to be four times that level in the not too distant future. $100 Billion in sales is an attainable goal because the underlying value proposition indexed annuities offer- principal protection combined with continuous interest growth potential- is one that is critically important to millions of Boomer customers as they enter the Transition Management phase of retirement.
Academic research has shown that investment losses occurring over the period beginning roughly eight years prior to retirement and continuing until ten years after retirement will cause a lifelong reduction in retirement income if not portfolio ruin. (to read an academic paper on this topic that I co-authored with three other members of the Retirement Income Industry Association click here).
To implement its strategy Wealth2k set about to create what amounted to an advanced “operating system” for the indexed annuity business. In terms of its distribution, the industry has been operating on what would we believed was analogous to the old DOS operating system for PCs in as much as the functions that couldn’t be delivered were serving to both limit growth and expand future financial liability- a bad combo, to say the least.
Our analysis revealed that the “old” operating system was deficient in these areas:
It had little or no capacity for real-time management by compliance officers
It didn’t put video at the forefront of its prospecting and educational efforts
It failed to leverage web-based technology to boost marketing effectiveness
It did little to help agents increase their overall sales volumes, and,
It wasn’t in harmony with broker-dealer culture or process.
For these reasons I led Wealth2k’s effort to develop the” windows” analogy application for indexed annuity distribution: modern, technologically-advanced, compliance-centric, consumer friendly, video enabled, even successfully reviewed by the NASD. This was a model for success if there ever was one!
The Peril of Being Too Early
Did it work? No. Why not? Simply put, it was just too far ahead of its time. By April of 2006 when we had finished the application that we called www.FIAToday.com…
• The Massachusetts Securities regulator had not yet set his sights on annuity sales practices. He hadn’t yet sent a letter to every senior in Massachusetts advising them to exercise caution before purchasing an annuity.
• Regulators’ focus and criticisms over specious professional designations for annuity agents had not yet begun
• Hundreds of articles in the consumer press negative to annuities had not yet appeared
• The Parade Magazine expose on fixed annuities had not yet been published
• The devastating front page article (July 2007) in the New York Times had not yet appeared and been parroted by hundreds of other news outlets
• Certain class action lawsuits had not yet gained certification, and,
• Congressional hearings looking into indexed annuity sales practices had not yet been deemed necessary
On May 9 of 2006 Wealth2k brought together nine indexed providers for a meeting in Boston to explain our vision of how to transform, improve and set-up the indexed business for compliant, quality growth.
I opened that meeting by introducing our goals and during my remarks predicted virtually every sad event that’s taken place over the succeeding fourteen months. Honestly, I even predicted the New York Times’ front page article.
The value proposition that day to the carriers was straightforward:
Act quickly and decisively to separate yourselves from the questionable sales practices of certain indexed providers and upend your competition
.Take action to enhance your marketing and distribution by adding features that are far more “B-D friendly” in terms of compliance and process.
• Place high-quality, balanced consumer education front and center in the sales process
• Give your agents impressive, consumer-facing technology that allows them to reach more prospects with compliant, value-based messages
• Set yourselves up for robust growth at the expense of others who won’t be endowed with the same compliant tools, technology and strategies that you will be working with
The company representatives who came together that day were mightily impressed. But they could not as a group get together to act on the opportunity we presented.
Why? With the benefit of hindsight it’s quite understandable. When things are going well there’s little in the way of perceived urgency to make changes. The focus on short-term tactical needs and quarter-by-quarter sales goals is simply too powerful to undertake a structural repair job. Who needs to upgrade operating systems when the present one is still serving your needs?
Now, of course, it’s a very different world. The indexed annuity industry has two black eyes, a few broken bones and an uncertain diagnosis. The accumulated toll of so many unfortunate events over the past fourteen months serve to validate Wealth2k’s strategy, in my judgment. It’s past time for the industry to embrace a new model that can be perceived by objective observers as serving consumers’ interests.
My sense is that the entire indexed business is really up for grabs in a way that’s never before happened. Or maybe what’s up for grabs is not so much the indexed annuity industry as it is its value proposition. Already, other industries are targeting the very same economic benefits offered by indexed annuities. Have no doubt that competition from non-traditional sources will pose big challenges for all indexed annuity providers.
Will it be the structured products providers that grab the brass ring of consumer confidence? Or will it be one or more enlightened and committed insurance companies?
That’s a key question in determining which industry will serve millions of Boomer customers by addressing a fundamental financial need.
©Copyright 2007 David A. Macchia. All rights reserved.