55555 Category Annuity Marketplace Challenges | David Macchia

Annuity Marketplace Challenges

A website that isn’t seen can’t generate leads

A website that isn’t seen can’t generate leads.

This is why Wealth2k has developed a simple and effective strategy that financial advisors
may use to tap the power of online marketing using Google AdWords.

To get their websites in front of potential customers, companies representing every sector of the U.S. economy commit advertising dollars to AdWords. But at a combined $4 Billion in 2012, no industries spend more than insurance and finance. This should be a clear message to independent financial advisors about the importance of online marketing. No advisor’s economic future is well served by a website that’s a sleep aid.

Social Security Wise reinvents financial advisors’ ability to market successfully online.

The “Bucket War” of 2009: Now that everyone seems to have discovered “Buckets,” what’s next?

You may not have noticed, but over the summer a “Buckets” war broke out in the retirement income business. It seems that everyone has discovered “Buckets,” a reference to time-segmented asset allocation or “laddered” income-generation strategies.

In June of this year the non-profit National Endowment for Financial Education (NEFE) launched a retirement income-focused website called Decumulation.org. The website highlights a strategy to, “to split your money into three buckets. Each “bucket” covers a certain period of years and holds different types of investments, depending on the time period covered.”

In July, both Russell Investments and Nationwide unveiled their versions of “Buckets.” Russell based it’s version on a four-Bucket strategy, naming them the “Endowment Bucket,” the “Kids’ and Bequest Bucket,” the “Lifestyle Bucket” and the “Essentials Bucket.”

Not to be outdone, Nationwide’s program, known as RetireSense, is based upon five, five year “Buckets” that Nationwide has called “Life Segments.” With it’s program it appears that Nationwide has copied Wealth2k’s program, The Income for Life Model. “Buckets” of five-years’ duration not to mention expropriating the “Segment” nomenclature seems like a copy to me. Where did Nationwide get these ideas?

In August, a group called Sequent introduced a program called “Better Buckets” that is based upon a three-Bucket design. I suspect that Raymond Lucia, CFP, author of the book entitled Buckets of Money may object to all this “Bucketizing!” He owns a trademark on the term buckets.

Having been “on the street” with a laddered income generation strategy (The Income for Life Model) since 2003,I’m thrilled that so many others have joined the party. It’s a positive development. Time-segmentation offers very real economic advantages as well as psychological and behavioral benefits that are just as important. Look no further than the experiences over the course of the market breakdown of advisors who had recommended The Income for Life Model. They and their clients are in much better shape than most. I’ve “lived the difference” with these advisors. It’s quite real.

So we have a bevy of “Buckets” but do we have a winning strategy? Maybe. Wealth2k’s focus is not to force a predetermined number of “Buckets” on an investor. Rather it is to craft n income-generation plan that utilizes precisely the number of “Buckets” that best meets the investor’s needs. Doesn’t that make more sense? Moreover, the Wealth2k approach begins with assessing the investor’s need for guaranteed retirement income and then proceeds to “build a floor” of guaranteed retirement income undet the time-segmented strategy.

More and more people are learnng about outcome-focused retirement income investing strategies including time-segmentation. You may enjoy visiting the first website Wealth2k has built for investors. It’s IFLMMovie.com. I would appreciate your thoughts about it.

The “Facebook-ing” of Retirement Income

What factors stand in the way of independent advisors and broker-dealers maximizing their success in the retirement income and Rollover IRA markets? It’s a complicated question with multiple answers including the impact of potentially disruptive changes in the regulatory landscape.

One area that I am convinced will really matter is the quality of advisor-client communications. Financial advisors, like most business people, are being affected by customers’ preferences and habits when it comes to evaluating products and services. The nature of the evaluating process is changing, with online research and validation becoming ever more important.

I recently wrote an article for Kerry Pechter’s Retirement Income Journal that addresses how the behavior of high-quality, Web savvy prospects for retirement income services may impact advisors’ future success. If you would like to read the article, click here.

The Coming “Framework Culture” and the Adoption of a Blanket Fiduciary Standard; Forces for Regulatory Reform, Boomer Retirement Income Security Needs Will Level the Regulatory Playing Field

With so much upheaval in the economy one wonders about what changes may arise in the not too distant future. In that context let me offer two predictions:

Prediction Number One: All advisors will be deemed to be fiduciaries within 1-2 years.

There could be no development more disruptive to today’s financial products distribution landscape than the leveling of the regulatory playing field and the categorizing of all advisors as fiduciaries. It’s coming. Inevitable, in my judgment. RIAs, brokers and insurance agents will all operate on a level playing field and the results will be spectacularly disruptive. Start planning now.

In the Post Madoff, post-Lehman, post-AIG world of financial services, the investing customer- especially the Boomer investing customer- will not tolerate anything less than a fiduciary standard of care. What Boomer customer (when he or she understands the difference, and they will) won’t prefer to have his/her financial interests placed first?

Different industries will look at and respond differently to the forces pushing us toward the adoption of a blanket fiduciary standard.” How will industries react? Look for a bifurcated response between the investment management and insurance industries.

Life Insurers

This is a true inflection point for insurers. Will they opt to embrace transparency and retool their distribution models? My guess is that many insurers will be late to react and then do whatever possible to delay (defeat) the adoption of the blanket fiduciary standard. There is also the issue of distraction. Those insurers seeking to invalidate SEC rule 151(a) through a legal challenge will continue to expend energy on this effort. But whether that are or are not successful may not matter much in the final analysis. The regulatory environment is shifting under the insurers and unless they grasp the magnitude of the coming disruption they will be caught flatfooted and unprepared.

Investment Managers

How will the investment management industry respond? In a recent InvestmentNews article the Investment Company Institute’s President & CEO, Paul Schott Stevens, was quoted as backing adoption of a blanket fiduciary standard. He stated that a fiduciary standard, “…does provide a higher standard of responsibility and accountability,” and he asked, “Isn’t that something that all of our recent experience suggests is important?” After Madoff and company, who could reasonably argue that the answer to that question should be answered “yes?” Not the Boomers, I’m betting.

After suffering $Trillions in investment losses the Boomers will demand a fiduciary standard of care from every advisor they engage with.

With Obama atop the Federal government we are likely to see a return to a Carter-like strengthening of Federal regulation, generally. In terms of financial services, following $8Trillion of accumulated bailouts/guarantees and back-stops, the forces for intense regulation cannot be stopped. This probably means, among other things, Federal takeover of insurance regulation (to prevent the next AIG).

Prediction Number Two: The traditional product-centric/asset allocation culture will be supplanted by a new “Framework Culture” that is better equipped to recognize and manage the full spectrum of a retiree’s risks.

In the framework culture investing (financial capital) doesn’t go away but it does change. The investing strategies employed in the framework culture will be far more outcome-focused and funded by complimentary products that are mixed strategically in order to optimize overall performance.

In the framework culture “performance” isn’t defined by investing alpha as much as it is by “psychological alpha,” the investor’s ability to persist with the overall retirement security strategy through even the bleakest periods of investment performance.

“Psychological alpha” can be delivered by time-segmentation of assets and the inclusion of a lifetime “income floor” that collectively provide predictable retirement income and appropriate exposure to upside investment opportunity in accordance with the investor’s preferences and risk tolerance. Importantly, “risk tolerance” in this context focuses on evaluation of retirement income risk tolerance.

Products will come and go over time, but the framework endures. Products will be tweaked with innovation in order to match performance with objectives. But the enduring framework provides an understandable, monitorable roadmap.

Other forms of capital such as Social Capital and Human Capital are critically important in the framework culture. In fact, one could argue that these types of capital have taken on more importance than at any time since the introduction of Social Security. Outsized losses in qualified and non-qualified investment accounts, low personal savings and few defined benefit plans are only some of the factors that accelerate the need for a re-definition of retirement income planning. Significantly, this is already taking place. At the Retirement Income Industry Association the next-generation advisory process is being developed, and it can’t arrive quickly enough. (See March 2009 Research Magazine article by RIIA Chairman, Francois Gadenne).

The movement toward blanket adoption of the fiduciary standard and the arrival of the framework culture are disruptive developments that will ultimately serve the best interests of investors. They are developments that will also serve the interest of companies that demonstrate their ability to successfully adapt to a new way of doing business.

Please let me know if you agree with these predictions.

©Copyright 2009 David A. Macchia. All rights reserved.

The SEC Rules Indexed Annuities Are Indeed Securities; Which Companies Will Now Leverage the Obama Success Model?

Nothing happens in a vacuum. If it weren’t for Dateline NBC it’s very likely that the SEC wouldn’t have voted today to characterize indexed annuities as securities. You’ll recall Dateline’s “sting” operation featuring hidden cameras and shills posing as annuity prospects. In the post-Dateline environment the SEC apparently could not fail to act. Chairman Cox, after all, kicked-off the Commission’s June 25 open meeting by playing excerpts from the Dateline program. For all practical purposes the mass media exposure of annuity sales practices sealed the fate of indexed annuities as fixed contracts- death by video.

On June 26 I stated that the indexed annuity business would grow in spite of the SEC’s action. I still see it the same. Once again, today’s events are not taking place in a vacuum. The meltdown in the equity markets has driven investors to seek safe money alternatives. The big question for the future of indexed annuities is how product providers choose to respond. Will their worldview change?

Product providers that embrace consumer-oriented contract designs, transparency, innovative marketing technology and quality investor education will be nicely positioned for growth. Such companies will capitalize on the demographically-driven movement of money that craves principal protection combined with upside growth potential. Talk about a perfect context for sales!

Make no mistake; it will take more than a “tweak” to the insurer’s business model. Companies that lead in the next months and years will have seen the need to offer new types of value to both investors and distributors. They’ll race ahead of competitors who cling to the tactics and strategies of the past. They’ll tailor their value proposition to appeal to distributors they never before needed.

Technology, which has historically unleashed so much instability in the annuity industry, is the key to helping the industry reach its full potential. One need only to look at the election of Barack Obama to see the technological /communications model the annuity industry needs to duplicate: succinct expression of its value proposition delivered to a mass audience via technology. Life by video.

What worked for Obama can work for annuities.

©Copyright 2008 David A. Macchia. All rights reserved.

Ahead: Dislocation, Turmoil, Angst… and Growth; The SEC Finally Speaks on Fixed Indexed Annuities

An open meeting took place on June 25 during which the SEC decided to propose a new rule (151A) that would require many fixed indexed annuities (those that count for virtually all of the sales made) to be registered as securities with the SEC. Chairman Christopher Cox made it quite clear that “senior investment fraud” motivated the SEC to act at this time.

Quoting past North American Securities Administrators Association (NASAA) President, Patty Struck, Chairman Cox referred to an indexed annuity marketing landscape “littered with slick schemes and broken dreams” that has been “devastating” to the victims and their families. You can read Chairman Cox’s full comments by clicking here.

What’s certain about the SEC’s action is that it comes in direct response to the failure of the indexed annuity industry to arrest incomplete, misleading and confusing sales practices that should have been shut down years ago.

What’s in store for the indexed annuity industry if- as I believe it will- the SEC’s proposed rule becomes law?

Continued turmoil in the fixed indexed annuity distribution channels, for one. As the center of gravity for distribution turns permanently toward broker-dealers, many independent marketing companies that wholesale these products may become marginalized.

Non-registered agents will be factored out of the distribution of fixed indexed annuities unless they opt to become registered representatives or Registered Investment Advisors. The RIA option is one fraught with peril for insurance agents, however. For more, click here.

Insurance carriers that manufacture fixed indexed annuities will fall into two camps. Some will see sales decline dramatically as their market share is taken away by others that adopt new business models, new technology and new (FINRA-reviewed) sales tools.

Consumers- especially millions of individuals entering the “Transition Management” phase of retirement- will be the big winners as improvements in indexed annuity contract designs in terms of greater transparency and improved pricing lead to the indexed annuity finally becoming a mainline product.

As I’ve always stated, wipe away the bad sales practices, overly complex contract designs, and too high fees and you are left with a value proposition- downside protection combined with upside growth potential- that is as important as any found in a financial product.

Two years ago Wealth2k introduced www.FIAToday, a compliant, technology-driven solution to the problem of poor fixed indexed annuity sales practices. Arguably, it was ahead of its time. The SEC’s action has just increased its value to all parties. Exponentially. FIAToday is available at no cost by clicking here.

New Interviews and Essays to be Published Here Beginning Monday; Leaders & Innovators Interview Series Expands in Research Magazine

When I came up with the idea for a blog based, in part, on interviews with executive leaders in financial services I couldn’t have known how popular the one-of-a-kind conversations would become. Nor could I have foreseen that Research Magazine, under the byline David Macchia Interviews, would publish one of my interviews each month in both its print and online editions. To my delight this has significantly expanded readership. Research kicked-off with my interview with LPL’s Mark Casady in its March issue. DWS Scudder’s Philipp Hensler appears in the April issue.

Some of you may have noticed that it’s been a while since I’ve published any new items here. But after taking a month-long sabbatical I’m charged-up with ideas. Look for more essays and interviews beginning Monday, March 31.

If you’ve enjoyed my writings on the annuity business you may find the next interview to be especially interesting. Somewhat to my surprise, Allianz Life’s Tom Burns agreed to speak with me. After stepping into the lion’s den, Burns revealed much during our conversation. Look for it on Monday.

Study: Boomer Retirement Websites a Bust; Widening Deficit Highlights Negative Implications for Retirement Income Businesses

Last week an Ignites article by Hannah Glover highlighted a study of Boomer-directed websites that found that most companies’ retirement websites fail to live up to their sponsors’ advertising pitches. The report entitled, “Online Support for the New Retirement,” conducted by Practical Perspectives and Gallant Distribution Consulting, found retirement firms’ websites are typically, “…too scant, too pushy or too hard to find.”

My regular readers will know that I agree heartily with this assessment. I’d go even further in describing many retirement income websites; downright off-putting. That’s why so much attention to this very issue has been made here. What financial services companies must realize- and quickly- is that the gap between consumers’ expectations versus what companies deliver via their websites is dangerously wide. That deficit, however- as wide as it is- is the opportunity.

Future success in retirement income and retirement websites are interlinked, in my judgment. The reason is that more than in the past, the websites are going to be relied upon to create the confidence in retirement products and strategies that is essential to success.

To explain the magnitude of the difference between investing for accumulation versus investing for retirement income distribution, I’ve often used the analogy of the beginning of retirement as being the economic equivalent of puling up stakes and “Moving to Tibet.” In other words, leave everything you know behind and enter a strange, new world. I think the “Tibet” analogy is relevant to describe the extent of the disparity between the websites of financial services companies and those of large companies in other industries. If you would like to see some examples of how non-financial companies create engaging website/microsite experiences designed to better convey their value- and help their intermediaries, just visit Mercedes-Benz.TV, Calloway Golf, the Boston Pops and Cadillac.Catch a Digital Wave (close the gap), click here.

©Copyright 2007 David A. Macchia. Al rights reserved.

Role Reversal! Annuity Market News Turns the Tables on Me

As someone who generally plays the role of interviewer, I’m appreciative of Senior Editor, Kerry Pechter, for the interview he conducted with me that appears in the December ’07 issue of Annuity Market News. Kerry asked my about a variety of issues that are important to me including the state of the variable and fixed annuity industries, retirement income, and the emergence of structured products in the U.S. retail market. I appreciate his capturing my views accurately.

If you would like to read the interview, please click here.

Part Two: A Deadly Cocktail? The “Extreme Makeover” of Annuity Agents into Registered Investment Advisors

pitchBased upon the number of responses it elicited there clearly was no shortage of interest in Part One of this series. I can understand why. Many annuity agents have been thrust into something of a netherworld by events largely beyond their control.

Annuity agents are experiencing a continuing disruption of their traditional sales practices that began with the issuance of NASD (FINRA) NTM 05-50. For agents it can seem as though everything they once viewed as stable has come under assault including their public image, the products they sell, the advice they provide, the seminars they use, not to mention the comparatively lax suitability and compliance standards from the recent past. It’s no wonder that many agents wish for a quick and easy end to the pain. But pain relief comes at a cost than can be significant.

Scare tactics are clearly not out-of-bounds when used by those pitching annuity agents on the Registered Investment Advisor “answer.” “REAP THE REWARDS OF INDEXED ANNUITY SALES WITHOUT THE FEAR” is a prominent theme of the “pitch.” But is becoming a fiduciary advisor really the answer?

In Part One of this series I argued that the RIA option may not prove viable for many annuity agents. The reason is that for the RIA transition to be successful, an annuity agent must be willing to undergo a radical transformation in terms of allegiance (in both a practical and strict legal sense) and in the manner in which he or she is compensated. How many will sign-up to undergo such a dramatic transformation?

It was advertising directed to annuity agents that I characterize as exploitive that first got me interested in this subject back in April. I saw print and video advertising designed to convey both overt and covert messages. The thrust of the advertising- the “pitch”, if you will- seemed to convey that it’s possible for annuity agents to retain their customary sales and marketing strategies and compensation model while also operating as a Registered Investment Advisor.

This assertion was and is the “rub” as far as I’m concerned. I’m all for swelling the ranks of RIAs. However, I also believe it is grossly unfair to lead annuity agents to conclude that they can continue to legally represent the best interests of insurance companies, continue to rely upon rich, first-year compensation, and, act as a fiduciary all within the framework of a single client relationship.

Why Do the Ads Neglect to Mention the Heightened Responsibilities Fiduciaries Assume?

Why is there is no mention of fiduciary responsibility in the ads for the “pitch?” Or, for that matter, any mention of the “rewards” for consumers? Is it because the purveyors of the “pitch” believe it is possible for an individual to act as an indexed annuity agent and a fiduciary at the same time with the same client? Or, is it that they simply prefer to avoid mention of the substantial and complex responsibilities that come with acting as a fiduciary advisor?

In Part One I attempted to demonstrate through the comments of experts including experienced RIAs that the “pitch” is dangerous if not bogus. Attempting to induce annuity agents to believe that they can easily side-step broker-dealer compliance is a disservice to the very people the proponents of this approach claim they are serving.

So let’s now examine what can happen when an individual producer seeks to operate as both a traditional annuity agents and a Registered Investment Advisor at the same time.

Do RIAs Receive Extra Protection? Can $2,000,000 in Indexed Annuity Commissions Get You Noticed?

Meet Mark K. Teruya, president of USA Wealth Management L.L.C.

tenuyaMark Teruya’s story seems to be a sad one. I don’t know him but I’d bet he is a decent person who is liked by his clients. I doubt that Mr. Teruya ever imagined he’s be in all kinds of trouble. He is by all accounts in a great deal of trouble. He is also a registered investment advisor based in Honolulu, Hawaii.

Judging by some of his published articles Mr. Teruya was a very effective marketer. He wrote numerous articles for newspapers in Hawaii that were focused on providing pro-consumer financial advice. As an example, click here to read one of his articles in which he blasts high mutual fund expenses. I suspect that authoring such articles was integral to his overall annuity marketing strategy, i.e. cultivate a well known and strong pro-consumer identity in order to create a favorable prospecting and selling dynamic. This is not an unusual marketing strategy for annuity agents to pursue.

On September 10 the online version of National Underwriter highlighted a story on Mr. Teruya, a Hawaii-based RIA. The first paragraph of National Underwriter’s piece included this:

“The U.S. Securities and Exchange Commission is accusing an investment advisor of using free lunches to persuade older consumers to shift money from existing investments into equity indexed annuities.”

The story also contains this:

Both state and federal regulators have accused Teruya and his firm of using breakfast and dinner seminars to attract retirees, then arranging for one-on-one follow-up meetings.

What? Did you hear that? Using seminars to attract retirees? And make appointments with them? I don’t know whether to laugh or weep. These are usual and customary marketing tactics have been a relied upon by thousands of successful annuity producers.


seminar-teruyaMr.Teruya has been charged by both the SEC and the Hawaii Securities Commissioner. The SEC is seeking “disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.”

If you don’t know what “disgorgement” means it refers to the repayment of ill-gotten gains that is imposed on wrong-doers. Teruya may be forced to refund the $2,000,000 in commissions he earned- plus interest… and also be forced to pay substantial penalties, to boot. I hope he’s been a good saver.

Where it Breaks Down

Just reading the headlines tells you that it’s simply not viable for an annuity agent to observe traditional sales practices while acting as a fiduciary advisor. Could it be more plain?

“The U.S. Securities and Exchange Commission is accusing an investment advisor of using free lunches to persuade older consumers to shift money from existing investments into equity indexed annuities.


Teruya committed fraud, …”when he failed to disclose that he was an insurance agent in a position to collect large commissions on the purchase of EIAs.” the complaint said.

Destroying Careers at Digital Speed

The annuity industry has been far too slow in utilizing digital content and web-based communications strategies to help its agents reach more annuity prospects in a compliant manner. The price for this delay is being paid on a daily basis. For example, we’ve observed the fallout from agents and IMOs placing non-compliant presentations on the Internet (for more see my article in the September issue of Broker World magazine called “Dangerous Trends In Annuity Marketing Put Industry And Brokers In Jeopardy“). I know this particular article resonated with many annuity agents based upon the number of phone calls I’ve received from agents since its publication.

In the case of Mark Teruya we can see how an agent’s reputation can be damaged and his career potentially destroyed at digital speed:

September 7
Teruya is accused of fraud by the SEC.

September 11
Teruya’s SEC charges make the front page in the same newspaper he previously his columns had previously appeared.

September 12
The SEC posts the results of its seminar sweeps (likely heralding a sea change)

September 12
Major newspapers across the U.S, produce stories about the SEC action and, or, Teruya. One example: In Tampa, Florida both major papers produce front page, non-syndicated, locally authored articles discussing seminar abuse.

You Can Run But You Can’t Hide

The “pitch” says to annuity agents that they can seek shelter under the umbrella of RIA status. Don’t believe it. It didn’t shelter Mark Teruya. I’d bet money that he is now facing penalties that are far more severe than what the state insurance department might have sought. And he is facing these harsher penalties precisely because he is a registered investment advisor.

According to Joseph W. Maczuga, a Certified Fee Insurance Specialist from Troy, Michigan, “Those who are recruiting agents into the ranks of Registered Investment Advisors under the premise (fiduciary and annuity agent at the same time) that you have shared are, in my opinion, fraudulently presenting erroneous statements as fact. They do not appear to be knowledgeable about the provisions if the Investment Avisors Act of 1940, or the court decision and its basis in the case of the Merrill Lynch Rule. Unless, that is, they have developed a mischievous “end around” process that they feel will shelter them from clear and concise regulatory language. Our industry has a history of creating circumventing concepts to move product.”

How Far Indexed Annuities Have Fallen

The fallen reputation of indexed annuities is a tragedy of grand scale. The underlying value proposition indexed annuities provide- safety of principal combined with upside growth potential- is not only legitimate it is vital to millions of Americans as they approach retirement and enter the Transition Management phase. Unfortunately, what has played out over the past decade, “The Process” – in which the activities of good and decent people leads to sub-par results- has zapped the industry of its vitality at a critical moment. Rome really is burning. And lots and lots of very decent people are being hurt.

Not too many years ago it was an accepted belief that seniors were the most qualified purchasers of deferred annuities. Now it is generally believed that seniors require protection from deferred annuities. It’s not difficult to imagine business school students in the future studying the disastrous decline in public perception of an important industry as an example of how not to conduct business.

This sad state of affairs will not be repaired until fundamental reform occurs, technology comes to the forefront and the focus on consumers’ best interests becomes everyone’s top priority.

©Copyright 2007 David A. Macchia. All rights reserved.