Technology & Improving the Sales Process

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 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 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.

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.

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…

• 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.

Be Schlocked!! The Cracker Rappers Rap “Let’s Go Sell Some Annuities!” A YouTube Peek Into the Surreal World of Annuity Agent Recruiting

lemoncut“Let’s go sell some annuities!” We got the tools, and the education too.”
“We got the drive, it ain’t no jive. We got the only game alive”

“We got the FMO to see us through!”

The Cracker Rappers
“Let’s Go Sell Some Annuities”

Don’t you just love YouTube? It allows everyone in the world to see what everyone else in the world is doing. No wonder that by July of last year YouTube was streaming one-hundred-million videos each day. This July it may be up to 200 million for all I know.

You might wish that video had not won the peoples’ choice award for preferred information conveyance vehicle but it’s too late. The votes are in and it was video in a landslide. Now everything is watchable, even annuity agent recruiting ads. (Or even a video to promote this blog. Click here to see it).

Historically, if you wanted to see some examples of advertising that many might describe as sleazy you could look to agent recruiting advertisements created by certain annuity wholesaling firms (variously described as FMOs, IMO, Marketing Companies) that are designed to entice annuity agents to sell indexed annuity products. This type of advertising is generally confined to insurance industry magazines and email campaigns to agents and is paid for by marketing companies that typically cater to indexed annuities. I’ve seen this form of advertising for many years and I know that it has often been effective in attracting a segment of annuity agents who fall prey in a serial manner to “get rich quick” invitations. But that was before the dawning of the digital age in annuity land.

Today I offer you a peek into this arcane world because I can no longer avoid doing so. My hand has been forced. The reason, once again, is that even this peculiar advertising genre has migrated to the Internet. Let shine the white-hot light of public scrutiny!! Today’s example takes my oft repeated comment that the annuity business shoots itself in the foot every three minutes and accelerates the pace to every thirty milliseconds!

I introduce you to Mr. Gary LeMon who casts his gaze into your web browser and asks, “Are you rich yet? No, seriously! Are you rich yet?” (Click the video image below to see it).

In his funny and schlocky YouTube video Mr. LeMon tells his agent (and non-agent) viewers, “The road to success is littered with land mines, detours, dead ends…and maybe you’ve taken a few. I know I have! Then I figured out how to sell fixed indexed annuities!!!

Fixed indexed annuities obviously changed Mr. LeMon’s life, and now he wants to change the lives of other annuity agents by helping them “make a fortune selling indexed annuities.” In fact, he’s developed quite an elaborate system to do so.

In his video Mr. LeMon states that he has the tools needed to accomplish this in terms of “tutorials, selling systems and a fully-scripted seminar system that generates a million dollars a month in premiums.”

Mr. LeMon asks viewers to “imagine… No, I’d like you to burn this image into your brain: can you see yourself banking $10,000, $20,000, $30,000, ever $40,000 a month? How will you and your family feel about that?”

The annuity industry needs to think through the implications of messages like Mr. LeMon’s being available for anyone to see including, of course, the press, regulators and consumers who may already own or may be asked to purchase annuities in the future (recall the famous New Yorker cartoon: a dog is typing on a keyboard and staring intently into a computer monitor; the caption reads: “On the Internet no one knows you’re a dog”). Well, on the internet we can’t know who’s watching Mr. LeMon’s get rich pitch. Here’s a question: After watching Mr. LeMon’s video would a nice lady from Topeka who’s interested in learning how to invest her $500,000 in 401(k) assets because she’s preparing to retire be interested in putting her money in an annuity? What’s Fidelity’s number, again?

On the one-to-ten scale that measures how much I worry about the annuity industry’s future, the migration of agent and marketing company advertising to the Internet takes my concern into uncharted territory. Who needs the New York Times or Parade Magazine to damage the public perception of annuities and the agents who sell them when the agents and marketing companies can do it more quickly and less expensively themselves? Glory! We’ve discovered technology!

I wish I could get insurance company executives to move a little more quickly to the video party. For a few years now I’ve been trying hard through the creation of web-based communications networks to build the compliant infrastructure that annuity providers need to get out in front of the video revolution. With some notable exceptions (all Wealth2k clients, I’m proud to say) the providers have moved slowly. The video party did begin, however, but the agents brought the keg.

Video can be used as the linchpin in a compliant strategy to improve the public image of annuity products and agents, or it can be used to further damage the industry’s public standing. Consumers want to “watch” more than they want to read. Make no mistake they’ll watch Mr. LeMon and I fear that his funny rapper act might anytime get highlighted on the home page of YouTube. If that happens we’ll be seeing Mr. LeMon’s recruiting pitch on the Today show and 60 Minutes,

Mr. LeMon, may I suggest that you do your industry and your agents a favor: show your video at a recruiting meeting that’s not so global.

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

PLEASE NOTE: Coming Tuesday morning: a fascinating interview with behavioral finance authority Professor Meir Statman of Santa Clara University.

Tony Bass Responds; My Apology to Allianz Life; A Statement from American-Equity Life

Yesterday’s essay focusing on the indexed annuity marketing utilized by Tony Bass of Georgia elicited quite a lot of interest. I heard from Mr. Bass who informed me that he removed his YouTube video and “free report” as a result of my writing about them. He also asserted that he was not attempting to mislead anyone with his marketing strategy.

While there’s no condoning the inaccurate content of the materials used by Mr. Bass, they signal a larger issue which annuity providers can’t duck: How are annuity agents to remain financially viable in the face of the most hostile annuity marketing real environment in memory? That’s a critical question that screams for a viable answer. Providers’ continuing reliance upon independent agents hangs in the balance.

Mr. Bass told me that his marketing strategy was “not to give away everything up-front” and to have “prospects call him.” This is entirely understandable when you consider that had he employed a marketing strategy that placed his agenda to sell annuities front-and-center it would have resulted in almost certain failure. This is why agents seek to obtain meaningless professional designations, portray themselves as “senior advisors” and “safe money experts”, and generally hide their true annuity sales agendas. It’s also why some state securities regulators have begun to prohibit such practices.

How far the indexed annuity business has sunk. It has literally lost the ability to properly convey the value of its products. This points to a leadership vacuum… and a business opportunity. When a market devolves to this extent the opportunity for creative entities to succeed is increased exponentially. In an academic sense that’s the good news. The key question is will any provider show the courage that will result in their scooping-up the indexed market? This is the rarest of opportunities to quickly create an unlevel playing field.

An Apology to Allianz Life

I frankly owe a sincere apology to Allianz Life. I guessed wrong on the product Mr. Bass was aiming to sell. It wasn’t Allianz’s MasterDex 10 annuity. I’m sorry for this inaccuracy.

What was it then that Mr. Bass wanted to sell? It was an indexed annuity that is issued by Des Moines, Iowa based American Equity Life. American Equity also offers an indexed annuity that provides a bonus of 10%. This annuity was, I’m told, designed to compete favorably with Allianz’s product.

I tried to reach American Equity’s CEO, Dave Noble, to seek his comment. He was traveling and unavailable. I did, however, speak to the company’s General Counsel, Wendy Carlson, who provided the following statement:

We at American Equity are committed to maintaining high standards in sales practices. We have a stringent set of advertising guidelines that our agents are required to adhere to when marketing our products. Had Mr. Bass submitted the contents of his video to us for evaluation under our advertising guidelines it would not have passed muster, and we will communicate that to him. We also require our agents to use clear and concise disclosures of all product terms at the point of sale, and we conduct our own in-house suitability review of every sale prior to contract issuance. Mr. Bass has been appointed with us for several years but has had only one sale in all that time. That would tell us our process is effective.

What Have We Learned? And Haven’t?

In the past 24 hours we’ve learned that Mr. Bass’ agenda was to indeed sell indexed annuities. We now know the company and product he wished to sell. We know that Mr. Bass has withdrawn his misleading marketing materials. And we know that American Equity disavows marketing tactics like those used by Mr. Bass.

We’ve also learned something about the importance of video that has potentially far-reaching implications and future liability potential for annuity providers. As agents move their sales practices to the Internet there’s no hiding what they are doing. Just as surely as the YouTube culture is impacting politics it will also impact insurance and financial services. This is why product providers must move aggressively to supply agents compliant video educational presentations lest they develop their own for consumers who prefer to learn by watching rather than reading (look for more on video-based agent marketing that will appear here in the near future).

What we’ve not learned is how annuity agents will compliantly navigate through today’s aggressively hostile marketing environment. I’m convinced that most annuity providers in spite of their best efforts have no practical ability to control the marketing activities of agents who grow more and more frustrated with each article that appears that is critical of annuities. As exemplified by the recent front page expose in the New York Times, it may be that we’ve still only scratched the surface of what’s to come. “The Process” continues to play-out to the detriment of the annuity business.

The value proposition inherent in an indexed annuity is exceedingly valuable to many people, especially those in the transition management phase of retirement. While undue product complexity can impede the clear conveyance of that value to consumers, I have a good deal of sympathy for Mr. Bass and other agents like him who believe sincerely and strongly in the legitimate economic value annuity products provide to Boomers and seniors. It’s a calamity on the scale of a Greek tragedy that they can’t tell anyone in a straightforward manner.

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

Now on A Stark Example of Why the Indexed Annuity Industry is Destined to Implode Unless it Tackles the Misleading Marketing That is Behind Much of Its Product Sales

I don’t know where to begin or who to blame: The annuity agent trying hard (and very creatively) to market indexed annuities? Or the carrier or carriers he represents? The regulators? Maybe it’s just a manifestation of “The Process” out of which negative results emerge from the efforts of good people.

Today I introduce you to Mr. Tony Bass, although I have never met him in person. I have met him online. My guess is that he is a very decent man who has undertaken a misguided indexed annuity marketing campaign. I’m sorry to be critical of his methods but I can’t ignore them given that they are on display for the entire English-speaking world to hear and see.

Mr. Bass’ medium is the right one. He’s using video to convey his story professionally and effectively. I applaud him for delivering it in this manner. It’s his story”s content that I believe is simply fraught with problems.

Regular readers will be familiar with the long and detailed exploration of annuity sales practices that has accounted for so much attention at this site. Today I offer you a particularly egregious example of how the public can be misled about indexed annuities. This one is for the text books. I sincerely admire creativity. Mr. Bass seems to have plenty that could and should be channeled into compliant marketing strategies.

Mr. Bass’ example of indexed annuity marketing demonstrates the limitless creativity of producers. It also demonstrates how misleading sales practices are making the leap to digital delivery, a development that brings with it new levels of liability potential for indexed product providers. Any pretense that a misleading marketing campaign might be confined to an agent’s local territory is blown away once it has been migrated to the internet. Moreover it’s going to be potentially more difficult for a provider to deny knowledge of its agents’ poor sales practices when those practices are exposed for all to see on demand.

In his video Mr. Bass tells viewers that hs is “President and Financial Wealth Strategist for Bass Financial Solutions, a nationwide wealth management firm.”

Bass’s nicely produced video extols the virtues of his “strategies” that “guarantee a minimum rate of 13.68% over the next twelve months.” According to bass, consumers ‘pay nothing to implement these strategies.” He invites viewers “to receive more information about the retirement accounts and strategies, and finally become part of the informed group of successful investors versus the uninformed group that’s being robbed each and every year.”

Bass’ video never explains what the “strategy” is or how it is able to pay 13.68%. It’s implied that the answer will be discovered by visiting his website. More on that, later.

Bass’ target market is 401(k) pan participants who have left their employer and have a critical decision to make in regards to their accumulated 401(k) account values. In his video Bass tells viewers that it is a mistake for employees to leave accumulated assets in their previous employer’s plan, and also that it is a mistake to roll those assets into a new employer’s plan.

Bass explains that millions of investors change jobs each month and that many make “huge mistakes when it comes to how to handle their retirement accounts.” To sway viewers from considering keeping retirement assets in their previous employer’s plan, Bass raises the specter of Enron and MCI WorldCom and states, “Ask some of the Enron and WorldCom employees how this worked out for them.”

Bass explains that it is a mistake to rollover retirement assets into a new employer’s plan because it “limits investment choices.”

“What’s the Best Solution?”

In the movie Bass asks, “So what the best solution?” He states that the best solution is, “Rolling your retirement account into an investment where you have total control over your money by investing in the best financial products in the marketplace.”

Bass’ marketing strategy gets most interesting when you read his free report. It’s astonishingly misleading, in my judgment. Entitled “How to Maximize Your 401(k) or IRA after Leaving or Retiring From Your Previous Employer”, like the movie the report also focuses on the examples of Enron and WorldCom in order to frighten readers into not keeping their retirement assets in 401(k) plans. The report states that rolling over to an IRA is “the only practical way of re-gaining control of your life savings.” According to the report an IRA rollover is “hands-down the best choice.”

Bass is also on the side of making life more convenient for potential clients. His report states:

“Something else to consider is the convenience and ease of management
that comes along with consolidating your retirement accounts into one
professionally managed IRA account. If you receive statements from
multiple fund companies, you might be less inclined to review each one
and simply add them to your “financial stuff” file, which you may not
review often enough. Consolidating accounts will improve the ability to
manage investment activity and maximize performance results.”

Bass’ report then goes on to extol the virtues of his firm’s “no-fee accounts” that come with “phenomenal guarantees” and “access to accounts offering “13.68% guaranteed growth.”

From the Bass report:

At Bass Financial Solutions, Inc. you will have the opportunity to invest
your money in several of the industry’s top investment accounts, and
several offering GUARANTEED rates of returns. Most of our clients are
interested in the 13.68% Guaranteed Return Program. We can offer this
guarantee in writing from one of our top investment companies in the

Along with this tremendous guarantee you get the following:

• NO fees or commissions to pay EVER!
• NO stock market risk to your principle EVER!
• NO losses – ALL gains are automatically “locked-in” each year!
• NO taxes to pay – Tax deferred until you need the money!


Hammering Mutual Funds

Bass’ report is sharply critical of mutual funds. It states that “even though millions of investors own mutual funds inside their 401(k) s and IRAs, many would be better off transferring their mutual funds to an indexing strategy. Indexing participates in the upside gains of the market (like your stocks and mutual funds) with the downside risk of losing your principal (like CDs). In other words, you literally get the best of both worlds wrapped in one investment.

Next Bass’ report implies that mutual finds have expenses that are high, that the average portfolio manager has insufficient on-the-job experience, and that the average mutual fund turns over “90% of their portfolio annually.” Bass’ report even hammers no-load mutual funds.

Bass wants investors to “Stop paying unnecessary fees and risking your investments in the market with all the political uncertainties that exist today. Why not get the same type of performance with no fees, and a guarantee that your principle is
protected 100% of the time.

The report advises that “ Some of our most popular and sought after ‘indexing strategies’ offer a 13.68% GUARANTEED first year return on your investment and a 10% bonus on day one.

Part of a Dangerous New Trend?

I searched Bass’ company on Google and found a link to the site There I learned that Bass Financial Solutions is a registered investment advisory firm in the state of Georgia. This has caused me to think more about the recent trend among annuity agents who seek to form registered investment advisory businesses in various states as opposed to Federal RIAs.

I think that when annuity agents become registered investment advisors they undertake a potentially dangerous course if they persist in acting as annuity agents in the traditional manner. Moreover, if the motivation to become an RIA owes to the desire on the part of the agent to side-step broker-dealer oversight it’s almost surely to ultimately play-out badly for the agent. Why?

RIAs are fiduciaries by definition. Annuity agents, on the other hand, are bound to uphold the best interests of the insurance companies they are licensed to represent. Can an individual simultaneously serve two different agendas? Can RIAs simultaneously put their clients interests ahead of their own while still carrying on their traditional annuity sales and marketing activities? To me these are oil and water paradigms and the two competing agendas cannot coexist within the same client relationship. Generally speaking I think the idea of annuity agents becoming RIAs is a formula for disaster for all parties.

What is Bass’ “Top Investment Account?”

After reading Bass’ report I believe that his agenda is primarily to sell Allianz Life’s MasterDex 10® annuity. Unfortunately, this is never revealed in Bass’ marketing materials.

MasterDex 10 is a complex fixed indexed annuity that offers a 10% “bonus” on premiums paid during the first five contract years. When added to a base interest rate of 3.5% plus one year’s worth of compounding, the stated total first year rate becomes 13.86%. If not explained properly the 10% “bonus” can be highly misleading. In the context of Bass’ marketing materials a consumer would naturally believe that the “13.68%” is a “real” meaning realizable net cash return on rollover assets. It’s not, of course.

MasterDex 10 is arguably one of the least liquid indexed annuities ever marketed. Its focus is annuitization and Its surrender penalty is effectively perpetual. The annuity must be liquidated in systematic payments that begin not less than five years after contract inception and over a period lasting not less than 10 years. In other words, over a minimum of 15 years. Why?

Think about the economics behind this annuity. It “pays” a 10% bonus to the consumer, a 9% commission to the writing agent and a 3% commission to the marketing company that wholesales the annuity. That’s a total of 22% paid out by an insurance company which invests the premiums it receives in bonds that pay about 6%, annually. The only way to make this work is to restrict liquidity to systematic payments with below-market internal interest assumptions over periods that last many years. It’s telling that MasterDex 10 is the most popular indexed annuity ever sold.

Marketing That’s A Long Way from Being Compliant

The example of Mr. Bass’ YouTube video and report are vivid reminders that some contemporary annuity agents’ sales practices are a long way from meeting acceptable compliance standards. It’s hard to know where to begin in identifying all of the standards these marketing materials seem to violate: invalid and incomplete comparisons with investments; categorizing the annuity as an investment; inaccurate assertions as to the “investment” being “insured”; alleging comparison to CDs; comparing the annuity favorably to mutual funds, etc. Clearly there seem to be violations of “safe Harbor” ruling 151 and Rule 3(a) 8.

On the other hand from Bass’ perspective there may be nothing at all misleading about the video and report. As an RIA he is his own compliance officer. Of course, RIAs are generally subject to audit including the content of their marketing programs. I do imagine, however, that Allianz Life might take issue with much that’s portrayed in these marketing materials. Perhaps an Allianz Life representative will choose to comment on this.

What Would a Consumer Looking at Bass’ Materials Think?

What would a typical 401(k) investor think after watching Bass’ video and reading his report? I believe they’d be quite excited about moving their retirement assets into Bass’ “strategies” and “investment accounts” paying 13.68% guaranteed. They’d probably like the fact that they can receive “the upside gains” of “stocks and “mutual funds” without the “downside risk.” And I’m sure they would be comforted by the fact they their monies invested in these “strategies” and “investment accounts” are insured “up to an unlimited amount” by the National Association of Insurance Commissioners.”

Allianz is Really Trying

Allianz life has recently stated a strong commitment to upholding consumers’ interests. I believe this is a sincere effort. I also believe that Allianz Life had no prior knowledge of Bass’ strategies for marketing MasterDex 10. Rather, this incident is more likely a symptom of a free-wheeling annuity agent culture that sees producers engage in virtually whatever it takes to bring in their needed level of sales.

I’ve written extensively on how this culture took root and also about the vicious cycle at work that sees more pressure put on agents with each negative article that lambastes annuities in the consumer press. Agents see no hope in a marketing strategy that publicly identifies them as individuals with an explicit agenda to sell annuities. That this pattern must be arrested is not in dispute. The only question is how. The benefits of annuities are too vital and too timely to not find a way.

To address the root causes that lead annuity agents to engage in questionable sales practices I’ve spent a good part of the past five years leading Wealth2k’s development of compliant, next-generation communications networks, streaming educational video, advisor-branded micro sites and real-time monitoring capacity for compliance officers all designed to help annuity agents transition to a better/more compliant way of gaining new business. Agents cannot unilaterally implement such innovations, however. I believe these are inevitable capabilities that annuity providers must introduce if they stand a chance of saving the indexed annuity business in its present form.

Sales practices like those used by Mr. Bass are a virtual invitation to the SEC to intervene in this messy situation. That would be tragic, in my judgment. Is it finally time for indexed annuity providers to take urgent action?

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

Now Playing on Vegas TV, “Bad Animals” Annuity Videos; Consumer Warnings Against Annuities Jump from Print to Digital

Nevada insurance regulators are portraying some sellers of annuities as people who are really “bad animals.”

National Underwriter Online Edition- June 19, 2007

Well, if annuity providers won’t use videos to compliantly communicate the value of their products then I guess regulators will use videos to stop their annuity sales.

Here’s the latest “development” in regulators’ continuing creative efforts to save consumers from, “… buying a faulty annuity for the wrong reasons.” According to the website Broadcast Newsroom: This new campaign titled “Bad Animals” simulates conversations between annuity “sales people” who are really “animals” underneath the surface.” OK, I’m sick.

National Underwriter reports that the Nevada Division of Insurance developed the “Bad Animals” advertising campaign to encourage consumers to check the licenses of annuity suppliers, officials say. The campaign includes 4 television commercials airing in Las Vegas and the Reno, Nev., area and 2 billboards, officials say.

Each ad represents a ‘simulated sales’ vignette shown from the perspective of the purchaser as they are coerced into buying a faulty annuity for all the wrong reasons,” officials say. “The ads creatively show a ‘sales person’ communicating with a potential annuity customer, then flashes to a photo of a predator that most creatively represents each salesperson, demonstrating how the customer is deceived through witty and coercive tactics.” The slogan of each ad is, “Check with us before you write a check,” officials say.

In the 1976 movie, Cool Hand Luke, actor Strother Martin famously said, “What we have here is failure to communicate.” In the annuity industry what we have today is failure to communicate compliantly. It doesn’t have to be this way.

Message consistency, fair and balanced product explanations, quality education of producers and consumer empowerment are anything but vague and unattainable objectives. The required tools and technologies to achieve these improvements are fully developed. What’s lacking is courage.
How many hostile consumer “warnings” can the industry absorb before it is irreparably harmed?

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