Why "annuity" is a financial curse word

Why annuities are hated by most financial journalists and advisors
Author:
Updated:
Original:

Forget dropping the “f” bomb when expressing your anger, you can now use the word “annuity” as your new curse word. Next time you feel the urge, try…Annuity you! Go to Annuity! Kiss my annuity! I don’t give an annuity!

There’s so much anger in the financial community towards annuities, you would think that a Democrat or Republican (depending where you land) endorses the product category.

Fake annuity news

With national digital and print ads running that say “I hate annuities” or that they would rather die than own an annuity, it’s no wonder that the annuity category is taking a public relations hit. Adding to that is the unfortunate fact that most financial journalists don’t have a clue about annuities, but continue to publish articles misleading the consumer about annuities.

Most people and journalists think that “annuity” means a SPIA (Single Premium Immediate Annuity) or a VA (Variable Annuity). In addition, too many believe that when you die the evil annuity company keeps any unused money in your account. Talk about misleading! What they are describing is a “Life Only” payout with a SPIA, which is one of over 30 different ways to contractually structure an annuity lifetime income guarantee.

Most people structure a SPIA for a lifetime income guarantee, but also include in that structure to make sure that 100% of any unused money goes to the listed beneficiaries on the policies. So much for that annuity conspiracy theory, but explains some of the unfounded anger.

Bad chicken dinner seminars for all

Another reason for the annuity curse word correlation is due to some of the sales tactics used to sell them. If you live in a reasonably nice community, you probably have received an invitation to eat a free meal and then listen to an annuity sales pitch. Just a hint, if the meal is served before the sales pitch…eat and leave!

Typically, there’s usually one high commission annuity product type pitched to the entire room. One size never fits all, but that doesn’t deter the too good to be true sales pitch.

Jamming annuity square pegs into consumer round holes always equals into "annuity" being used as a curse word.  Annuities are contractual transfer of risk products that fit in some specific situations, but they are certainly not for everyone.

Can’t charge annual fees on most annuities

Too many financial advisors and financial firms bash annuities because it gets in the way of charging fees and wrapping accounts in an all-inclusive fee structure business model. Advisors and firms love to project future revenue with fee-based accounts. That’s a fact.

Simplistic pro-consumer annuities like SPIAs (Single Premium Immediate Annuities), DIAs (Deferred Income Annuities), QLACs (Qualified Longevity Annuity Contracts), and MYGAs (Multi-Year Guarantee Annuities) have no annual fees which means that they can’t be included in a wrap-fee account.  That should not disqualify these simple contractual solutions from being recommended to a tidal wave of baby boomers looking for guarantees.

Another baseless argument is that “their” investments will do better than annuities. Apples and oranges anyone? Annuities are transfer of risk contracts, so I hope their non-annuity investments can do better. If not, you need to find a new firm or advisor.

So the next time your advisor or firm that is charging you an annual fee starts trashing the annuity category, you now know why.

The annuity industry has earned it

For some reason, the annuity industry has not put together a consolidated response to the attacks on their products. Either they are making so much money that they don’t care, or those cats can’t be herded. Regardless, if you aren’t going to proactively defend yourself, then these false claims will continue to stick.

In addition, it’s impossible for the industry to regulate all of the sales pitches coming from their army of agents. Like all industries, a few bad apples get all of the attention. This sales message free-for-all also leads to the use of annuity as a curse word.

One size doesn’t fit all

Another reason for the “annuity” morphing into today’s financial curse word is the unfortunate “one size fits all” approach that too many agents take when recommending their product of choice. Regardless of the solution or goal, these “one product wonders” jam that square peg into a round hole. If that sales practice doesn’t generate a curse word, then nothing will.

A simple way to solve this problem from an industry standpoint is to pay the same “hidden” commission on every single type of annuity sold. For example, SPIA (Single Premium Immediate Annuity) commission would be the same as a FIA (Fixed Index Annuity). I know I’m dreaming here, but this would end “commission product steering” by agents. They would actually recommend the correct product type for the specific contractual goal.

The fact that this will never happen is another reason for using “annuity” as a curse word.

Transfer the risk…or not

Annuities, regardless of type, are transfer of risk contracts. You either need to transfer risk, or you don’t. Not everyone needs an annuity, but a lot of people do. That’s a contractually guaranteed fact and a reason that using “annuity” as a curse word makes no sense.  Over 10,000 baby boomers retire every single day and many of them are looking for guarantees instead of market risk. That is an undisputed fact.