The U.S. insurance industry is fighting to get equitable news coverage in a market where securities are king. Here’s what you need to know about the media, so that we can change it:
Sensational, attention-grabbing headlines are the lifeblood of the newsmedia industry. If they don’t get their readers’ attention in the first three seconds, they are likely to lose your interest. This phenomenon has unfortunately contributed to a grave problem in our nation’s financial services industry, as it relates to informing the public on retirement income products. Americans today are hard-pressed to find reliable, credible information on financial services; particularly on life insurance products such as annuities. In the wake of our nation’s economic collapse, this lack of factual information has the potential to translate to devastating problems for our future retirements and the legacies we’ll leave for our loved ones.
Initially, the problems began with the media reporting on negative issues affecting the annuity industry. Deferred annuities, retirement accumulation vehicles that provide tax-deferral benefits and guaranteed life-long income for the purchaser, were getting a “bad rap” from the press, and rightfully so.
Just before the turn of the century, distribution changes in the annuity sales process were resulting in market conduct and suitability problems. At that time, annuity penalties often exceeded twenty years and 25% of the annuity’s value; commissions paid to the agents selling the products often reached as high as 18%. Seniors were being taken advantage of by unscrupulous salespeople. Regulators stepped-in and made sweeping changes in the name of protecting consumers. Their actions included developing rigorous suitability processes and implementing legislation which prevented the immoral salesperson from using annuities as the tools of their bad behavior.
Sixteen years later, these regulatory changes have dramatically transformed both the products being offered, and the commissions being paid to the salespeople that offer annuities. Unfortunately, the general press is still under the impression that annuities are still beleaguered by the woes that plagued the product a decade ago.
One of the primary reasons for the perpetuation of inaccurate and slanted information on annuities is how the newsmedia obtains their information. Today, most outlets reach-out to Wall Street firms for information on financial services products. Sadly, these firms do not sell insurance products, such as annuities; they sell investments. For this reason, the credibility of any information given on annuities from such a firm should be immediately called into question.
In addition to using Wall Street investment firms, the internet has become a popular source for reporters looking to provide an account on annuities. The internet obviously has a wealth of information at just the tip of your fingers. As a result, it is not irregular for a reporter to source previously-published articles written by their “reputable” peers in the media industry. (This is akin to using Wikipedia as the source for your doctoral thesis.) Reporters need to forgo the ease of using the internet, and remember that doing their own original source work is the only way that they can maintain integrity in their reporting. Too often, these previously-published articles are inaccurate and have used improper sources for their data. Ultimately using such tactics can result in an unwitting publication of outdated and inaccurate information; this is especially so with annuities.
Consider the Source
It bears noting that Wall Street investment firms, who so often are the source of information published on annuities, specialize in selling investments. Investments do not compete directly against insurance products (such as annuities). However, the salespeople that sell investments compete against those that sell annuities, as both parties have a desire to control 100% of their clients’ assets. Sadly, this often translates to these sources on Wall Street providing inaccurate and sometimes even defamatory information on annuities to unsuspecting media outlets, who are simply looking to inform their impressionable readers.
At other times, the newsmagazine publishing the negative, inaccurate information is not so “unsuspecting.” If the media outlet in question has its pages filled with advertisements for investment products (i.e. mutual funds, stocks, etc.), you can be certain they are not going to sing the praises of annuities. No matter how compelling the annuity story, if the advertisers aren’t happy, the advertisers will take their money elsewhere. Hence, the perpetuation of negative blasts against annuities in general, as the media outlets struggle to conserve their advertisers.
Ultimately, the root of the vast majority of inequitable reporting on annuities is due to simple product misunderstanding. For so long, immediate annuities were the retirement product under the spotlight, whenever journalists wrote on “annuities.” These retirement products provide a guaranteed paycheck for life within a year from purchase. However, this guaranteed paycheck has the ability to turn readers off when discussing the high payouts on “straight life” immediate annuities.
In exchange for a relatively high guaranteed paycheck for life, the straight life immediate annuity purchaser runs the risk of ‘losing their annuity purchase payment to the life insurer, should they die the day after the contract is purchased.’ Although not the only choice for an immediate annuity payout, the “straight life” option tends to be object of intense focus during periods of low credited rates, as consumers try to squeeze out the greatest value possible in their retirement.
Fortunately, the 1980s redirected insurance product development to the deferred variety of annuity. Deferred annuities give the purchaser the ability to continue accumulating interest on their principal, prior to receiving their ‘paycheck for life.’ Sadly, however, Wall Street has not communicated this clarification to those reporting on annuities.
Lack of Glamour
Lastly, a lack of glamour has contributed to the inequitable coverage of annuity products in the mainstream media. Can you recall the last time that you read about the widow that was able to maintain her standard of living after retirement, thanks to the guarantees in her indexed annuity? Would you read such a story, if given the chance? The scenario may not be sexy, but it happens every day.
Let’s face it- sensationalism sells. So, providing coverage on the widow that was bilked out of her nest egg by an unprincipled annuity salesman will likely receive attention that the warm and fuzzy story won’t. It doesn’t matter that the happy widows that are provided for outnumber the bilked, destitute widows by more than ten to one. As a result, the annuity remains “unloved” today.
Consumers can demand integrity in the press, however, and demand their right to accurate and fair reporting on financial services products. If you find yourself in a such a need, I urge you to do your due diligence on the party reporting on annuities. If all else fails, seek the aid of a third-party resource. In the end, only YOU can ensure your financial future. Make sure you surround yourself with the tools to do it.
Sheryl Moore is President and CEO of AnnuitySpecs.com and LifeSpecs.com, indexed product resources in Des Moines, Iowa. She has over a decade of experience working with indexed products and provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at firstname.lastname@example.org.
You can read more from Sheryl Moore at www.annuityspecs.com