FIVE THINGS YOU SHOULD KNOW
INSIGHTS for INVESTORS
Blind Spots Series – Annuities: Problems & Solutions
Annuity, or insurance in general, has been somewhat of a bad word in the money management industry for some time now. I think some of this comes from not just the products themselves, but the people who are selling them. Let’s face it, insurance has historically been an agent driven marketplace. A product salesman or woman places policies without any given comprehensive financial plan and/or a lack of transparency around product cost or cheaper alternatives. If there is a “plan” it magically always tells the end consumer they need a specific kind of annuity or life insurance policy. Simply put, it’s been a system where product producing companies often manipulate people to push their own products.
Empowering clients to become informed consumers through education is the best remedy. This has been not just a goal of mine throughout my career, but a cornerstone of our firm.
Don’t get me wrong, there are times when an annuity has its place within a client’s plan. It could be a conservative investor looking to transfer some of their portfolio risk to an insurance company or looking for a tax deferral on their investments. Or, perhaps even, looking to replace and defer growth from another annuity product they purchased years ago or inherited and replace it with a newer/lower cost annuity (this is called an annuity rescue).
Breaking an old distribution model
The historical problems we’ve seen in this market, in my humble opinion, sits squarely in the distribution model many insurance companies have chosen and that we described above. It’s a product/commission first, consumer second, paradigm. Insurance agents are not held to a fiduciary standard. The incentives haven’t put the consumer on the same side of the table as the selling agent – it’s as simple as that.
However, this market is evolving at a rapid pace especially among advisors who have embraced the fiduciary standard. Fiduciaries, like TEN Capital, see there are occasions when annuities can help improve the outcomes defined through our planning process for clients. It’s just one more arrow in our quiver. I’d argue, however, it’s the exception and not the rule and needs to be done in a fee-based not commission-based offering.
We’ve created our own insurance marketplace. One that is full of low cost, no commission, insurance backed solutions to complement our other offerings. As fiduciaries we are always putting our clients’ interests first, and our goal is to help disrupt the old insurance model that we see far too often as abusive.
It’s as simple this – if you want different outcomes, change the incentives. Now we have. And I couldn’t be happier about it.
Have a great weekend,
Dave and the team at TEN