Trust has always been the cornerstone in any marketplace, from Main Street to Wall Street and from the town hall to the state capitol. Coincidently, my former Illinois Governor, Rod Blagojevich, was sentenced to 14-years in prison. “I’m incredibly sorry” he said. What does this have to do with annuities? Plenty.
It’s been said trust is what we “sell” and our clients and prospects take action to implement our recommendations under an earned blanket of trust. Perhaps it is just me, but more of my clients and prospects are less trusting. Who can blame them when high profile individuals, institutions and even entire industries have ethical failures involving money and power? I have found myself even questioning my own carriers and broker/dealer because of a lack of trust. For example, as a believer in annuity products, I’m astounded at how complex they have become. Especially variable annuities offering living benefit riders. “Can you repeat that? I’m having a hard time understanding this,” I said recently to one of my annuity wholesalers. If I’m having a hard time understanding it, the client will also have a hard time comprehending it. The erosion of trust begins in the product, the advisor or both. Certain annuity products and their complexities I believe present a unique challenge to advisors in this day and age when so many have failed the confidence of our public trust.
The financial crisis dramatically changed the design and cost of variable annuities and living benefit riders. This presents a challenge for advisors as we negotiate the intricacies of client trust with ever-changing annuity products. Playing on the television screens in our waiting rooms is the likes of MF Global stealing client money, incitements and convictions of political leaders. Perhaps it’s just my acute awareness brought on by age and experience, but I don’t recall in my nearly 20-year career clients asking so earnestly, “Well, what happens if this mutual fund company or insurance company steals my money or goes out of business?”
The industry food chain works like this: Clients and prospects trust us, we trust the wholesaler, the product and the company manufacturing the product. What an interesting environment we now work in, where clients ask, inquiring about unethical practices and leadership at institutional levels. Not like this is entirely new, but when the question was raised before we could confidently talk about company history and ratings. That is until Arthur Anderson shred documents for Enron and perjured itself out of business. Third-party pieces help, as does our professional reassurances but doubt can linger.
How many of us have implemented an insurance or investment product only to have the carrier change it or pull it altogether? I contend none more than annuities. I must literally have two dozen different kinds of annuity products in my book of business with my anchor company, and most of those variations derived from the last six to seven years. In fact, just last week my broker dealer pulled the plug on a well-known mutual fund company’s IRA product. I read the announcement and I was upset, not because I have any business with that company, but that my broker dealer would promote it and then pull it. I called and said, “I don’t have any business with this company, but I want to know the thinking behind it.” Do you think I was satisfied with the answer? I was hardly satisfied with the answer I received.
Don’t these carriers understand Joe and Sally Mainstreet buy these products? In my opinion, recommending and implementing these ever-changing annuity products challenges us to be technicians and relational wizards. Joe and Sally Mainstreet want us to provide simple answers with mostly simple products, but it’s just not simple lately. It’s the moment the client’s spouse is overwhelmed and confused, and they lift their head from the annuity illustration, you know the 18-page monster they must sign stating they understand it all, filled with disclosures, numbers, ifs and whens. Sally says to her husband, the electrician “Do you understand this, because I just got done teaching a room full of five-year-olds how to color between the lines for the last eight hours.” The complexity leads to confusion, which breeds resistance, giving birth to full blown client passivity, and they do nothing while the majority of their assets sit in a money market, bank CD and security eludes them.
I often rely upon my own creativity and fellow Million Dollar Round Table (MDRT) members to provide clients simple answers in the changing complex world of annuities. Here are two that have served me and my clients well.