Annuity perks: Corrupting the business or moving it forward?
People either love or hate U.S. Senator Elizabeth Warren. Both sentiments became even more fervent in late April 2015 when she announced her investigation into the non-cash compensation practices of annuity insurers.
Many annuity agents and companies decried her efforts to shed light on the “vast range of perks (paid) to entice sales.” But critics of the industry’s incentive system applauded her for sparking debate on the need to eliminate conflicts of interest that weaken people’s ability to save for retirement.
At the National Ethics Association, we believe reality falls somewhere between the two camps. Still, her investigation, along with several other regulatory initiatives over the last several years, represents a sea change in how regulators and the public view conflicts of interest. Financial advisors must adapt to what is rapidly becoming a conflict-phobic marketplace or suffer negative consequences. Are you open to reconsidering your long-held beliefs about sales incentives and other sources of conflict that erode trust between advisors and their clients? If so, keep reading this article!
The first step is to understand where Senator Warren is coming from. She views cruises, trips to glamorous foreign cities, and diamond-encrusted Super Bowl-style rings as obvious conflicts that could tempt you to sell unsuitable annuities to consumers nearing retirement. She looks at FINRA (then NASD) banning non-cash compensation back in 2003 and wonders why that hasn’t occurred in insurance. And she sees companies giving motorcycles and exotic cars to their top producers and wonders if such rewards might be better spent adding to an annuity’s consumer rate of return.
In short, Warren believes that “annuity agents that (sic) are more interested in earning perks than in acting in their clients’ best interest can place Americans’ savings and retirement security at risk.” Before you dismiss this as just more posturing from a liberal politician, consider this. Warren is extremely popular in certain quarters and has the ear of the media. So what she says resounds loudly. When the Senator charges the industry with being corrupt, many people will listen... and believe.
And Warren isn’t alone in criticizing the industry. Stan Haithcock, dba “The Annuity Man” in Ponte Vedra Beach, Fla., is also uncomfortable with annuity sales perks. “The annuity industry hasn’t gotten the memo yet,” he says. “Agent recommendations are too often motivated by the trip (agents) will go on or the gift they will earn if they sell enough of a particular annuity.
“... There are a ton of annuity salespeople that (sic) pride themselves on doing the right thing and always working on behalf of the client’s best interest. However, when a trip to France is on the line with an annuity sale, my fear is that some agents (will) lose their client focus and fiduciary responsibility (will) take a back seat.”
Joining Haithcock in opposition to non-cash perks is Scott Dauenhauer, a fee only financial planner in Murrieta, Calif., who specializes in the 403(b) marketplace. “There is no law against offering special perks, and insurance companies are within their right to offer agents big incentives to sell their products,” he says. “However, it’s my opinion that this is a major conflict of interest that should be disclosed and potentially even banned. Fully paid-for vacations to exotic locales could certainly persuade an agent to sell one annuity product or another or to sell an annuity when another financial product would be more appropriate.”
• Where do you stand on accepting perks? Chime in on this new thread:
Next page: List of ethical risks in accepting perks
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