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Jumping on the FIA Birthday Bandwagon

There has been a small flurry of publicity around the 20th birthday of fixed indexed annuities. (e.g., InsuranceNewsNet, February 2015, p. 6 Editorial, “Happy 20th Birthday Indexed Annuities!”  and “Fixed Indexed Annuities Celebrate 20 Years”)

I read the first in this list, Mr. Morelli’s editorial, yesterday. The lead is that “Fixed index annuities want what any 20-year-old desires: Acceptance and Respect.” The piece acknowledges the “bad boy taint from years past” but then appears to suggest that the taint may not be as far in the past as that line suggests: “Sometimes those [marketing] messages and products have gotten a little too creative.” “Some companies were trying to delivery on an impossible promise.” “Aggressive marketing.” “Aggressive selling to prospects in their 70s and 80s and you had the makings for public revulsion.”

There is a mention of “uncapped” strategies that are the latest marketing concern he correctly notes that this marketing is getting attention from regulators. See Iowa Bulletin 14-02 dated September 15, 2014. Morelli says that analysts such as “Sheryl Moore of Moore Market Intelligence say that those products are built so they will have the same result as pretty much any other FIA.” If FIAs do want acceptance and respect, then the “aggressive” and “creative” marketing has to stop.

To “shake the bad boy rep,” FIAs have to be marketed in a fair and balanced way, making clear what they can and cannot do, what they offer protection from and what the costs of that protection are. The bad boy rep can, perhaps be turned around, but it will mean that those who create the “aggressive” and “creative” marketing material have to stop and they have to let the product become boring. If bad boys do change, they may be perceived as boring. But it isn’t only the products that have to shake the rep, it is the people who sell them. If the product is going to get real respect in the next 20 years, the people who create marketing materials about FIAs and the people who sell FIAs are going to have to come to terms with a little boredom.

Morelli concludes: “How will the FIA be taken seriously as a retirement vehicle? The same way in which any 20-year-old shakes a bad rep: Make clear promises that they keep, time after time, year after year.” That is true for the products and also for the insurance producers selling the product, though I would modify it a bit: Give real information that is fair, balanced, complete and accurate, time after time, year after year. Then perhaps the FIA will grow into a mature and respectable adult.