Survival of the Biggest

Survival of the Biggest - The Annuity Consumer Blog

Man, has the fixed annuity business changed over the years.  When I entered the market 25 years ago, the annuity business was a bunch of no-name small companies just looking to round out their product lines.  It was part of the life insurance package being offered to  insurance agents and financial planners.  Financial planning was just coming into vogue at the time, and being a certified financial planner was a valuable certification that required plenty of training.  Now, it seems true CFPs no longer exist, and many insurance agents and financial advisors have become closet annuity pushers.  These professionals, who used to lay out complete financial plans with different investment asset classes and various life insurance products, have chosen another path.  They have jettisoned the comprehensive approach and simply gone with the investment that is insurance-safe, guarantees a lifetime income, and offers stock market participation.  These thorough salesmen now simply recommend the greatest product ever created.  That product is called a fixed index annuity.

So, instead of fielding phone calls when the stock market’s in free fall, these financial advisors turned annuity peddlers can now sit back and relax during financial crises.  Clients seldom call about their fixed or index annuity contracts.  By selling a fixed index annuity, agents don’t have to worry about quarterly client meetings, they just have to go out and find new clients.  And it doesn’t hurt that the commission for fixed index annuities averages at around 8% of the deposit!  What a great life.  You sell a product that works for every prospect and it requires no time or meetings after the sales.  Perfect!  Not so fast.  I think the work begins when a bull market begins.  Clients expecting double digit returns will get mighty angry when they see their contracts earning 3% at best.  Not only can some of the agents expect to work harder, a few lawsuits may pop up as well.

Yes, the industry sure has changed.  All those small insurance companies that sold $25 million a year in fixed annuities and made very little profit on their annuity business are hard to find now.  Back then, annuities were a loss leader, and many insurers forced the general agents–the middleman between the company and the agent–to sell life insurance.  So general agents couldn’t just market the easy annuity, they had to develop a life insurance back office with workers handling administration and underwriting.  As a result, the selling insurance agents had a back office and support for their business.  However,  general agents have been replaced by independent marketing organizations (IMO).  IMOs sell hundreds of millions of annuity premiums annually and have no interest in life insurance.

We now have huge annuity insurance companies that require at least $50 million a year from their marketing firms.  And if you have a bad year–sorry, you are eliminated.  Marketing firms and insurers are getting bigger every day.  And fewer and fewer of the companies exist every day.  Soon, you will have a few huge marketing firms selling the same huge annuity companies.  So, what does it mean to the consumer?  You already know.  Less competition and larger companies mean fewer competitive products.  In ten years, the annuity business will be like OPEC.  A giant cartel forcing us to buy subpar products from these monster annuity companies.  Darwin’s evolution will suck for the poor American saver!

Pay-it Forward:

Have your post-grad read The Fred Factor. It’s about a postman named Fred who treats every workday like it’s his last.  Fred creates a desire to paint a job masterpiece everyday as a mail carrier.  This might be the most important book you can give to your son or daughter.  The rest of the title says it all:  “How Passion in Your Work or Life Can Turn the Ordinary into the Extraordinary.”  It’s a book everyone should read and re-read every year!

Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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About the author

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

More posts by | Visit the site of Earl E Bird

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