The Objections Time Forgot

Citywire recently published an article entitled “Attack of the Annuities!” and, as you might expect from an article with a title patterned after schlocky B-movies, it leans toward sensationalism on the subject of annuities in the RIA space. The article sets the tone with a quote from Ken Fisher: “I would die and go to hell before I would sell an annuity.”

To be clear, the article isn’t purely negative. There’s a lot of real estate devoted to proponents of modern annuities talking about what makes them useful tools for guaranteed retirement income. It even includes quotes from our own Ed Mercier and some positive coverage of our new contingent deferred annuity, Constance.

But the positivity in the middle is sandwiched by extreme negativity, and many of the criticisms levied against annuities in the article are a bit outdated.

Among these objections are high commissions, opaque fees, single entity credit risk, and liquidity risks. The article cites Chris Tobe as saying that he believes annuities to be a breach of fiduciary duty.

What the author may not understand is that many of these objections are relics of an earlier time in the industry. High commissions and opaque fees are disappearing as annuities trend more towards fee-based solutions and transparency. If single entity credit risk were a fiduciary issue, then any kind of insurance would be controversial: homeowners, car insurance, health insurance…All of those obligations are held and honored by single entities. Perhaps Mr. Tobe believes fiduciaries should unite in their opposition to car insurance? And liquidity risks are also vanishing as surrender penalties become less common. To say nothing of CDAs and the level of control, liquidity, and transparency they provide.

The article starts by talking about the “vitriol felt toward annuities by many fiduciary advisors,” but even that quote comes off as looking for controversy where none exists. As our 2021 survey of fiduciaries demonstrates, many can still be a minority of fiduciaries. Only about a fifth of fiduciaries seem to object to annuities on general principle; most would recommend annuities if they served a client’s needs.

The article ends by citing an old industry saying: “Annuities aren’t bought – they’re sold.”

That may have been true at one time, but it’s important to remember that not all old industry sayings are evergreen. The leaves fell off this one long ago.

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