COUNTERCOLUMN: All Your Bias Are Belong to Us

A couple of people, aware of my longstanding interest in personal finance issues, tipped me off to this recent Dateline piece, purportedly exposing the deceptive sales practices of salesmen hawking a product called 'equity-indexed annuities.'

Unfortunately, as is so often the case with well-meaning idiots in the national media trying to cover personal finance, the special does more harm than good.

How can I tell? The comments - riddled with commenter after commenter who watched the show, which latched onto the surrender-charge issue and made no mention of the substantial risk management properties of annuities, and came to the conclusion "annuity salesman BAD."

That's just absurd.

The result, I fear, will be thousands of unsophisticated investors across the country who got a bad taste in their mouths for annuities based on the show - and who would be vastly better off using annuities in their retirement plans than relying on brokers and mutual fund salesmen, whose sum total of response to longevity risk - the risk that a retiree will outlive his or her means - with, get this, a "Monte Carlo simulation."

Feel lucky punk?

Well, do ya?

One of the major shifts in my thinking over the past five years has been my gradual conversion from a mutual fund, low-expense purist (learned while writing for a magazine called Mutual Funds in which we barely touched annuities and insurance issues for retirement) to the belief that the insurance salesmen had it right all along: Our average senior has no business trying to accept longevity risk, and should seek to transfer the risk of outliving his or her income to a solid insurance company in exchange for a premium, so long as that premium is reasonable.

This is particularly true as life expectancy continues to increase, and PARTICULARLY true now that traditional, defined benefit pensions have become somewhat of a rarity in the private sector.

My criticism with Dateline isn't that annuity sales practices don't deserve serious scrutiny. It's that the Dateline scrutiny was so unfocused, lazy and glancing that thousands will draw the wrong conclusions.

Chris Hansen, the reporter on Dateline, focuses on the vagueness with which these salesmen in the show deal with the surrender charge. But in several cases, the salesman does indeed mention the surrender period, and in one case, where the salesman shows the prospect the brochure (I assume with a graph or table explaining the surrender period) is even specific about the percentage - for which he is soundly castigated by the state AG for not spending enough time on it.

But the sales presentation was artificially cut short by Gibson walking in in the middle of it. That's nonsense. The required disclosures are typically made AFTER a fact-finding (don't know how much fact-finding was done in any of these cases before the product was presented), and AFTER a product recommendation, and frequently on a disclosure sheet, where the client signs off, initialing on several lines to acknowledge that items such as 'no bank guarantee', 'no government guarantee' fees and surrender charges have been disclosed.

I've never sold a financial product, other than equipment leases, but I did just that on every lease application. Every client applying for credit, for example, had to sign off that he acknowledged a personal guarantee and that the lease was noncancellable.

Therefore, I'm not at all convinced that these guys were unscrupulous. Actually, I am inclined to believe that the salesman who made the pitch to Aunt Alice was absolutely on the up-and-up. But Chris Hansen has a scoop to make - and he's more than willing to damage someone's career in order to make it.

In another case, the first salesman responded to an inquiry about the surrender period (the specific question was as a result of a medical problem) by bringing up a health or long term care policy.

Chris Hansen accused him of trying to sell "more insurance." Well, no shit, sherlock. Imagine an insurance salesman trying to sell insurance! Perish the thought! Except that in this case, a long term care policy may well have been warranted. If I were the elderly gentleman and I could get it, I'd be inclined to snap that up!

Well, if the client is worried about having to access the money during the surrender period as a result of a health problem or nursing home need, and the insurance salesman can prevent that by layering an LTC or health policy that would prevent that eventuality from happening, then that salesman is hardly guilty of doing anything wrong, in my opinion. If an EIA makes sense except for a surrender period, and the purchase of an LTC policy or health policy that can protect the policy holder during the surrender period that he would probably need ANYWAY will prevent that, then the insurance salesman is doing his job: Coming up with solutions that protect the client from risks he cannot afford to bear.

Sorry - I don't believe that salesman deserved the "catch a predator" treatment, based on what I saw.

Had he been able to finish the presentation, and still didn't disclose the surrender charges, then Dateline would have had a case. But Hanson was too interested in playing 'gotcha' than in accurately portraying the situation.

The only really unforgiveable douchebaggery I saw in the Dateline piece was the one on FDIC's F- minus credit rating (a bald-faced lie, though FDIC does have its limitations), and the custom-published magazine that puts the advisor's face on the cover of a fake magazine.

But here's a newsflash: Almost every advisor out there sends periodic newsletters to their clients. You think your insurance guy has the time or inclination to write his own newsletter? Unless he's an independent, chances are he doesn't. He's not even allowed to. The compliance goons prohibit it.

Instead, the home office contracts with a marketing or custom publishing company and they crank out the newsletters for every advisor in the country. They change the blackplate and stick the advisor's pic and phone number in the corner, and out they go, to an excel spreadsheet with the advisor's mailing list on it.

It's got to be this way. Think the compliance offices at Wells Fargo, Morgan Stanley, Hilliard Lyons, Farmers Financial, or Travelers Insurance Group want to deal or have time to deal with all 10 thousand agents writing their OWN newsletters?

And those are just the newsletters I used to ghost write for advisors, personally.

I don't have a particular problem with that.

I do, however, have a problem with the magazine practice as portrayed in the Dateline special. That's just a flat-out misrepresentation on the part of the scumweasel advisor, and I wouldn't do business with someone like that.

Also noteworthy are the ghostwritten books out there. Many times a financial advisor will attend a seminar, pay a fee, and get a credential - doesn't matter which one - and as a perk he gets a book...a whole book! ... with his byline on it, and that he didn't write. He's trying to pass himself off as a published author.

I hate that shit, because I actually HAVE been published in Annuity Selling Guide, Senior Market Advisor, Bankrate, Mutual Funds, Registered Representative, and a number of other places, and I worked my ass off on those pieces!

Full disclosure: I am studying to get my own insurance license now. No, I never took a class from an insurance agency. Long time readers know I've been planning on hanging out a shingle for some time, and I'm laying the groundwork to do just that. The difference now is I'm leaning more towards the insurance side than the investment side.

Successful financial advisors of all stripes tend to make rather more than successful copywriters and reporters, anyway.

Splash, out

Jason

Labels: investing, personal, The media