Jack Marrion

The author would like to thank Jeremy Alexander and Monika Hunsinger of Beacon Research for allowing access to their comprehensive store of annuity sales data and granting permission for a portion of this research to be shared.

Data for this article was drawn from the Beacon Research “Fixed Annuity Premium Study.” The study reports sales data provided quarterly by participating insurance companies as well as results reported in statutory filings and other publicly available sources. Beacon checks this data for general reasonableness, but does not perform independent audits. Beacon uses this data to estimate overall sales and sales by product type.

Beacon Research offers a suite of products to access industry leading annuity data mined from industry filings, researched from company websites, collected from annuity issuers and rigorously quality-checked by experienced data analysts and issuing companies. Beacon Research provides the most comprehensive and accurate fixed and variable contract and sales data in the industry. They can be contacted at 800-720-3504 or on the web at www.beaconresearch.net.

Overview
For calendar year 2017 estimated U.S. fixed annuity sales were $100.3 billion, down 8.7 percent from 2016. However, sales were weaker in the last half of the year than in the first.

All fixed annuity segments took hits. Fixed rate annuity sales, including both market value adjusted (MVA) and non-MVA, decreased from $36.9 billion to $33.1 billion. Fixed index annuity sales dropped from $60.6 to $56.8 billion. Fixed income—deferred income annuities (DIA) and immediate income annuities—dropped 15 percent from the previous year to end up at $10.5 billion.

Product Trends
Once again, the Allianz 222 was far and away the top selling fixed annuity, followed by New York Life Secure Term MVA Fixed Annuity. Four of the top ten selling fixed annuities were fixed rate (non-MVA), three were fixed index, two were fixed rate (MVA) and one fixed income (SPIA) completed the field.

The first quarter of the year is typically the weakest, but, once again, 2017 was an exception. Overall sales rose nine percent in the first quarter of 2017 when compared to the fourth quarter of 2016, trickled up a bit higher in the second quarter, before splashing down 13 percent in the third. Overall, the fourth quarter recovered some of the loss, but was still lower than when the year began. However, both fixed index and fixed income annuity segments closed with stronger final quarters than in the first.

Interest Rate Trends
Overall interest rates were lower at the end than at the beginning of the year. The Advantage Insurer Bond Yield Index had the overall average yield on new bonds purchased by insurers at the end of 2016 at 4.28 percent and at 3.78 percent at the end of December 2017. In recent months interest rates have trended upwards as confidence in the economy strengthened.

Fixed annuity rates ended the year barely higher than where they began. The average yield on five-year multiple year guaranteed annuities (MYGA) was 1.92 percent in December 2016 and 2.04 percent in December 2017; rates fell to a low of 1.8 percent during the summer before rebounding.  

Best Selling Products By Channel
The top 10 selling products in the independent channel space and top nine in the Independent Broker-Dealer channel are all fixed index annuities; in the wirehouse space fixed index annuities had eight out of ten slots. This contrasted sharply with the large regional broker/dealer channel where only one company with two index products cracked the top ten; in this channel fixed rate (MVA) were the ones. In the bank channel, fixed rate annuities also had the edge.

Distribution Trends
In 2017 captive and independent agents were responsible for 46.4 percent of total fixed annuity sales, down from over 65 percent five years prior. Also in 2017 banks did 26.2 percent of sales with wirehouses and broker/dealers contributing 25.7 percent—up almost four percent from 2015; direct sales were at 1.7 percent. 

Independent agent sales changed back to pattern as fixed index sales gained as a part of the whole.

The Forecast
The $9 billion drop in fixed annuity sales was due to continued uncertainty over the future of the Department of Labor Fiduciary Rule Revision. Fixed annuity sales recovered in the first half of 2017 as it appeared the rule would be neutered and then took a big drop as summer ground on and it appeared nothing was being settled. In March of this year the 5th Circuit Court of Appeals vacated the entire DOL revision, ruling that the agency exceeded its statutory authority. As of this writing, it appears the DOL’s ill-conceived and poorly-written rule is dead. What this means is the industry can get back to doing their job of creating and providing solutions that protect American consumers. The forecast is fixed annuity sales are headed back up.

I got talking with a retired master plumber recently and somehow the conversation came around to the difference between what the book says and what happens out in the field. The plumber said he worked for a local firm where the owner was also a master plumber with years of experience, which is what you want when considering any Plumbing Services out there. The owner died and the daughter took over the firm. The plumber said she was nice enough and everything, but she consistently didn’t allow enough time for each job so he was often running later and later as the day went on. She would argue that the plumber worked too slowly because she was scheduling time based on some plumbing reference book that said how long a particular task would take. The plumber would try to explain that the book doesn’t allow extra time for a broken flange that needed to be dug out and replaced-or a replacement part that was incorrectly labeled so that you needed to make a trip to get the correct part. These are the things only an expert plumber, like Morris Jenkins, would know and understand. He said he never could get her to understand that practicing your craft out in the field often differs a lot from what the book says it should be.

The first seven years of my working life were spent earning commissions, cold-calling, and doing what was called belly-to-belly selling. I had a marketing degree, weeks of sales training, and manuals designed to cover every situation. However, they never explained how to handle an appointment where when you sit down at the kitchen table and you respond yes to the offer of coffee-and the prospect picks up the cup…looks inside…flips the cup to throw the cockroach on the floor…squashes the cockroach with her bedroom slipper…and then pours and hands you the cup of coffee. Do you drink the coffee? (The answer was yes, I needed that $150 commission check.)

Those that have never been out in the field do not understand how fragile the sales process is. First you have to find a viable prospect, then you have to convince them to meet with you, then you need to educate them and counter often imaginary fears to get them to buy something that is designed to benefit them, and then you hope that buyer’s remorse or some act of clerical obtuseness from the home office doesn’t kill the sale. My wife got tired of my constant refrain, “The whole world should be on commission so they only get paid when the sale closes.”

Those that have never been in the field try to add pages to the book each time a new situation is met-which is why disclosure agreements now resemble small novels -but the reality is every sales situation is somewhat unique. Agents know this and thus tailor their presentation to meeting the needs and addressing the fears of each customer.

There has been a lot of talk about “robo-advisors” and how these may largely replace many life/annuity agents. The ones spreading this message are those that have never sold annuities or life insurance, but they believe that all goods are fungible and that selling an annuity over the web is no different from selling a book. The reality is that all goods are not the same, and an agent is not typically selling a good but providing a solution.

A prime example of this is life insurance. Several Silicon Valley savants have attempted to apply the internet marketing book to life insurance and failed; despite 20 years of trying over 90 percent of life insurance is still sold by agents. This is largely due to an agent making a consumer aware of the need for insurance, but it’s also an agent persuading the consumer go through the hassle of underwriting and keeping the purchase together when the policy comes back rated requiring a higher premium.

Annuities are also an area that is difficult to “robo.” Although one life-only immediate annuity is pretty much like another, even here the differences in determining which carrier is most likely to be around for a lifetime and which annuitization choice is optimal often requires the input gained from experience-which is why over 90 percent of life income annuities continue to be purchased through agents. When it comes to other types of annuities, the book is not going to be able to get a sense whether a multi-year guaranteed annuity is a better emotional fit for this consumer than a fixed index annuity, and that an annuity with a guaranteed lifetime benefit provides a better solution than an immediate annuity for that consumer. The book expects all consumers to react as the book says they should react, but the consumer never read the book.

If I was making the rules, every home office employee, regulator and politician would have to spend a year of their life out in the field-living off of commissions-learning the realities of the marketplace. My bet is that, upon their return to their former lives, the book would be largely ignored.

Behavioral Economics is about examining the biases in decision-making that result in less than optimal decisions. When used appropriately, it helps to remove biases so an individual can see more clearly and make a better decision. However, it can also be used inappropriately to mislead. 

When it comes to pricing a two liter bottle of Coca Cola we have a pretty good idea of the cost—it’s going to come in somewhere between 99 cents and $2.50 depending on the store and whether it’s on sale. Okay, what should the price be of a bottle of Beringer Private Reserve Cabernet Sauvignon 2012? Unless you are a connoisseur, you probably don’t have a clue. What do you think a fair price would be if I told you I felt it was comparable in taste to the Dancing Hares Vineyard Napa Valley Red Wine 2013 that typically runs about $160? What if I instead asked what would be a fair price saying it was much better than the Beringer Napa Valley Cabernet Sauvignon 2012 that cost $38? The odds are your price estimate of the Beringer Private Reserve is higher if you were told about the $160 alternative than if you were told about the $38 one (the actual price ranges between $110 and $130).

When determining the value of something that is new to us we often rely on the first value we hear as an anchor to set a price in our mind that we then use to evaluate other choices. In this example, both the high and low priced wines are honest anchors because the prices and my opinions are real. Misleading anchors are those that intentionally distort value. Examples of this would be if I said this Dancing Hares wine cost $700 or I personally felt the two Beringer wines tasted the same, but said the more expensive one tasted much better.

Excellent examples of misleading anchors are found on late night television where the audience is told that the suggested retail price for the electronic gizmo is $79.95, “But we’ll sell it to you not for $79, not for $39, but for $19.95.” Of course, the reality is that the “suggested retail price” in no way reflects the actual market value. Or, the commercial opens with a picture of gold bars saying the price of gold has skyrocketed to over $1300 an ounce, but you can have this gold-plated coin for $12 (even though the actual gold content is worth 65 cents). Gold bars are a misleading anchor.

Fixed index annuities are often new to consumers, so they are looking for an anchor; this is especially true when the index is unfamiliar. One possible anchor would be to use an index that is familiar, but caution is needed. Saying only “The Acme Stock Market Index increased 20 percent last year” gives the impression that this return is also possible for the annuity, although that is seldom the case. A less misleading anchor could mention that although the Acme Index increased 20 percent, that due to the design this fixed index annuity would have credited five percent interest. However, although the return is accurate, it places the fixed index annuity in the same sphere as stock market investments, which also creates a misleading anchor. 

We need an anchor that reflects the fixed annuity character of the fixed index annuity; a good one would be saying something like, “The fixed rate annuity yields two percent next year, while the fixed index annuity could realistically credit somewhere between zero and five percent depending upon how the index performed.” Not only is the anchor honest, but it makes the fixed index annuity more attractive because the value is better—just as mentioning the higher price of the Dancing Hares wine makes the value of the proffered wine more attractive.

Understanding behavioral economics helps us understand the decision-making biases that can result in poor decisions. Knowing that the first words you speak will anchor the expectations of the consumer may help you in determining the best way to begin a presentation.

When asked who has played the role of an insurance agent in television or movies the usual name that pops up is Robert Anderson from Father knows Best, but he wasn’t the only one…

#10 The Truman Show (1998)
Jim Carrey as an insurance agent that doesn’t know his life is a television show. He should have known it was staged when none of his client insurance applications were ever turned down.

#9 Groundhog Day (1993)
Although some people think Bill Murray (playing Phil) and the groundhog were the stars, we all know the Academy Award should have gone to Stephen Tobolowsky for playing Ned, the persistent insurance agent. Which agent can forget this exchange, “Do you have life insurance, Phil? Because if you do, you could always use a little more, right? I mean, who couldn’t? But you wanna know something? I got the feeling you ain’t got any. Am I right or am I right? Or am I right? Am I right?”

#8 Deliverance (1972)
Studies show that the percentage of agents that listed camping and canoeing as favorite hobbies dropped considerably after this movie premiered. It might have had something to do with the porcine experience depicted by insurance agent Bobby (played by Ned Beatty).

#7 Alias Jesse James (1959)
Insurance agents are known as field underwriters; they are in the front lines when determining if an applicant is a good risk. Unfortunately, the agent (played by Bob Hope) forgot to ask if the applicant’s occupation included robbing banks and trains when he approved and issued a binder on a $100,000 policy on Jesse James. Even worse, Jesse intends to have someone else killed and pretend it is him to collect his own death benefit (a “collect your own death benefit” rider will soon be made available on life insurance policies issued in New York).

#6 His Girl Friday (1940)
This romantic comedy has Rosalind Russell choosing between staying with Cary Grant or running off with an insurance agent. You probably don’t need to build a Society of Actuaries probability model to figure out her decision.

#5 Enemy Territory (1987)
Insurance agent Barry (played by Gary Frank) prospects in the wrong neighborhood and finds the local street gang is offended by his sales style. Will he survive until the next day?

#4 Fool Coverage (1952)
Insurance agent Daffy Duck tries to show Porky Pig the hazards of life to convince Porky to buy life insurance by rigging some accidents…but it doesn’t go according to plan.

#3 The Life Insurance (2003)
We’ve all been through this. Insurance agent sells a multi-million policy to a healthy applicant, collects the premium, the agent (played by Kurt Ravn) issues a binder of coverage and drops the paperwork in a mailbox. However, while sharing a celebratory dessert minutes later, the new client chokes to death on a plum. What is the agent to do?

#2 Double Indemnity (1944)
Insurance agent Walter Neff (played by Fred MacMurray) has a tryst with his client’s wife (played by Barbara Stanwyck) who suggests that they knock off the husband and make it look like an accident to collect double on the husband’s life insurance policy. There have been a score of movies with similar themes since, but none better than this. 

#1 Father Knows Best (1954 – 1960)
Robert Young’s character of insurance agent Jim Anderson is portrayed as a well respected member of the community providing a needed service. If only Hollywood would do a sequel.

One of the urban myths that will not die contends that the reason the Social Security Trust Fund is projected to run out of money in about sixteen years is because politicians have been stealing from it and never paid back the money they took. That is 100 percent false. The government borrows money from the Trust Fund from time to time, but as a loan backed by interest bearing U.S. Government Bonds and the loans always get paid back with interest. Imagining this is “stealing” would be like saying that when the bank at which you have a savings account makes a loan, that the bank is stealing your deposit if it is lent out. With both Social Security and the bank there is more money at the end of the day due to the interest earned on the loan. This is clearly shown in the Social Security Report published each year.

However, there is a $27 trillion shortfall in the Social Security trust account. Who took the money? Your parents and grandparents. Those that were born before 1932 were overpaid $29 trillion in benefits. Simply put, Social Security paid out far more in benefits than these workers ever paid in. The biggest winners were those born in 1910—in present value terms, based on what they paid in, they should have received benefits worth $180 billion but received $1.097 trillion; an overpayment of over $900 billion. Many of the “notch babies” (those born between 1917 and 1926) complained for years that they felt they had been underpaid and cheated because they got less than those born earlier, but the reality is this group received over $6 trillion more in benefits than they should have received based on their contributions.

Due to changes in Social Security in the 1980s, those born after 1931 have paid down $2 trillion of the original $29 trillion shortage—with baby boomers paying in the most—leaving the current deficit of $27 trillion. But it isn’t enough. If nothing is done, benefits will need to be cut permanently by 20 percent in 16 years (the $1500 monthly check you were collecting goes to $1200). 

There are a couple ways to maintain current benefit levels. The most obvious is to increase the Social Security tax on workers by around 1.5 percent (no income cap on contributions) to 1.75 percent (keep income cap on contributions) on each of  the employer and employee sides. The other alternative is to keep FICA where it is, but add a two percent surtax on the income tax rates. Neither of these solutions do much to reduce the $27 trillion hole; they simply keep benefits from being cut.

How did it come to this? Voters tend to kick people out of office when they hear the words “tax increase” so the Social Security “can” kept getting kicked down the road.  However, the reality is America is at the point where it either increases Social Security taxes today or jeopardizes the retirement of millions of Americans—beginning in less than 20 years. 

Reference:
http://crr.bc.edu/working-papers/how-to-pay-for-social-securitys-missing-trust-fund/

You have to be a little out of touch with reality to be good in sales. In my early years when I was “smilin n dialin” you had to convince yourself that the next phone number you called would become a client and not be like the preceding fifty calls that said no (or said worse). Successful cold calling commands ignoring the reality of rejection and seeing each fresh dial as a potential sale.

It also helps if you can block all the outside noise from getting into your head…the buzz that your competitor is coming out with a better product…the carrier envelope in your inbox that might contain a letter saying your prospect failed underwriting and his life insurance app was rejected…or news stories that some proposed new rule or law would make it much harder to do your job. Blocking out news that you don’t want to hear is called Information Avoidance (also known as Information Aversion). The reason we do it is that listening to facts that contradict what we want to believe is stressful because it can cause us to be disappointed. Since blocking causes us to be less informed it often results in less than optimal decisions, but blocking is not always bad.

Ignoring news that will not affect actions done today can be good. A perfect example was in 2016 with all of that media attention given to the Department of Labor’s Fiduciary Rule proposed revision. If you were a carrier or marketing organization there was a reason to pay attention, because there were steps that could be taken right then to start preparing for any outcome. However, if you were an agent there was nothing you needed to do at that stage (except maybe write your Congressman). As an agent, you were far better off ignoring all of the outside noise and concentrating on selling and serving clients.  There’s even research that says this type of information avoidance is beneficial.

A revised study released last fall found that “information avoiders outperform information receivers.” The lack of information caused the avoiders to work harder and be more productive because the receivers rationalized why they shouldn’t work as hard using the information they got. [http://hdl.handle.net/10419/171368]. Avoiding noise helps agents do their job.

My first sales manager said the reason why great salespeople were exceptional is that most people only have to make one decision each day and that’s whether to go to work or not—after that they spend the rest of the day reacting to whatever stimuli they encounter. By contrast, salespeople are proactive—not reactive—and they create the stimulus. Salespeople make the decision to “go to work” multiple times each day and this is easier to do when one avoids distractions.

It should be easier to avoid media distractions in 2018. The more onerous parts of the DOL fiduciary revision are on hold, there shouldn’t be any new tax reform bills, and most economists say the economy will continue to motor along. However, it is often not the big news that distracts us but rather the small. To be more productive this year, perhaps during the day we can all listen to music instead of talk radio, stay off the internet unless it’s for business, check emails at only 8 am, noon and 4 pm, and read the morning paper during supper. This information avoidance may mean missing a bit of the daily buzz, but it should make hours worked far more productive. 

The sooner you start thinking about your retirement, the better. Whether you learn how to buy palantir stock and invest for the future, or just put it into a retirement fund, it’s important you do something. Last year my wife and I each bought a fixed index annuity with a guaranteed lifetime benefit. The main reason why is we can begin withdrawing a stable annual income from the annuities when we hit retirement in a few years and the income will not go down and will last as long as either of us lives. There is a cost for this guarantee, the annuity company charges one percent per year.

We got our annuity statements last month and it showed the interest earned. Then it showed a deduction of $1,050 subtracted from the interest earned and the net amount credited to each policy. Now, I know what that $1,050 is; it is the one percent fee the insurance company charges to guarantee they will keep paying the stable annual income even if cash in the annuity account goes to zero because of the money taken out. Intellectually I get it, but it’s one thing to look at a brochure and talk about one percent fees and five percent income and such and another to see the cold hard cash taken away. Of course we’re keeping the annuities because I understand the purpose of the fee-it’s the insurance cost to protect our lifetime income-but this got me thinking that retirement reality is a whole lot different than retirement imagining.

It’s one thing to read that “a typical couple needs 80 percent of their pre-retirement income to maintain their standard of living in retirement.” It’s a whole nother thing to get out the checkbook and credit card receipts and see what you’re spending your money on today, figure out what you’ll need to spend in retirement, and then try to figure out exactly from where the money will come. Sitting down and creating this budget makes you face retirement reality.

Creating a budget also focused my attention on looking at what happens to the Social Security checks when I die. If I die first my wife loses the lower of the two benefits-and I don’t want her to be financially squeezed. My less than exact solution was to buy a 20 year term life insurance policy on myself. The death proceeds should be enough for my widow to buy a life income annuity that will replace the missing Social Security income (if I die within the next 20 years). This isn’t a topic I’ve seen much written on, it simply occurred to me when I was looking at our Social Security Statements as part of my retirement reality check and asking, “What if?”

A retirement reality I faced that helped me decide to buy the annuities a year ago was knowing that stock markets go down. People all around the world, from the US to Japan to Germany, are told is the grand retirement plan is to buy stocks or (Aktien kaufen) and bonds while we’re working and then sell a certain percentage each year to create income in retirement. People can invest easily by using the best investment app for stocks, and therefore this makes it easier and more efficient for people to invest. We’re supposed to take the same percentage of income out each year, but I knew I’d try very hard to not sell my investments when the market was tumbling. We bought the annuities so we’d have a steady income, regardless of what the market does, and hopefully wouldn’t have to sell investments when the market was down. All of those pretty retirement planning worksheets are just so much paper if you know in your heart that you can’t follow the plan.

In the midst of all this frugalness, my wife and I have taken a larger than originally planned chunk out of our investment mountain and placed it in a money market account. The plan is to use the money to take a river cruise through Europe the first year we retire and an extended Alaskan cruise the next. Another dose of reality is you don’t live forever; we’ve decided to enjoy retirement and let at least a part of tomorrow take care of itself.

Let’s say you followed traditional Wall Street retirement advice, had your $400,000 invested 60/40 in equities and bonds, and were withdrawing $16,000 a year as your inflation-adjusted four percent withdrawal strategy directed. It’s now the spring of 2009. Your portfolio is worth $260,000 and still falling. Did you take out $16,000? Did you rebalance and move $25,000 from the bonds into the equity side? The evidence says no.

The nearly retired were also affected. If you were 61 years old in 2009, did you rebalance and move a chunk of your remaining funds to equities? Indeed, did you keep the $105,000—that used to be $240,000—in equities, or did you sell out and put the money in cash? The evidence says you did the latter.

All of the Wall Street plans require consumers to make each decision to “maximize the marginal utility of the available choices” as required by classic economics, but in real life behavioral economics are how decisions are made. When the economy is going well, behavioral and classical economics often result in the same decision. 

Whether the individual’s decision to invest and stay in the stock market over the last few years was due to rational financial analysis or regret aversion where he or she was afraid they’d miss out on gains, the result was the person stayed in the market and benefited. Poor decisions resulting from behavioral biases are more likely when fear and anxiety are ascending, which more often happens when the market is crashing and the future looks bleak.   

If cognitive biases (behavioral economics) are controlling decision making, using different biases can often result in a more positive action. Reframing the crash of 2009 by showing a 100 year history of the stock market can help the person realize that his or her fortune will recover. You might also prevent a person from selling out at the market bottom by buying puts and countering the behavioral pressures of loss aversion. These measures might keep a person from selling out at the bottom, but they are unlikely to persuade a retiree to take out the full $16,000 because there are limits to our influence.

The use of benevolent paternalism—cleverly rebranded as nudging—relies on certain biases to get people to do what others want them to do. Nudging relies most heavily on inertia and our reluctance to take action. Its most talked about use in the financial world is automatically having new employees contribute four percent to the company’s 401(k) plan, unless the employee takes several steps to undo the desired behavior. The nudgers claim success because this has increased 401(k) plan participation, where tried, by a small amount, and has resulted in broader efforts to use nudging to influence other decisions. However, nudging will not get people to do something they don’t want to do.

Many studies have looked at cases where people with a history of making bad financial decisions were given instruction on making better ones and even making certain practices automatic—things like deducting direct payments to utility companies and creditors before the person’s paycheck hit their hands—but when the course ended, almost all of the these individuals undid the automatic payments and once again had their lights turned off and were dunned by creditors. Nudging those that do not want to learn to take classes does not result in better financial decisions.   

Classical economic theory says we will ignore market fluctuations when making annual $16,000 asset withdrawals in retirement and, if money gets tight, pay the light bill before we pay the cable TV bill—but our decisions are often not rational. Behavioral economics explains why we make less than optimal decisions, and often offers behavioral tricks that can offset the bad behavior. However, ultimately, people will do what they want to do, even after being nudged.

Owning a Patek Philippe Calatrava watch, or Rolls Royce, or being listed as a patron of the local art museum is never necessary consumption.  Your cell phone will give you the time, a Chevy will get you where you need to go, and being a museum member gets you in the door. However, each of these higher levels represents an aspirational goal that some people feel means they have achieved social prestige and material success. Aspirational goals tend not to be price sensitive. Indeed, the higher the price the greater the exclusivity.   Annuities and life insurance can also become aspirational goals, but the appeal needs to be targeted in different ways. The driving force behind aspirational goals is when the goal is realized it creates a special feeling of exclusivity that is acknowledged and rewarded, but the meaning of exclusivity differs among the wealthy.

The old money Patricians know they have money, so they don’t feel a need to conspicuously display their wealth. But they do like cultural or social rewards. For this group, having charities and cultural organizations show how life insurance and life insurance trusts can enable them to give more efficiently—and publicly acknowledging their generosity—is a proven way to sell life insurance. The marketing approach to the Patricians is to and through the organizations.

Those that are new money—the Arriviste—need to feel that they have arrived and this can be handled by making the Arriviste feel exclusive. Both life insurance and annuities come into play here with the marketing pitch that the difference between them and the Patricians is that the Patricians think in generational terms of providing for descendants; both life insurance and annuities can be used to turn the Arriviste into a dynasty. These customers are not treated like regular customers, but have their own private phone and web access to the insurance and annuity area. The company may make available special webinars and research appropriate to their financial stage in life. And depending on how high the minimum premium bar is set, there may be enough funds to provide access to legal, accounting, and estate and charitable planning services at a lower cost through affiliates. 

Strivers are those that are more successful than most, but do not have the assets to become big money. An attractive aspirational goal is offering them something that only 13 percent of private sector employees have: A private retirement pension. Survey after survey says the majority of near-retirees want at least a portion of their non-Social Security retirement income to be stable and dependable—that it won’t go down or go away. The annuity word is not generally well received by consumers, due to a lousy job of defending the name by the industry, but pensions are perceived as something that is a) desired, and b) not generally available. The aspirational marketing message is that 87 percent of your (private sector) neighbors did not retire with the security of a pension, but you were successful and wise enough to have one.

For the Strivers, agents and advisors can market a degree of prestige and exclusivity by offering clients with sufficient assets and insurance through them certain perks that make the client’s life simpler. Offering house calls may be viewed as a perk, as well as having special speaker seminars on interesting topics that are by invitation only. A perk could even be providing transportation to and from the event. Since people differ, the agent will need to find out what his clients consider to be worthwhile perks.

Aspirational goals are those that a person feels convey prestige and success. Marketing annuities and life insurance as aspirational goals will result in larger sales and open new markets.

An insurance company contracts with an agent to sell their policies. The agent is successful and over time has a long list of customers that have purchased the carrier’s policies. Who owns that list of customers–the carrier or the agent? The historic answer is the customer list belongs to the party that brings the most effort to obtaining and keeping the customer. 

A couple decades ago I owned a broker/dealer that put registered representatives in bank lobbies. We did nothing to obtain that customer and made no claim, so the owner of the customer list was usually the bank since almost all of the investment business resulted from referrals from bank employees. Occasionally we brought in a broker with an existing book of business (customer list), and in these instances a contract was drawn up saying the broker retained those clients but any new ones were the bank’s.

In the insurance world the question was usually decided by whether the agent was independent, or captive whereby they received branding and other support from the carrier. Independent agents were usually treated as owners of the customer lists, even when the agent made little effort to keep the customer. I experienced this first hand from several annuity carriers when proposing the carrier undertake direct to policyowner marketing campaigns that bypassed the agent. The consistent answer was that the carrier would not do anything that didn’t include the agent. However, the securities world is less consistent.

Every few months there will be a story of a registered representative or advisor leaving a firm for another and the old firm suing to keep the customer list. The advisory firm or B/D’s argument is they say they made the most effort to obtain and keep the customer. My personal feeling is unless the old firm generated the leads, such as the bank setup, or is one of a few firms that is so well known that it carries its own cachet in attracting customers, that the rep/advisor/agent owns the customer—but my feelings don’t carry any weight. The reality is, as time passes, it will be more likely that the firm will claim and be awarded ownership of the customer list.

A reason is more agents in the life and annuity area are also registering as reps with broker/dealers. In the past agents could keep their fixed life/annuity business separate and distinct as long they let the B/D know they were doing it, and the notification of the Outside Business Activities of Registered Persons was as simple as writing a sentence on letterhead saying “I also sell fixed annuities and life insurance.”  In recent years, due to shall we call it “suggestions” from FINRA, broker/dealers have generally ramped up their supervision and the degree to which they’ll permit and monitor outside activities. If the B/D has the list of life and annuity customers, they are more likely to say they are expending the most effort to get and keep the customer. If the financial institution aspect of the Department of Labor fiduciary rule revision goes fully into effect, the financial institution taking responsibility for the annuity sale will be able to exert an even greater claim that the customer is theirs.

Who owns the customer list is an old topic in the securities world, but may not even be thought of by the agent hooking up with a B/D or advisory firm. To avoid misunderstandings down the road, any agreement should clearly state who owns the list of insurance and annuity customers.