Evolution of Variable Annuities Doesn’t Mean Improvement
This is not your father’s Oldsmobile.
That slogan was created to modernize the public perception of the Oldsmobile brand. Old fashioned, big, solid, and out of date, that was the image the marketers tried in vain to update. A faster, sleeker model, anything to appeal to the younger car buyer, but in the end, it was just another dead brand, gone from our marketplace forever.
For many years, The Hartford, Prudential, MetLife, and John Hancock Insurance companies dictated how the variable annuity industry should and would work. These giant suppliers for security-based annuities (variable annuities) provided innovation and creativity with the products they offered to the American consumer. Don’t get me wrong, I am not nor ever have I been a fan of variable annuities, but they do sell, and there are many owners of these products across America.
Once the financial marketplace began its shift in 2008, promises and contractual guarantees offered by variable annuities became a vast and monstrous potential liability for the industry. The liability was a derivative, meaning a future promise paid for by consumers but expensive for the insurance companies to keep. Variable annuity companies jumped into action with all sorts of schemes such as buying back their promises for cash, offering benefits that would lessen the future liability, and in the case of The Hartford, leaving the business altogether after 60 years of providing contractual guarantees.
Now the newest evolution of the variable annuity appears in the form of an original marketing wrapper called “investment focused” variable annuities or “investment only” variable annuities. In an article in InvestmentNews, the new shift in variable annuities reported that variable annuity sales were down some more than 50% which has caused the industry to create new wrappers, wrappers that can lessen their future liability while at the same time make more money for the securities industry. In other words, they are trying to re-sell Oldsmobiles.
InvestmentNews hit it on the head when they reported that the industry is at a crossroads; the new family of products has to offer a reason to buy them while at the same time charging a fee bordering on usury to control future liability. Will the consumer buy? That is anyone’s guess. My guess is yes; they will; they will buy because of all the bells and whistles, much as Oldsmobile tried all those years ago. When the Oldsmobile advertising kicked into gear, sales vastly improved, but after a while, the consumer began to realize it was still the same old stupid car.
You can dress up variable annuities, but people will walk away when the fees make the product unusable.
So should sadness come over the securities industry? Should we feel sorry for them? Pity them? No, I feel sorry for them; the one thing they are very good at is reinventing themselves and making an old tired product look appealing again.
Remember, you can put lipstick on a pig, but it is still a pig.