Do you know what incentives lurk behind the products our nation's educators are sold in their retirement programs?
It doesn't take much time searching the internet to find some of these incentives. I receive e-mails everyday detailing where I can go if I sell enough of XYZ product.
One major conflict of selling most fixed annuities is insurance agents may be incentivized to sell products of a single company (or several products from a single Insurance Marketing Organization) in order to qualify for special perks.
These perks might be exotic trips, cash or even Apple products.
There is no law against offering special perks and insurance companies are within their right to offer agents big incentives to sell their products. However, it's my opinion that this is a major conflict of interest that should be disclosed and potentially even banned.
Fully paid for vacations to exotic locales could certainly persuade an agent to sell one annuity product or another or to sell an annuity when another financial product would be more appropriate. Educators should be aware of the incentives behind products sold to them. In a perfect world there would be no incentives, only the best interest of the client and a fully disclosed compensation scheme separate from the recommendation.
Qualifying for exotic trips is one of the biggest lures for getting insurance agents to sell the products of an insurance company or from an Insurance Marketing Organization (or IMO, an entity that essentially wholesales annuity products). Sell enough of a certain product or of a collection of products and the agent may end up with a trip to any number of locations.
Many companies offer trips and other perks as incentives to sell their products.
What follows are the destinations for this year and the last few years for those who qualified for one big name insurance company:
2014 Hayman, Great Barrier Reef; Sydney, Australia
2013 Big Apple Bonus - New York City
2013 The Ritz-Carlton, Key Biscayne Florida
2012 Fairmont Orchid Resort, Kohala Coast, Big Island of Hawaii
2011 Riviera Maya, Mexico
2010 Florence, Italy
Another insurance company has a “Leaders’ Club,” which awards a Mediterranean cruise for those who produce enough annuity premium. The cruise is on the Crystal Serenity Ship and cruises to Italy, Greece and Turkey from April 20th to May 7th, 2014!
This company also had a qualifying trip for 2013 to the Four Seasons in Lanai, Hawaii, not bad.
I’ve attached various documents I’ve found from Insurance Marketing Organizations below. It's a cornucopia of great vacation locales:
Ritz Carlton in Hawaii
The list never ends.
Here's a link from an e-mail I just received, check out the headlines:
Silverado Resort and Spa in Napa ValleyExplore all that the Napa Valley has to offer in your limousine wine tasting excursion. Later, you can unwind with a soothing fireside massage or full service spa.
Pebble Beach LodgeEnjoy this world-renowned resort, while indulging in two rounds of golf at the infamous Pebble Beach courses.
All of these trips are achieved by selling annuities to our nation’s educators. I think it's reasonable to ask if this is appropriate. The issue has certainly been addressed before in the financial services industry.
Back in 2003 the National Association of Securities Dealers (NASD), now the Financial Industry Regulatory Authority (FINRA) fined Morgan Stanley $2 million dollars for conducting sales contest that “offered or awarded various forms of non-cash compensation to the winners, including tickets to Britney Spears and Rolling Stones concerts, tickets to the NBA finals, tuition for a high-performance automobile racing school, and trips to resorts.”
That was over a decade ago, yet a similar practice in the fixed annuity industry is not only allowed, but seemingly encouraged (Morgan Stanley never admitted or denied the charges). Why is this okay?
Why are our nation’s educators retirement savings being invested by such conflicted sales agents? In my opinion, this is not acceptable. The industry answer is a disclosure document that is light on disclosure, does not disclose incentives behind the sale and misses the point entirely. An industry spokesperson from ASPPA/NTSAA was recently quoted:
“We maintain that improving transparency is a far better approach to improving the 403(b) marketplace, than taking away public school employees retirement choices.”
How convenient. Parade around a confusing disclosure document that doesn’t actually disclose pertinent items like exotic trips and whether or not the agent is acting as a fiduciary rather than addressing the actual problem. Having said that, I think that insurance companies, insurance agents and insurance marketing organizations should be transparent about what incentives are behind the sales of their products.
Since fixed annuities are insurance products, they are regulated at the state level - they are not securities and thus out of the purview of the SEC or FINRA. Perhaps the Consumer Financial Protection Bureau should get involved. For what it’s worth, I’m calling on the fixed annuity industry to make changes to the sales incentives they offer.
I call on all insurance companies that offer products to our nation’s educators to do the following immediately:
Stop offering additional incentives for the sale of your products
Stop offering your products through IMO’s who offer such incentives
Set commissions on a level basis and disclose them fully
Don't allow agents who sell your products to represent themselves as advisors
Insurance agents, you are not innocent in this - I call on you to do the following:
If possible, stop doing business with companies who offer exotic trips in exchange for recommending their annuities.
If offered a special incentive, kindly decline
Disclose to clients the existence of such incentives
Make your voice known on this topic
I’m willing to bet my e-mail inbox will be silent.
I want to make clear that not all insurance agents are evil, greedy, commission and perk hungry. I've met many qualified agents whom I respect and even refer my clients to when appropriate. A good insurance agent can be very valuable (though less so in the fixed arena). But if you are in education and the person selling you something is licensed to only sell you that product, you might look elsewhere. As the saying goes, when all you have is a hammer, everything looks like a nail.
I’ve listed links to a bunch of the documents I found on the internet referring to special trips. The links are likely to be dead soon (if they aren’t already)...so, I’ve pdf’d the documents and made them all available to you using my own host. All the documents were obtained on the open internet - no passwords, no firewalls, the information was freely available to anyone.
Scott Dauenhauer CFP, MSFP, AIF
The Teacher's Advocate
Chairman’s Club 2014
Conference of Champions
AVIVA Leaders by Scott Dauenhauer