U.S. Senator Elizabeth Warren (D-Massachusetts) released a new report that is sure to cause controversy in the retirement advice industry, finding as it does that annuity providers use “expensive vacations to European castles and villas, beach getaways, free iPads, golf outings, expensive jewelry and more” to incentivize advisers to put their own interest ahead of clients.
Warren, who has been a vocal supporter of President Obama’s retirement-minded policies, says her new report highlights the need for a strong federal conflict of interest rule to protect retirees, such as the ongoing rulemaking effort at the Department of Labor.
The report examines “15 leading annuities providers” who supplied answers to letters sent by Senator Warren earlier this year. Warren says the results clearly highlight the ways that annuity companies can incentivize agents to put their own interests ahead of their clients.
“Overall, 13 of the 15 companies investigated admitted to offering kickbacks either directly to agents, indirectly through third-party gift payments, or both,” Warren says, adding she will continue to use her power as a U.S. Senator to oppose the status quo of high finance. “Two of the 15 leading annuities providers indicated that they refuse to provide non-cash direct or indirect kickbacks, suggesting it is straightforward, though uncommon, to build a successful advising business without offering such inducements.”
Warren says companies “shouldn’t be allowed to offer expensive vacations, prizes and other kickbacks to agents in exchange for selling costly, second-rate investment products to unsuspecting customers.”
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Other findings of the report suggest annuity companies also create conflicts of interest and evade some existing restrictions “by offering perks and inducements to annuity sales agents through third-party marketing organizations.” She adds that “current disclosure rules are inadequate to ensure that customers are informed about the incentives agents receive for selling them specific financial products.”
“Because of loopholes in the law, it is perfectly legal for some advisers to steer customers into complex financial products that will earn the highest rewards, perks and prizes for the advisers—even if they are bad options for their customers,” Warren says.
For its part, the annuity industry was quick to fire back and challenge Senator Warren’s assertions. In a statement shared with PLANSPONSOR, the American Council of Life Insurers (ACLI) reminds investors that annuities are a highly diverse product set and “are the only financial products in the marketplace that guarantee lifetime income.”
Carl Wilkerson, ACLI vice president and chief counsel for securities and litigation, says ACLI and its member firms are “disappointed with the report issued today by Sen. Elizabeth Warren because it may raise inappropriate and unnecessary worries among retirees and workers considering retirement about an insurance product that that can provide financial security and peace of mind. Americans need continued, viable access to guaranteed lifetime income. Life insurers paid out $74 billion in annuity benefit payments in 2014.”
Wilkerson, unsurprisingly, says the senator’s report “misrepresents the comprehensive regulatory framework that governs conduct in the sale of insurance products and protects consumers’ interests.” Life insurers comply with laws that regulate permitted non-cash compensation practices and support their full enforcement, he adds.
“Life insurers remain fully committed to providing Americans the products and services they need to meet their financial and retirement security needs.”
A PDF copy of Senator Warren's report is available here.