Are New Annuity Fiduciary Guidelines Necessary to Protect Consumers?

In a recent article for, entitled “Annuities Face A ‘Fiduciary Threat’ As They Enter A Golden Age,“(1) author Cyril Tuohy said that retirees are looking for guaranteed* income and Millennials and Generation X have shown increasing interest in annuity products as well. According to annuity expert Jack Marrion, this could be a golden age for annuity products. Marrion is the CEO of Advantage Compendium, a consulting firm, and he spoke about the innovation of annuities in the webcast “Annuities Then and Now: We’ve Come a Long Way.”(2) Despite this positive annuity momentum, he believes there are several factors and “seemingly unrelated variables” facing the annuity industry, and one of these is a fiduciary threat.

This new fiduciary threat that Marrion believes faces the annuity industry comes from The Department of Labor (DOL) and the Securities and Exchange Commission (SEC). The DOL doesn’t think that current suitability requirements are doing enough to adequately protect consumers. In April, Senator Elizabeth Warren, of Massachusetts, sent letters to 15 large annuity carriers questioning incentives and rewards that are given to those who sell annuity products. She believes that U.S. workers’ retirements could be at risk if annuity agents aren’t putting the best interest of the consumer in front of their own potential rewards for selling certain annuity products. The DOL issued new fiduciary rules that govern retirement income advice. The SEC has been considering whether they can introduce rules detailing the fiduciary responsibility of advisors toward their clients. Apparent political and ideological differences among the five SEC Commissioners has stalled such a proposal for the time being, however.(3)

No one disagrees with the fact that advisors should put the best interest of their clients over any rewards or incentives. However, Cyril Tuohy’s article points out that trade organizations think that these added rules might actually have the opposite effect of their intention.(1) Furthermore, they might not be necessary because the financial and insurance industries and government already have many suitability guidelines in place on the federal, state, and company level. Added guidelines could limit the choices being offered to consumers and raise the cost to companies of doing business, which in turn could raise consumer costs. Marrion points out that the National Association of Insurance Commissioners received 508 annuity complaints in 2014 for the $90 billion in annuity sales. This equals out to one complaint for every $1.1 million in annuity sales. That means that 99.99991% of people who bought an annuity did not complain about their product.(2)

It is important that there is a suitability standard when it comes to selling annuity products. Marrion said that currently, annuity complaints are low, satisfaction rates are high, surrender periods and commission structures are lower than they were 10 years.2 However, despite all of this, the DOL proposed rules are designed to provide consumers greater protection when it comes to annuity sales practices. It’s a valid concern and conversation that should continue in order to ensure that consumers are well-protected.

Marrion concludes that despite this concern as well as others, the annuity industry has remained resilient and developed competitive products to help meet the retirement needs of millions of clients.(2)

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*Guarantees of annuities rely on the financial strength and claims-paying ability of the insurance company that issues them. Lifetime payouts may be a benefit of the base annuity contract, or may be offered through the additional purchase of a lifetime benefit rider.

1 Tuohy, Cyril. “Annuities Face A ‘Fiduciary Threat’ As They Enter A Golden Age.” Insurance News Net, June 17, 2015.

2 Marrion, Jack. “Annuities Then and Now: We’ve Come a Long Way!” Webcast sponsored by National Association of Fixed Annuities (NAFA), June 4, 2015. Subscription required.

3 Postal, Arthur. “SEC’s Division Delays Its Fiduciary Standard Rule.” INN News Alert, June 16, 2015.

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