When Is an Annuity Not an Annuity? When It’s Lifetime Income

by on Nov 18, 2019

Piggy BankHow do firms sell annuities when annuity is a dirty word? They look to the Chilean Seabass.

Deservedly or undeservedly, annuities come with a reputation for being bad, complex investments. Prospects researching annuities online will quickly read—on the first page of Google—that annuities are bad long-term investments or a bad idea for almost everyone. Annuities are something to consider only once they’ve maxed out their 401(k) and their IRA, and even then, annuities “have some significant drawbacks” including “high fees” that can be “complex and unclear.” U.S. News & World Report declares annuities “the most commonly misunderstood and misused financial products” and that “consumers are often pushed into ill-fitting products because that’s what the broker is selling that month.” The Balance notes that “many people selling annuities mean well, but they may not have a thorough understanding of the products they are selling.” Some advocacy groups even suggest prospects run screaming should a financial professional mention annuities: Consumer Reports, in a guide to investing companies, cautions its readers that if “an adviser recommends an annuity after just meeting you—before doing an extensive analysis of your finances—find someone else.”

The annuity industry is working to counter this sentiment it very much helped create. These changes are not just cosmetic: sales of simple fixed annuities now outpace those of complicated variable annuities, and insurtech startups now offer simple, direct-to-consumer annuities.

But traditional annuity firms are also turning to a new weapon in the war of public opinion: euphemisms.

The Alliance for Lifetime Income, an industry group founded by 24 established annuity firms and the sole sponsor of the latest Rolling Stones tour, represents the largest industrywide push to reposition annuities. The group’s modern website, Retire Your Risk microsite and ad campaign—which, besides the Rolling Stones tour, also included airtime during the World Series and Florida morning shows, hitting the boomer trifecta—present annuities as “protected monthly income” lasting a lifetime. Since the Alliance’s founding last year, Corporate Insight’s Annuity Monitor research service has noted adoption of the Alliance’s euphemisms across firms’ public, account owner and advisor sites. Firms now use terms such as lifetime income, guaranteed income and retirement income in lieu of annuity.

The Alliance for Lifetime Income Retire Your Risk Microsite Rolling Stones Tour Sponsorship SectionThe Alliance for Lifetime Income Retire Your Risk Microsite Rolling Stones Tour Sponsorship Section

The navigation menu on New York Life’s revamped public site offers links to a Retirement Income section, with further pages on Income Now or Income Later, that outlines the firm’s immediate and deferred income annuity offerings. Lincoln’s product overview page highlights the “value of protected lifetime income.” Even TIAA—a firm whose full name includes the word “annuity”—avoids the term in a new ad campaign that positions annuities as lifetime retirement income or a “personal pension.”

TIAA Never Run Out Campaign PageTIAA Never Run Out Campaign Page

Insurtech annuity startups also acknowledge the stink around annuities. Blueprint Income, a startup that positions annuity products as a “personal pension,” notes on its homepage banner that its marketplace only offers annuities that are “good” and “simple”—implying that many annuities are neither. ALEX.fyi—an annuity insurtech startup founded by a guy whose name is not Alex—refers to annuities as guaranteed lifetime income on its public site. ALEX.fyi also notes that many brokers, while “good people,” may not have incentives that line up with a prospect’s best interest.

Blueprint Income Homepage BannerBlueprint Income Homepage Banner

Other firms are trying a different approach, choosing to highlight the guaranteed interest rates on fixed annuities in a low-interest environment. Gainbridge, a firm promising online annuities in minutes, advertised on Metro-North trains over the summer. Although Gainbridge positions annuities as an investment—rather than a hedge against retirement income insecurity—the campaign still acknowledges annuities’ shady history, noting that this is not “your grandfather’s annuity.”

Gainbridge Metro-North AdGainbridge Metro-North Ad

Firms clearly recognize the need to rebrand annuities. This is where Chilean Seabass come in. The modern seafood staple was once a little-eaten fish known as the Patagonian Toothfish—yum, teeth—until an American fisherman rebranded it in 1977. The success of Chilean Seabass sellers is not solely due to marketing magic. The former toothfish had a real use to restaurants and chefs, being inexpensive, difficult to overcook and not too fishy tasting. Patagonian Toothfish had a culinary role. All the fish needed was a new name—not too different from what annuity firms are currently attempting.

The question for firms and consumers is whether “lifetime income” is a marketing term for a useful product, or just snake oil with a new label.

CI leans toward the former: annuities, when appropriate, can play an important role for consumers. There is a reason the concept of annuities has endured for thousands of years. The Brookings Institute notes that annuities can help retirees insure against longevity, also finding that annuities are more appealing when positioned as insurance products rather than investments. Lifetime income, guaranteed income for retirement and similar euphemisms can help firms reposition annuities as insurance products.

Still, annuity firms should be mindful when using these new marketing terms. Complex products, unclear language and bad actors got the industry to the point where it actively avoids the name of the product it sells. The industry should learn from these mistakes. Firms that overstate the uses of annuities—by suggesting them as college saving tools, for example—risk losing the trust of the public. Firms should also be clear that they are indeed selling annuities. Simple products, marketed with clear language, can help the industry regain trust and highlight the benefits of these products, whatever the name.