A number of great articles that have implications for retirement planning came out this week.
The first was pretty much a mind expander. Its a post from Seth Godin’s excellent blog about business. In the post he shows a letter drafted in 1919 from the publisher of a magazine called the Red Cross, to the founder of Readers Digest. Basically the publisher of Red Cross said he thought the idea and concept of Readers Digest stunk. How many of you have heard of Red Cross magazine? How about Readers Digest?
In the post Mr. Godin makes the great point that people with a vested interest in the status quot don’t like new ideas.
Now lets jump to a survey commissioned by Allianz Life. In the survey, when Allianz talked to people about annuities, 54% had a negative reaction. However when people were told about the benefits of a financial product, over 80 percent liked the product described, an annuity. (Allianz obviously is not a disinterested third party as they are massive in the annuity market).
Why do you think people have such a negative aversion to annuities? Probably lack of knowledge as well as knowing that in the past they have heard bad things about annuities. Thus even though the need breed of annuities can protect against losses and give guaranteed returns, people who love those concepts still get turned off by annuities.
Another key to the bad reception annuities get is another group with a vested interest in the status quo might be harmed by a shift to annuities. Registered investment advisors.
The Oblivious Investors blog has a post about how Registered Investment Advisors can be biased when talking to people about their portfolios. If the investment advisor is paid a fee based upon assets under management do you think they are going to make any suggestions that is going to give them a pay cut? The blog gives the example of where a single premium immediate annuity is clearly in the best interests of the client, and yet by suggesting the SPIA, the investment advisor is going to lose a lot of income. Do you think the investment advisor is going to make the suggestion? Or is the status quo going to win?