Obama to Promote Annuities and Other Forms of Guaranteed Life Income

The Department of Labor and the Department of the Treasury (the “Agencies”) are soliciting comments whether the agencies could or should enhance the use of lifetime income or other arrangements designed to provide a stream of income after retirement.

One of the questions is related to reverse mortgages:

What are the advantages and disadvantages of approaches that combine annuities with other products (reverse mortgages, long term care insurance), and how prevalent are these combined products in the marketplace?

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Why the sudden interest in how the government can enhance the use of lifetime income arrangements?

The New York times recently reported that the Obama Administration is promoting annuities as a tool to give Americans a better shot at a more secure retirement.

A report from the administration’s Middle Class Task Force states it’s looking to promote “annuities and other forms of guaranteed lifetime income.”  According to the Times, the statement suggests the administration is open to other solution that delivers a regular check for life. 

At the moment its not clear how the administration plans to promote these types of products. Carmen Effron of C.F. Effron Co. LLC in Weston, Conneticut told Financial Planning that at the very least, she said she expects they will create educational material to inform individuals about the differences between fixed and variable annuities.

“The reality is, it would really surprise me if the government pinpointed particular companies to buy from,” she said. “But, they might—like they did with HSAs— put together a ‘preferred’ group of insurance companies that meet their standards.”

With the administration’s decision to make other forms of guaranteed lifetime income a bigger priority there has to be a way for a reverse mortgage to play a role in the initiative.

The Unloved Annuity Gets a Hug From Obama

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  • >>she said she expects they will create educational material to inform individuals about the differences between fixed and variable annuities.

    I hope they also create educational material to inform individuals about the differences between Immediate and Deferred annuities. I feel it's important for them to know a fixed or indexed SPIA can be compatible with a Reverse Mortgage, but in most cases the deferred program is not. All the bad press has been due to the deferred annuity programs, regardless of whether it's fixed, indexed or variable.

    • dduck12,

      A portion of each IA payment is excluded as it is now. Are you saying that the proposal is to exclude a portion that is includible?

      What type of tenure payments are you referring to? No HECM tenure payments are subject to tax.

      Thanks.

      • No HECM tenure payments are subject to tax.”

        Of course you are correct. My mind wandered, not enough coffee.

  • folks with little to no investment cashflow don't have that many options other than selling (in a depressed market), looking at the RM or sitting on their hands

  • So the President is trying to help seniors with their retirement but HUD continues to make it more difficult for seniors to qualify for a reverse mortgage.

    Does this sound nuts to anyone but me?

  • I agree with Reversemaniac. Seniors just don't remember the details, and can even be unintentionally led astray. One bank officer told me last week that he had a client withdraw her entire line of credit from her RM to buy an annuity.
    When I reminded him about the tenure option, he said he wasn't aware of it.
    <Ahref=”http://www.fhareversemortgagesofsouthflorida.com>reversemortgagessouthfloridaFHAhud

  • “One bank officer told me last week that he had a client withdraw her entire line of credit from her RM to buy an annuity. When I reminded him about the tenure option, he said he wasn't aware of it.”

    Once again, evidence that those who by long-standing tradition are in positions of advising seniors – bankers, accountants, financial planners, estate planning & elder law attorneys – do not understand our product. It has to be up to NRMLA to mount an education campaign aimed at THESE folks through their professional pubs, conventions and CE courses to remedy this…or we'll continue to swim upstream against a strong current.

  • HOPEFULLY, President Obama's statement indicates a high-level willingness to spur congress and federal agencies to re-think the regulatory measures of the past few years that have tended to punish both multi-disciplinary advisors and single license practitioners for trying to provide more comprehensive but still fully suitable and ethical retirement planning for their clientele.

    Unfortunately, I doubt that “willing” will translate into “I will”. The regulatory horse is well outside of the barn; state and federal legislators and regulator are eager to try to tamp licensees further back into the repective discrete and narrower “silos” so that licensees are easier to supervise with simple speeding ticket-type triggers for enforcement that do not require much judgement or investigation.

    The powers that be not only fail to recognize that the multi-disciplinary planner is a response to demand in the marketplace (or, at least they have no way to adapt or accomodate), but also imagine practioners with single licenses as all out there trying to force square pegs into round holes. The result is regulatory efforts which will continue to miss their targets and create collateral damage; harming the client and the licensee and the marketplace as long as regulators insist upon the pointless work of making the market to conform to their own outmoded model.

    • Bill,

      There is little the President can do with HERA standing in the way.

      There are many salespeople who can provide various products. While it is theoretically possible for salespeople to plan in an unbiased manner, it is rare at best. In the situations you describe where is there any independence? I strongly believe in fee based only financial advisors, not salespeople cloaking themselves as “planning advisors.”

  • I find it unbelievable that this administration is making it harder for people to get a reverse mortgage, making it illegal to even suggest the use of the RM proceeds and now is looking into annuities as a solution for the elderly?

    • I don't know if that indicates arrogance, ignorance, or just a determination to transition seniors from a welfare state to a pay as you go retirement plan without any government sponsored insurance involved. There is probably a portion of all of the above. If they could just get the right proportions, they'd probably have something edible or at least something that could be forced down the seniors' throats.

  • The federal government has been trying to find ways to limit its entitlements exposure for years. The Obama admininistration's nascent interest is a function of escalating national deficits and rumblings in the bond markets.

    • Atare,

      What a sad comment on the vision of this Administration. I remember that not long ago when Democrats (including this President) were condemning President Bush over his idea to privatize a portion of SS. Now this President is responding similarly but with no income tax incentives. It is this kind of politics as usual that have soured so many of us to become negative about this Administration and sad to say, our President.

      • The Cynic —

        If recent financial history is any guide, those who argued against the privatization of social security have been proven right. Managing the nation's entitlements exposure should be a non-partisan issue.

      • Atare,

        You are right on point which makes it doubly sad that they are acting like the Bush Administration while at the same time condemning it. It is the same with Iraq and Afghanistan.

        Why not strengthen SS rather than turning to alternative products? Those who can afford annuities in large measure already know about them. So why is this poll so necessary? Many defined benefit pension funds have annuitized their assets rather than distributing them and terminating their plans. Is this action another diversionary step in an attempt to deflect attention from the real issues this country is facing? I'm sorry but its purpose eludes me. It just looks like politics as usual.

  • Hi Critic,

    We're off-message in this sidebar, my apologies to everyone else.

    There is great room for independent advice from commissioned independents, particularly in insurance products. I'm not talking about the seminar ringmasters hiding behind a junk designation, the salespeople masquerading as so-called planners. I've put some of them out of business and tried to prevent some others from getting as fat as they did.

    Fee-based planning works better with securities than insurance, but still not as perfectly as many think. Fans of fee-based planning often miss the fact that many of these products still pay a commission to the planner, and that many of the fee-based products are not designed as well as many of the commission-based products. The best products from the best carriers all pay about the same commission. The only disproportionately high commissions are from vendors with an inferior design buying market share with higher commissions. These typically have lower ratings, so they shouldn't be used in the senior marketplace.

    When you give people a choice between a fee-based or commission compensation as I did, most will choose the commissionable products because of the up-front out-of-pocket cost of the fee for the same or greater value of a better product carrying a commission.

    If CPAs were suddenly shifted to a commission-based pay model, their professional ethics wouldn't suddenly disappear. Fee-based planning rewards the planner somewhat for the initial plan fee, but primarily for accumulating assets under management subject to the annual trail commission. It should, but does not guarantee independent advice, attention and continuing service. Quality and independence requires a lot more than one particular compensation model.

    • You are correct. There are good fee only planners and commission salespeople. And, of course, bad ones. Fee-only is as valuable as the quality of the advice behind it.

      • dduck12,

        Of course you are right. The true difference is independence. One only makes money when a product is sold while the other earns income based upon the engagement. True fee based only advisors who are worth their salt will review all relevant products and come up with a prudent plan.

        All commission based salespeople must be loyal to their employers or those they represent. Their job is to come up with a plan based on what they provide. The basic problem is, the appearance of independence is, well, just missing.

        There are exceptions and your customers are blessed to have you. Keep up the good work.

      • All commission based salespeople must be loyal to their employers or those they represent.”

        Critic, there are commission sales people that are not controlled or influenced. Many place their business through a broker dealer or an insurance brokerage and have many choices and only care about their clients and of course themselves. Some others do work for organizations that control their choices. Ask, them and they should tell you their specific modus operandi.
        As far as so called fee-only planners, they also are varied. Some of them only wish to control as many of a persons assets as possible to enable a fee. On top of that some also insist that a person must buy certain products from them in order to “bring their compensation up to a minimum”. Again, the good and the bad.

      • dduck12,

        Again it is not that a commission based salesperson cannot act independently, it is that no commission based salesperson can act without the appearance of not being independent.

    • Bill,

      It is surprising to read what you wrote.

      Not long ago I was introduced to a group of CFPs who contractually return all commissions they earn. They are true fee based only investment (and some insurance) advisors. As they explain it, many have been providing such services from the time they first became CFPs over twenty years ago.

      I have several acquaintances who are CPAs. It is false that CPAs cannot earn commissions. This is only true if those CPAs are providing attestation or accounting related services to the individuals to whom they are selling investments. Many partners of CPA firms have financial interests in attestation entities along with financial services enterprises. In the 90’s some of these acquaintances were being wooed by American Express and other entities to separate their attestation function from their other services and have the latter merge into an existing financial services entity.

      Finally, many of the largest pension plans in the country have investment advisors which are not in any way connected to the investment houses that provide the actual investments. The investment advisors are prohibited from receiving any commissions. In many cases, not only have overall earnings on plan assets exceeded market expectations, but based on historical experience, the plans have also saved more in commissions than they have paid in fees.

      While I know there are many who do not believe the old adage: “you get what you pay for,” there are others who do. You are right there are many who see no value in paying for advice but others do especially if the advisors return any commission based compensation they are paid back to their clients. I have heard several middle class clients swear that they have saved far more in commissions than they have spent in fees.

  • dduck12,rnrnOf course you are right. The true difference is independence. One only makes money when a product is sold while the other earns income based upon the engagement. True fee based only advisors who are worth their salt will review all relevant products and come up with a prudent plan. rnrnAll commission based salespeople must be loyal to their employers or those they represent. Their job is to come up with a plan based on what they provide. The basic problem is, the appearance of independence is, well, just missing.rnrnThere are exceptions and your customers are blessed to have you. Keep up the good work.

  • All commission based salespeople must be loyal to their employers or those they represent.”nnCritic, there are commission sales people that are not controlled or influenced. Many place their business through a broker dealer or an insurance brokerage and have many choices and only care about their clients and of course themselves. Some others do work for organizations that control their choices. Ask, them and they should tell you their specific modus operandi.nAs far as so called fee-only planners, they also are varied. Some of them only wish to control as many of a persons assets as possible to enable a fee. On top of that some also insist that a person must buy certain products from them in order to “bring their compensation up to a minimum”. Again, the good and the bad.

  • dduck12,rnrnAgain it is not that a commission based salesperson cannot act independently, it is that no commission based salesperson can act without the appearance of not being independent.

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