United States Senator Elizabeth Warren has a new target: the biggest sellers of annuities and the diamond-encrusted rings, iPads, stock options and cruises she says they’re using to entice brokers to sell their investments. Warren, the Massachusetts Democrat and prominent critic of Wall Street, sent letters Tuesday to the U.S.’s 15 largest annuity providers, her office said. She wants to know whether perks they provide encourage brokers to put personal interests ahead of the retirement goals of clients.
Conflict of interest with annuities
“I am concerned that these incentives present a conflict of interest for agents and financial advisers that could result in these agents providing inadequate advice about annuities to investors and selling products that may not meet the retirement investment needs of their buyers,” Warren said in the letters to companies including Prudential Plc’s Jackson National Life, American International Group Inc. and Lincoln National Corp.
The American Council of Life Insurers, an industry group, said annuity providers are heavily regulated and comply with rules requiring truthful disclosure. Also, contracts in most states allow consumers full or partial refunds, typically within a period of 10 days, if they aren’t satisfied, according to the ACLI.
In the letters, Warren said car leases, National Football League Super Bowl-style rings and other perks are widely known in the industry and appear to be “kickbacks directed at annuity agents and brokers.” Warren’s office is asking the companies to provide by May 11 a list of all incentives offered to middlemen.
Warren is latching onto incentives in the $235 billion market for annuities to build support for proposed Labor Department regulations that require brokers to act in their retirement clients’ best interest, a standard known as a fiduciary duty. The proposal issued this month is expected to face stiff opposition from Wall Street, Republicans and some Democrats.
President Barack Obama endorsed Labor’s plan in February, putting new momentum behind the effort to revise rules that affect tens of millions of baby boomers nearing retirement age and workers who don’t have pension plans.
The new protections would save investors $40 billion in fees over 10 years, according to the Labor Department. At present, brokers face a less-stringent suitability standard that requires investments fit a clients’ needs and risk tolerance.
Annuities — typically sold by insurance companies — are investments that guarantee specific returns over time. People tend to buy them to ensure they have a steady source of income after they retire.
Investor advocates have warned for years that some annuities carry high commissions and big penalties for early withdrawals that make them risky investments for people nearing the end of their lives.
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