I just got back from this year’s NAVA Annual Meeting and wanted to get some thoughts down about the sessions. Overall, it was an interesting day and a half, if lightly attended. According to one vendor, there were something like 300 no-shows (about half of what was expected). I imagine recent market events have put some travel restrictions in place at many companies.

 
Some observations:

• One recurring theme was the need to improve investor communications. The industry seems to have realized that investors simply don’t understand the benefits of annuities, much less their structure. The need for improved communication is so great that NAVA’s board of directors recently established four strategic goals, one of which is to improve education of investors. They have even set up a Consumer Confidence task force to help in this effort. As Martha Stewart might say, this is a good thing.
• Here are some statistics that were presented throughout the conference showing the depth of the problem (or opportunity - depending on your viewpoint):
  • In a survey by ING, 1% of respondents said annuities will be the most important source of retirement income;
  • FAs with a significant variable annuity business account for less than 20% of all FAs;
  • Mutual funds outsell variable annuities by a 7-to-1 margin;
  • An AllianceBernstein study showed that one of the biggest impediments to advisors in selling annuities is they can’t understand the language or jargon used - and if they can’t understand it, how can they communicate it to their customers? This certainly corroborates some of our own conversations with advisors.
• It seems to me, then, that simplification is key - not only in the message, but also in the product itself. Actuaries have done a remarkable job in designing innovative products, but perhaps they’ve over-engineered them and it’s now time for the pendulum to swing back the other way. A good example of a simplified product was displayed by Old Mutual in one of the sessions. The firm’s Beacon Advisor annuity has zero surrender charges, zero commissions, and zero mortality charges. Even more impressive, GMWB benefits can be added at any time not just at issue. It is products like this that will help drive adoption because there is no risk that investors will be “trapped” into something they can’t get out of (easily) and advisors can more easily frame their pitch.
• Simplication is also needed from regulators - particularly in disclosure requirements. I personally own 20 annuities (this allows us to review the client experience and websites for our Annuity Monitor service) and can attest to the ridiculousness of disclosure and prospectuses that I receive in the mail seemingly each quarter. From a few firms I get prospectuses that are larger than my town’s telephone book! Why? Because it includes the disclosure for all products - not just the ones I own. Firms must work with regulators to achieve some level of realism here.
• Given the current market environment, it would seem that the value proposition for annuities has never been more relevant. Annuities are conservative investments and deliver guaranteed income. Who wouldn’t like guaranteed income in a market that lacks guarantees these days? Firms that can effectively make this connection to their advisors and investors will greatly benefit.

As I said, a lot of interesting discussion at this conference. I would love to hear comments from other attendees and I look forward to going to NAVA’s Marketing Conference in February.