For a newspaper it is great when there is lots of news but this week's print issue was so packed I could not include several interviews I completed for last week's column.
The subject of that column is Vanguard's new
Annuity Access service.
There's more to the story so I'm picking up here where I left off.
The possibility of channel conflict
In addition to concern expressed by some analysts regarding the level of professional financial planning assistance that would be available to most investor users of the new service (covered in the first part of the column, link above), other experts and analysts said they wanted more context when it comes to the price quotes being generated.
For example, Doug Dannemiller, a senior analyst in the wealth management practice at Aite Group LLC wanted to know how comparable the quotes being delivered by Annuity Access were to those that would be obtained through an intermediary, which, he said remains the primary route of sale for most annuitants.
(Please note: Mr. Dannemiller had not been briefed by Vanguard on the new service, he provided his comments based on the prepared statement from Vanguard and his own knowledge of the industry).
“Any transparency and ease of transactions you can add to the annuity world is great, Vanguard gets high marks for that,” he said.
“With this offering though, you still have to look at channel conflict to see if you are getting self-directed investor pricing,” he added.
So, in other words, how do the prices generated by this online tool meant for self-directed investors compare to the prices that an intermediary could get you?
I would logically think that the quotes would come in lower but we have to go back and incorporate all those moving parts suggested by Mr. Cunniff.
“This continues to be a paralyzing process for a lot of people, ‘How much should I put in? Should I put in a big lump sum? But we're in a low interest rate environment?' — there will have to be some pretty in depth advice that goes along with it — but it is a very useful tool from a planning standpoint.
I asked Hueler chief executive Kelli Hueler about the question of pricing in a subsequent conversation.
“Channel conflict is a fact of life but every channel has a value proposition if it is successful,” she said, adding that the institutional channel represented by defined compensation providers and their necessary interactions with participants must be better served.
“You have to meet the consumer or retiree where they are and this is an institutional program designed for folks transitioning from their plan,” Ms. Hueler said, acknowledging that a lot of issuers are continuing to “evolve their perspective.”
I interpret this to mean that issuers are participating in this program as a way of testing the waters with investors, many of whom will not have their own financial advisers. These same investors, for the most part, are going to be naturally suspect of an annuity price quote from a broker, insurance agent, or other intermediary, especially if that person isn't someone they've had a long relationship with.
“What we encourage people to do, what we've always encouraged people to do is make apples to apples comparisons for whatever they are buying but one of the things that is problematic with annuities is the disclosure of fees,” she said.
She reminded me that one of the value propositions of the institutional channel is lower costs and pointed to the upfront disclosure of the 2% transaction fee for the annuities on the Vanguard system.
“It is up to the insurance company how relative they want to be to their peers and they have to price from an institutional basis,” she said in explaining the real time price quote data being delivered up from the insurance companies in the tool.
Once quotes are generated the investor can purchase the annuity right in the session or depending on how their Vanguard plan has been set up by their employer they might also have access to a Vanguard planning specialist as well.
Another facet to the tool that I was not clear on initially is that the participating insurance companies all have to be able to provide quotes on annuities priced down to the $10,000 level.
Fidelity's approach
I lacked the time last week to query all the major defined compensation providers about the availability of tools similar to Vanguard's Annuity Access but Aite's Mr. Dannemiller suggested that Fidelity probably had something along these lines.
Then he offered up a hypothetical: “It would be interesting to take that same price [generated by Vanguard Annuity Access] and walk over to Fidelity's site and shop what their annuity quote would be,” he said.
(Note: I'll probably try this as my wife has an account at one and I the other).
I then shot off an e-mail to my contacts at Fidelity to find out what they did; in fact have in this regard.
Fidelity spokesman Michael Shamrell got back to me in e-mail: “We have had a multi-carrier, competitive income annuity platform for over 10 years. It includes the leading providers, including New York Life. Fidelity's model offers real-time quotes from all of our competitive providers over the web, and enables the customers to purchase the products from their Fidelity financial adviser. This service is available to retail customers and workplace plan participants.”
Links are provided below.
A trip down the rabbit hole
My own take-away from all this is that it would simply be too complicated at the present time to incorporate all the variations in pricing between multiple channels (institutional/investor-directed through Vanguard versus direct pricing from a given insurance company or its agents versus pricing available from a broker and its broker-dealer versus pricing available to a hybrid adviser in an RIA going through his or her affiliated broker-dealer etc. etc. ad nauseum) — all in a single tool with real time pricing. It would also be highly confusing to the investor as well.
Perhaps in some distant future version of Annuity Access that takes advantage of
XML or
XBRL,
object-oriented databases, all connected using a fast architecture and infrastructure similar to that found in today's high-speed/high frequency trading, perhaps then all of this can be addressed. Oh and perhaps by then each mass-affluent self-directed investor will have unlimited access to a highly advanced version of
Sophie the virtual financial adviser to go along with it (don't ask me who would be in a position to pay for all this).
Ryan Hinchey, an independent variable annuity consultant (
annuityriders.com ) I've spoken with in the past on the subject of annuities left me thinking that what Vanguard is doing is headed down the right path.
“Until now people shopping for annuities can find only limited info and often have to go through a sales person to get the full story, that turns off many consumers because they don't want to be hassled,” he said, adding that the direct approach that Vanguard is taking has a lot of merit, even if it isn't quite the complete solution.
“It's a big step in the distribution model for fixed annuities,” he added.
Links to additional information:
Visit
Vanguard Annuity Access online for more information.
Fidelity links:
Income estimator tool and a comparison of the income annuities sold through Fidelity
Guaranteed income estimator tool
Site for RIAs
Income annuities page
Related stories:
Retirement leaders push for lifetime-income options in 401(k)s
Insurers press U.S. to allow annuities in pension plans
Fidelity cuts VA fee by 10 basis points
NY Life No. 1 seller of fixed annuities in 2Q
Technology solutions taking aim
