NEW YORK — Middle-aged men in wigs performing a rap song, promises of a “Leadzilla” lead-generation system, and claims of millions of dollars in annual commissions — is this any way to market annuities?
On YouTube.com, MySpace.com and other personal websites, it sometimes is. Industry observers are both amused and disturbed by some of the video offerings.
InsuranStar Marketing LLC in Green Valley, Ariz., posted one of the most aggressive videos.
The firm’s founder, Gary Le Mon, and two male employees alternately don cowboy hats, bad wigs and sunglasses to perform the rap song “Let’s Go Sell Some Annuities.” The name of their “group” is the Cracker Rappers.
“Most people who see the video tell me that it’s good to find someone in the insurance business who is real and not stuffy, and who has a sense of humor,” Mr. Le Mon said. “I don’t hear from the ones who think it’s obnoxious.”
Mr. LeMon added that some of the purchasers of his annuity marketing services have been satisfied with his system, while others haven’t.
“The key is to recruit a lot of hopeful agents and then let them prove themselves,” he said.
“I found the annuity rappers mildly amusing,” said Moshe Milevsky, a professor of finance at York University in Toronto. But the video once again raises the important question of why commissions on equity index annuities are so high, he added.
Many of the annuity-related videos aimed at consumers are professional and educational, such as those of Beverly, Hills, Calif.-based personal-finance expert Ben Stein and Irvine, Calif.-based financial adviser Thomas Scott.
But there are also videos that “blow up” non-annuity investments in Iraq-like battle scenes while leaving annuities unscathed, and brow-raising claims of “no downside risk” and “taxes can’t touch you” if you buy annuities.
There are also annuity sales parodies by a deadpan character called Steve Autocrystalize to gullible fictional clients such as Josephine Vomit. Mr. Autocrystalize invites Ms. Vomit to discuss annuities over a dinner of “radishes, crumpets and whey” at her home but becomes frantic after learning she has a jealous husband with a gun who is coming to steal his commissions.
Murky legal picture
Because InsuranStar’s video is directed not to consumers but to financial advisers and insurance agents who may want to sell equity index annuities, it probably isn’t subject to regulation by the Securities and Exchange Commission, the Washington- and New York-based Financial Industry Regulatory Authority Inc. or state insurance regulators, lawyers say.
“Many of the videos are more appropriate for the used-automobile industry or the rent-to-buy industry than securities or insurance,” said Rod Heggy, principal of Heggy & Associates LLC, a securities law firm in Oklahoma City.
But whether the videos violate any laws is unclear.
Their legality is in a gray area because consumers have access to them and can be fooled by their claims, even though the general public isn’t the intended audience. The possibility that the public could act on what they see could make the videos subject to regulation by the Federal Trade Commission in Washington, Mr. Heggy said.
Most of the firms that have made the videos are part of a cottage industry that has sprung up to take advantage of advisers’ frustration with the securities industry’s perceived overregulation of variable annuities. These firms want advisers to sell equity index annuities — a type of fixed annuity regulated as an insurance product by the states (InvestmentNews, April 23) — to avoid securities regulation.
Many industry observers say that these marketing pitches will attract the “wrong” type of adviser to the annuity fold.
“New and naive advisers who came into the financial services industry to make a lot of money may fall for those pitches,” said Jack Weymire, founder of Paladin Registry Inc., an investor education firm in Sacramento, Calif.
About a third of the advisers who use InsuranStar’s system are brand new to the business, while the remainder have anywhere from one to 40 years of experience, Mr. Le Mon said.
Advisers to whom the InsuranStar video would appeal need the lead generation system the firm sells because they would probably never receive referrals from satisfied clients, said Mark Cortazzo, a senior partner at MACRO Consulting Group LLC in Parsippany, N.J.
Mr. Le Mon in his video touts himself as a cowboy making “beaucoup buckaroos” selling equity index annuities and said that advisers who purchase his services can do the same. He promises “huge commissions” that can “change your life.”
Client needs neglected?
“The problem with these adviser recruitment videos is that they are all about the benefits to the advisers, rather than the benefits to the client,” said Scott DeMonte, founder of AnnuityIQ.com. The Fayetteville, N.Y., firm posted on YouTube a more sedate video featuring an inquisitive dog.
“The YouTube approach is amusing in its own way, but so too was ‘The Carol Burnett Show’ in its day,” said Mr. Heggy, the lawyer. It may even benefit consumers by giving them a “crude dose of reality” about annuity sales practices.
The videos have a “put-the-client-last mentality” that pervades much of independent-annuity distribution, said David Macchia, chief executive of Wealth2k Inc., a Hingham, Mass., strategic-marketing firm for annuities. “Nice ladies from Kansas won’t ever consider the purchase of an annuity after watching a video like this,” he said.