With Bruce C. Long of The Guardian Life Insurance Company of America

“Annuity,” formerly the insurance industry’s dullest word after “actuary,” now is among its most sexy — and controversial.
Insurers are breaking the news to retirement-bound baby boomers that they may live far longer than anyone had hoped, depleting nest eggs — and worse, inheritances.
The companies are offering baby boomers a way of making certain they never will have to find out whether their children would be willing to take care of them. An annuity, and its lifetime income guarantees, can replace that painful uncertainty, and boomers increasingly are taking insurers up on the offer.
That has made practitioners of the annuity arts much in demand, few more so than Bruce C. Long, 62, executive vice president of The Guardian Life Insurance Company of America in New York. He manages the insurer’s annuity operations and serves in key advisory roles with Washington-based NASD and NAVA, The Association for Insured Retirement Solutions in Reston, Va.
“Bruce is highly respected by his colleagues and has managed to survive in this business a long time without making enemies,” said Norse Blazzard, annuity guru and attorney with Blazzard & Hasenauer PC in Pompano Beach, Fla., and Fairfield, Conn. “He has a lot of common-sense perspectives on where the annuity industry is going.”

Q. Why do some advisers refuse to use annuities in financial plans, while others use them as an integral part of the plans?
A. It depends on the background of the adviser. Those coming from the investment world — such as stock brokerage — sometimes avoid them because they generally aren’t interested in packaged products. When mutual funds first came out, the pure stockbrokers hated them, but now they are accepted as the norm. Annuities had been a foreign financial vehicle to many advisers, but now there has been a huge shift to packaged goods — because they make it easier to take care of a multitude of goals. Also, due to the guarantees that variable annuities can include, advisers are more willing to deal in those products.
Q. Do you think that some advisers are intimidated by the suitability determinations they have to make in light of the adverse publicity from selling annuities to the elderly, for whom they may be inappropriate?
A. There were abuses involving annuities sold to people who didn’t understand what they were buying. Suitability regulation from the states and NASD has been the reaction to that. A few years ago, annuities usually weren’t sold to people in the 70 to 75 age group. But with longevity increasing, we don’t really know what that maximum age should be. It may not be 90, but is it 80? If someone is going to live for 20 years or more in retirement, [variable annuities] can be a good investment, because they have to stay invested in some equities.
Q. Variable annuities often are presented in insurer marketing literature as the cure-all for baby boomers running out of money. Are variable annuities the best or only solution for that problem?
A. Running out of money is only one of the risks boomers have to worry about. There are a multitude of risks, such as inflation, longevity, health care and investment. Our parents bought fixed annuities or were on fixed pensions, and were ravaged by inflation. The biggest issue for financial advisers is making clients understand that they can’t spend 15% of their assets a year in retirement. In the 1990s, the market was growing at 15%, so some people got the idea they could do that, but they can’t do it anymore. Advisers should not scare clients — the clients come into their offices already scared. But the advisers do have to find ways for clients not to outlive their money. The key is to keep participating in the stock market, with a guaranteed income.
Q. Some industry analysts are worried that insurers won’t be able to meet their obligations under the guarantees. Are those concerns justified?
A. The reality is that guarantees have a lot of risk for insurers. It used to be that the VA investment risk was with the client, but the guarantees transferred the risk back to the insurer, so the client could participate in market upsides and have a floor for the downsides. There is currently no reinsurance available for some of the guarantees, as the reinsurers are wary of the unknown, and there is not enough reinsurance capacity in the market. Insurers have to manage the risk themselves, and that’s done mainly by hedging, such as hedging the interest rate risk or the investment risks in the accounts. So far, the financial-rating agencies have been pleased with the performance of the hedging for some companies.
Q. Have annuities and their guarantees become too complicated, as many advisers contend?
A. The products have become more complex because of the living-
benefit riders. But the basic contracts are not that difficult to understand. The mortality-and-expense charge, the surrender charge, and the riders have to be explained to clients in great detail. The guaranteed-minimum-withdrawal benefit amount is not hard to explain, because what the clients see on their statement, that’s how much they can take out. Advisers don’t have to continually explain the concept of annuitization, because the contracts don’t have to be annuitized to get the money out.
Q. How do you counter complaints that annuity fees are too high?
A. Most of the fee complaints emanate from comparing products that are, in fact, very different. Mutual funds may have lower fees, but they may not have the benefits of annuities, such as the guarantees, so they are really not comparable.
Q. Is it a waste to include tax-deferred variable annuities in 401(k) and individual retirement accounts, which already are tax-deferred?
A. VAs can be an investment option in those retirement plans. Clients don’t pay anything extra for tax deferral — it’s provided free from the government. The issue is what the client is paying for — all of the features of the product. Yes, the fees of mutual funds included in the retirement account may be lower, but the mutual funds won’t guarantee a payout and could go away completely in a down market. The VA can also provide a death benefit, although the death benefits of annuities are fading in importance compared to the living benefits.
Q. Are VA commissions too high, or is that just a perception?
A. There have been abuses. There are insurers that pay commissions that are too high, and there may be some advisers who put commissions in front of clients’ best interests. But the commissions for most standard annuity products are now pretty much in line for most insurers.
Q. What will be the regulatory fate of equity index annuities? Will they continue to be regulated by the states as insurance products, or will they be deemed securities subject to federal regulation?
A. EIAs are in a no man’s land right now. The NASD guidance said they should go through the broker-dealers and should no longer be sold as an outside product not subject to [broker-dealer] oversight. EIAs are fixed annuities with participation in a stock market index, but they are not an investment. I think they will remain regulated by the states unless the Securities and Exchange Commission makes them a registered product.
Q. Why have EIAs come under such close regulatory scrutiny?
A. The newer ones are very aggressive. They should not be sold on the basis that the client will have a guarantee plus participation in the market. That’s not how the product is designed. It’s far more complex than that. The way EIAs have evolved has created confusion and complexity. The regulatory chapter on these products is still in flux.
Q. What is the hottest topic in annuities right now?
A. The guaranteed-minimum withdrawal benefits. That product started a wildfire, because it solves so many different issues. We will see those products moving into the retirement market. Also, long-term-care riders in annuities will gain in popularity, and there may also be disability riders. A stumbling block may be that when combining a variety of coverages into one contract, different state and federal regulatory departments get involved, making the ideal product difficult to create.
Q. What will be the “next big thing” in annuities?
A. As there are now lifetime benefits, there is only one thing left: reincarnation benefits.