Receive our daily newsletter

Senator Warren's Study Finds "Dangerous Problem" with Non-Cash Compensations in Annuity Sales's picture
Commentary by Steven Lofchie

Senator Elizabeth Warren conducted an investigation of fifteen leading annuity providers to determine whether they offered their sales agents non-cash incentives and other perks to promote their products. The resulting report, titled Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry, asserts that 13 of the 15 companies - or 87% - offered sales bonuses to selling agents whose customers were often unaware of these incentives. According to the report, these sales incentives typically included all-expense-paid trips to vacation destinations, sports event tickets, theatre tickets and jewelry. The report also found that none of the fifteen companies offered its customers a "clear, accessible, specific, and easy to understand explanation" of its agent reward system, third-party marketing organizations, or specific encouragements offered to agents as incentives to sell certain products.

The report concluded that these hidden compensations cost American citizens $17 billion every year.

The purpose of the report is to gain support for the adoption of the Department of Labor's proposed fiduciary rule.


This study contains interesting information and Senator Warren should be commended for making substantive arguments in support of the DOL's proposed fiduciary rule.

The Senator should release the underlying data of her report to the public to provide added support for her arguments and to allow academics and other interested parties to review her conclusions. One flaw in the report, at least in terms of entering into a genuine discussion of the issues, is that it is intended to be more exciting (take a look at the cover picture) than concrete; e.g., it doesn't specify who offered the incentives, how many vacationed at the resort in the cover picture or the basis on which a vacation was awarded.

It should be noted that there is a certain inconsistency related to the Senator's public position on sourcing and conflicts. Previously, the Senator made a vigorous public attack against an academic who testified before Congress: the Senator condemned the academic for having a conflict of interest, even though that conflict was disclosed clearly in the academic's report. (See The Debate over the DOL Debate (with Lofchie Comment) (October 9, 2015).) Scrutiny of a few of the sources behind the Senator's report reveals a quote that reads as follows: "One expert has claimed that the [marketing agencies] have become 'glorified travel agencies' and noted that they are 'the primary culprits of this type of agency perks'" (at footnotes 5 and 34 of the report). The links in the footnotes show that the quotes were taken from a piece that largely praises Senator Warren, that the assertion in the article (whether or not it is true) is not substantiated in any way, and that the "expert" is himself an annuity salesperson (a/k/a "Stan the Annuity Man") who uses his own writing as a sales device (and so might have reason to attack his competitors). None of this means that "Stan the Annuity Man" is wrong, but it would have been better if the Senator described him as a well-known (or well-regarded, or thoughtful) industry salesperson, or even identified her source as Stan the Annuity Man.

That said, the report makes a real contribution to the discussion. The Senator should make all of her data available to interested parties, as well as to other interested regulators such as the SEC and FINRA.

Related Articles


DOL Fiduciary Rule
Regulated Entities: