Ken Fisher has mounted one of the most successful attacks on a single financial product in history. Consumers searching for annuities have seen ads from Fisher explaining earnestly why retirees shouldn't buy them. He's even registered the trademark "I hate annuities."
It's no secret that Fisher sees annuities as a perfect target to market his own asset management services.
Annuities are the source of many consumer complaints, and the insurance industry has generally done a remarkable job of creating an opening for someone like Fisher to capitalize on negative product perceptions and position himself as the honest alternative for investors seeking retirement advice.
On his site, Fisher notes "Fisher Investments does not sell annuities. We never have, and never will. Why? Our founder, Ken Fisher, is fond of saying, "I hate annuities," because he believes anything you can do with an annuity can be done better with other investment vehicles."
Annuities are a product structure, like an ETF or a mutual fund. Annuities do two things that ETFs and mutual funds can't do. They provide tax-deferred growth in a nonqualified account and they allow retirees to spend more every year and worry less about running out of savings through a process known as mortality credits.
To an economist, the admission by an advisor, especially one who aggressively positions himself as a fiduciary, that they will "never" recommend an annuity to a client makes no sense. The failure to recommend an annuity is clearly not in the best interest of most retirees.
Academics' View of Annuities
Many advisors aren't aware of the consensus among financial economists about the value of annuities. In the 1960s, the dominance of creating retirement income from annuities over traditional financial assets was proven mathematically.
Nobel laureate Richard Thaler provides a simple explanation of the value of annuities in his New York Times article, which also notes that the failure to annuitize is a puzzle. Peter Diamond, also a Nobel laureate and MIT professor of economics, co-authored a comprehensive analysis of annuitization concluding that "the near absence of voluntary annuitization is puzzling in the face of theoretical results that suggest large benefits to annuitization."
The authors conclude that low annuitization rates among American retirees are a mystery and a policy failure. Most economic work on annuities these days seeks to understand why so few people buy annuities when they are clearly valuable.
The puzzle probably isn't going to be solved when a consumer who searches annuities on Google sees a message from the country's most visible fiduciary advisor saying how much he hates annuities.
What is perhaps most disturbing about these ads is that Fisher sees no legal risk in posting publicly that he's unwilling to even consider recommending a product that Nobel laureates believe is in the best interest of investors.
Fisher's Stance
Fisher offers to analyze annuities for potential clients who own one.
What is Fisher's fiduciary duty when a client asks what to do with an annuity that can produce a guaranteed income benefit that far exceeds the contract value? Can a fiduciary, for example, recommend that a 65-year-old new retiree liquidate a product with a $50,000 contract value and a $5,000 lifetime income benefit?
A healthy 65-year-old woman who has enough wealth to meet the Fisher minimum can expect, on average, to live to age 89. The internal rate of return, or IRR, on the policy liquidated for $50,000 at age 65 would be 8.8%.
