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SDec 17, 2010

What’s In a Word?

Scott Burns

Whats In a Word

Words are important. Recently, for instance, an insurance industry expert declared war on MoneyWatch personal finance columnist Allan Roth. The expert is a self-appointed defender of “fixed index annuities.”

What had Mr. Roth done?

He called a “fixed index annuity” an “equity indexed annuity.” To show Mr. Roth the importance of word choice, the insurance product expert vowed to deliver a petition with hundreds of thousands of signatures from offended members of the insurance industry, along with signatures from the chief executives of every major vendor.

Mr. Roth accepted the challenge to change his wording— if 200,000 signatures and the signatures of every insurance CEO whose company sells the product are delivered.

We normal human beings might think the whole deal is a bit over the top, but that would reveal our lack of theatrical imagination. So let’s work on this a bit.

Remember “Amazing Grace,” the wonderful movie about the fight to end the slave trade in England? Well, this could be something like that. The insurance expert could gather the signatures. They could be brought to Mr. Roth in a nearly endless scroll.

With a flourish similar to the gestures of William Wilberforce, the marketer could stand before Mr. Roth as though he was the morally errant Parliament. Then the petition could be rolled out with a flourish. The insurance expert could demand that the columnist recant his linguistic crimes— demand that he free the suffering insurance sales force from verbal bondage.

Are you in tears yet? I didn’t think so.

The issue here isn’t human freedom. It is marketing. It is branding for a financial product. That’s the only reason I am writing about it— it affects you and me as consumers of financial products. The issue is who controls the vocabulary that surrounds a product. The right words will sell a product, the wrong words won’t.

Here, history tells a story. When equity indexed annuities were introduced they were called, yes, equity indexed annuities. It was a logical choice: the credited yield was based on the price appreciation of an equity index. With the roaring stock market of the 90s, the word “equity” made the annuity sexy. Salespeople hinted of investment nirvana— equity-like returns without risk.

The basic offer was simple: Your investment would get a portion of the capital appreciation of an equity index. In return for giving up both the dividend income and some appreciation you would never experience a loss.

But then something really bad happened. Equity prices plunged. Not once, but twice. Perhaps you noticed.

Today, the S&P 500 index is still below its peak level in August of 2000. It first reached its current level 12 years ago. So the word “equity” went from being a magical selling tool to being a sales killer.

That’s why the insurance industry has made such an effort to rename the product.

To this day, the literal minded folks at places like the Securities and Exchange Commission and the Financial Industry Regulatory Agency still call equity index annuities just that, equity indexed annuities. That’s because the institutions with oversight responsibility don’t get free trips to Hawaii for selling the product.

The insurance product expert argues that since the industry hasn’t called equity indexed annuities by that name for nearly a decade; neither should Mr. Roth or any other journalist. We should only use the chosen vocabulary of the sales force.

This is not “a failure to communicate.” This is marketing euphemism at work. In the world of product marketing, if a word becomes a problem, the solution is to change it with skilled euphemism.

This is how pornography got to be “adult entertainment.” It is how prison got to be “correctional facility.” It is how a dead hospital patient got to be a “negative patient care outcome.” It is how a tax got to be a “revenue enhancement.”

Words make a difference. They influence how we think. Do you, for instance, think former senator Robert Dole would have gone on television as a spokesperson for Viagra if the pharmaceutical industry had not first magically euphemized “impotence” into “erectile dysfunction?”

Somehow, I doubt it.

Filed Under: Annuities