CANNEX is a Canadian provider of financial product information and analysis. Last week it announced a new service that “provides an independent and objective way to determine the economic suitability of variable annuity and fixed indexed annuity transactions and helps fiduciary advisors act in the best interest of their clients.” It is intended to assist advisors with decisions involving new annuities, existing annuities and buyout offers from insurance companies.
The platform builds on the work of Prof. Moshe Milevsky and others in quantifying the economic value of the guarantees embedded in complex annuities. A white paper, “Determining the Economic Suitability of a Variable Annuity Transaction”, provides a preview of the service.
So is this the annuity comparison tool that we have all been waiting for?
It certainly merits your attention. Here are four questions to consider as you read the future reviews:
1. Are there problems with the ranking measure?
The service will provide a lot of detail as well as multiple measures for ranking annuities. The most thorough reviewers will discuss the measures from the perspective of one or more normative theories of rational choice, such as expected utility theory. If Product A has a better score than Product B, is there good reason to believe that I should choose it? Beware of the tautology of saying that Product A is better than Product B because it has a better score.
2. Are there problems with the methodology used to calculate the ranking measure?
New research on the valuation of annuity guarantees appears almost every month. What methodological choices does the CANNEX service make, and what are the alternatives?
3. How good is the information design?
The CANNEX service is comparing products that provide different probability distributions of outcomes. How much thought has gone into the display of this information to make it useful for decision making?
4. How harmful could the tool be?
Are there situations where the CANNEX service could lead to decisions that are clearly questionable?
Whatever shortcomings this tool has, I’m betting that we will be better off with it than without it.