From the June 2008 issue of Boomer Market Advisor • Subscribe!

June 1, 2008

10 questions for David Byrnes, Sun Life Financial Distributors

Boomer Market Advisor: How does the variable annuity industry typically fare in a down-market?

David Byrnes: It's tough all over. Warren Buffet said about the market as a whole, "It's the only industry in the world where the product goes on sale and you still can't give it away." That applies to the variable annuity business to a certain extent. But the VA story is very strong based on the uniqueness of the product.

BMA: Some of the newer VA features have yet to be tested in a down-market. Is there a sense that this time it's different?

DB: I would agree with you that in the last major downturn these products didn't exist the way they do today. The products have evolved; it's amazing what they look like today versus seven years ago.

BMA: So what's different this time?

DB: In previous downturns, we didn't have the energy prices like we're seeing right now or the challenges in the housing and mortgage markets. A VA is much better suited to a lifetime income strategy now than in the past.

BMA: There were first generation living benefits, then second generation living benefits and then hybrid living benefits and hybrids of hybrids. What cutting edge features exist now to effectively address the longevity and income issues boomers face?

DB: You're right, it has become frenzy; it's an arms race. The good news is the net effect is better consumer value in a competitive market. But what are these products trying to provide? They're trying to provide the ability for clients to grow money for their retirement and protect that money against loss. They're providing an income stream inflation hedges because they're invested in the capital markets with the ability to step up. So everyone is doing tweaks and variations of these same themes.

BMA: What, specifically, are you doing that's different?

DB: We put together a feature called "Income on Demand" in 2007. It gives clients the ability to store their guaranteed income to a period of time when they're going to need it and let any unused guaranteed income payments stay stored. Another unique feature is one that offers flexibility to match income payments to the clients' actual expense patterns.

BMA: What do you think resonates better with advisors: a simple, clean product without a whole lot of bells and whistles, or something that's completely customizable?

DB: I think it's complicated. It's hard to provide what we're providing without having it be somewhat complicated.

BMA: Does customizable necessarily mean complicated at this point?

DB: The question is how can you take something complicated and simplify it so it's easy to understand? If I said, "I'd like to talk to you about a product that would you get invested in the market, give you a guarantee that you can't lose money and give you the ability to convert it to an income stream that would last a lifetime. Would you be interested to hear more?" Understand what they're trying to accomplish and then dig deeper into how the product works.

BMA: Anecdotally, we hear from high-net-worth advisors that are coming around to the benefits of annuities, especially advisors that have a traditional bias against annuities. Why do you think this is?

DB: Two things: the product has changed and demographics have changed. So if you look at (A) what it does versus what it used to do and (B) the fact that their clients, even though they're making more money than someone who's less affluent, they're still going to have a lifestyle that they want to maintain.

BMA: Is it eventually going to switch up from a strictly a commission-based product? Is it even feasible to try?

DB: You're starting to see some products that actually offer complete trail options. So you're at least trying to give the advisor options. So this means that the way they prefer to get paid is not dictating whether they're looking at a managed account or looking at an annuity. The second thing is that [it will be more feasible] when firms become more open to plug-and-play with annuities on their advisory platforms.

*Questions, Comments, Thoughts? Let's hear it! Please use the form below.

Reprints Discuss this story
This is where the comments go.