From the April 2010 issue of Boomer Market Advisor • Subscribe!

April 1, 2010

The great annuity debate

Bill Bowman opens with a joke.

"Muhammad Ali was on an airplane and the flight attendant walked up and said, 'Sir, would you please buckle your seat belt?' Ali replied, 'Superman don't need no seat belt.' The flight attendant looked at him and said 'Superman don't need no airplane; buckle your seat belt.' That perfectly illustrates the guarantee; that's the safety net."

This being our annual annuity issue, we went to Bowman, a top advisor in Chattanooga, Tenn., for his take on so much that vexed the annuity industry, the advisors who use them and the clients who depend on them. Little things like the over-extension of living benefits and company solvency concerns, markets with bottoms that dropped out and ever-present suitability issues.

As volatility eases and we return to the new normal (whatever that means), what have advisors like Bowman learned in their approach to using annuities, if anything at all?

Bowman started out at a wirehouse, and lasted about three months; he just didn't fit in with the business model. He wanted to go independent, figuring it was the best way to know his clients and serve the community, but didn't have the expertise. So he joined a trust investment team at a local bank, with the express goal of learning as much as he could in five years. He was there for four years and 10 months. He now has clients in 23 states, from "Boston to Orlando and Washington, D.C. to Hawaii."

"I need to see my clients in Hawaii a little bit more," he quips. "Don't want them to think I'm neglecting them. Yeah, I gotta do it for them."

Boomer Market Advisor: Obviously, there have been questions about living benefits and whether, with so many "in the money" during a depressed market, they'll be able to fulfill on their obligations. Have you seen their generosity rolled back? If so, does it make you happy that they've stabilized, or not-so-happy because you're clients are not getting the benefits they once could?
Bill Bowman:
Internal management fees are going up on both the contracts and living benefits. That makes me feel a little bit safer. Living benefits are obviously only as good as the underlying company. When I talk to my clients I have to be very quick to point out they are guaranteed by the company and not by the government; they're not FDIC insured. But I am more confident that the money in living benefits will now be OK. We pick strong companies to begin with and they should be stronger now.

BMA: Did you see many of the past living benefit offerings as simply too good to be true? Is it necessarily a bad thing that some benefits have been pared back?
BB:
It's not a bad thing, that's exactly right. My clients are looking for peace of mind. The markets have been crazy. Back in 2000 and 2001, I would wake up at 2:30 a.m. and look at the overseas markets as if I could do something about it. I don't do that anymore because of the guarantees. Some clients are looking for guarantees from income and some clients are looking for guarantees against loss of principle.

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