When life insurance executives and annuity product managers gather at trade shows and retirement conferences, they talk about what can be done to entice more registered investment advisors to use their products.
At every meeting, typically in the ballroom or salon of a semi-posh hotel, there's at least one session where a distinguished panel of speakers--perhaps an advisor, an annuity marketer, and a white-shoe consultant--bats this chestnut around.
Their conclusion: annuity wholesalers and fee-based advisors speak different dialects of English. Annuity wholesalers use acronyms that mystify advisors. They push branded products. They dwell on arcane insurance riders. They incentivize with commissions, not wrap fees.
What we've got here is a failure to communicate. But smart insurers and advisors now understand that end users--boomers quaking with PTSD from the financial crisis--want progress on this front. Since the financial crisis, surveys show that people want to learn more about sources of safe retirement income.
The solution? Instead of focusing on their own needs, they should focus on the clients' needs. (What a concept!) I can think of three investor benefits that annuity wholesalers should hammer on when they visit RIAs. These also happen to be good reasons why RIAs should become conversant with annuities:
Financial peace of mind. Annuities--either variable contracts with living benefits or income annuities--are the only products, with the exception of bond ladders, that offer the kind of financial assurances that will let your clients sleep easily at night.
Sure, they're expensive. But this is insurance. Clients are paying someone to haul away their unwanted risk. And they can be illiquid. But today's income annuities have lots of cash-out features. Variable deferred annuities 100 percent liquidity and guaranteed income--at a price.
Freedom to invest the rest of the money more freely. Advisors and clients should give this benefit of annuitized income more credence. It's no fun timing the market (or watching Maria Bartiromo) when your entire nest egg is at risk. When all of your client's essential needs are securely covered by annuities and Social Security, you and they can dabble in equities what much less angst.
The alpha of income annuities. Investment returns aren't widely expected to be spectacular in the foreseeable future. Rising interest rates will dampen total bond returns, and there's little evidence that green technology or infrastructure renewal will spark a near-term boom.
Risk-pooling can be an oasis of profit in a desert of yield. The mortality credit of income annuities grows as clients age, eventually delivering higher yields than either bonds or stocks. By buying deferred income annuities at a discount, for instance, you can lock in low-cost income five or 10 years in advance, boosting your internal rate of return.
Not every boomer will buy an annuity. But for certain investors under certain circumstances, adding an annuity to the portfolio will promote restful sleep, put the fun back in investing, and enhance tepid returns. If advisors and insurers focus on benefits for the client, they may discover commonalities that, too often, are lost in translation.
Kerry Pechter is the author of "Annuities for Dummies" and editor of retirementincomejournal.com.