April 2, 2012

Did 2008 Make the Case for Variable Annuities?

Demand for ‘guaranteed’ income driving advisors to recommend more annuities, survey finds

Consumers and financial advisors, increasingly concerned about meeting retirement goals, are finding that variable annuities effectively address financial security concerns, according to a new survey by AllianceBernstein and annuity advocacy organization Insured Retirement Institute (IRI). The study, released Monday at the IRI Marketing Summit in New York, offers insights into how and why financial advisors are using VAs as demand for more predictable and steady income increases.

IRI president and CEO Cathy Weatherford“The fact that fewer people today feel confident that they will be able to meet their financial needs in retirement is driving a robust market for lifetime income solutions,” IRI president and CEO Cathy Weatherford (left) said in a statement. “Our survey found that more and more financial advisors are turning to VAs as a sound portfolio solution because they provide guaranteed income and can help clients attain financial security in retirement.”

Weatherford believes the 2008 financial crisis has changed a lot of minds about insured retirement solutions, namely variable annuities. As advisors looked for a way to avoid a repeat of this experience, they focused more closely on the design of the variable annuity, with its explicit guarantee of retirement income.

The survey segmented participants into three categories: sellers (sold more than 10 contracts per year); dabblers (sold between 1 and 10 contracts annually), and non-sellers (sold zero contracts)

Key findings include:

  • Nearly 73% of dabblers and 79% of sellers said they never want their clients to have a year like 2008 again and will therefore continue to recommend VAs.
  • VAs gain new respect, with 50% of respondents saying they started recommending VAs more because their clients are demanding “guaranteed” investments.
  • 49% of dabblers have increased their recommendations for VAs since the credit crisis.
  • 60% of sellers have increased their recommendations for VAs since the credit crisis.
  • 42% bring up VAs in “every conversation” with clients and see them as an important part of financial planning solutions.
  • Roughly 45% have a combined fee- and commission-based compensation structure, most of which is commission-based.
  • Approximately a quarter of sellers had assets under management in excess of $100 million.
  • More than 70% of dabblers and sellers say that a colleague or wholesaler influenced them to begin recommending VAs.

“Clients clearly have a strong appetite for the benefits of variable annuities, and it is important that the industry better communicate how they can become a key portfolio ingredient,” added Michael Hart, managing director of insurance services at AllianceBernstein. “We found that the more educated advisors are, the more likely they are to use variable annuities in client portfolios, and not surprisingly, the happier the client.”

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