In spite of several insurers fleeing the annuity business, Guardian is increasing its business in the market.
“We look at the annuity market in a holistic way,” Doug Dubitsky, head of the life insurance company’s annuities division, told AdvisorOne on Wednesday. “We’re increasing our focus on income solutions and we’re not tied to any one product or any one feature or rider.”
One of the biggest flaws to the annuity industry overall, Dubitsky said, is that the very concept of annuities is confusing to clients. Of the myriad options available, many have a proper place in a client’s portfolio. Add to that the existence of some disreputable products. “In the public mind, all of these get wrapped together around that one word, ‘annuity,’” Dubitsky said.
“We’ve run away from the word ‘annuity’ and ‘annuitization’ as something that’s bad. Annuitization in the right circumstances and with the right products is very beneficial.”
Another problem with annuities is that they’ve become too complicated, Dubitsky (left) said. In an effort to have them be all things to all people, “we started bolting on too many bells, too many whistles.” Dubitsky and Guardian are working toward simplifying annuities and responding to clients’ needs with specific products.
“Not every product has to solve every need. If we have multiple solutions and we have multiple forms of guaranteed income in retirement, as an advisor, I can understand your problem and I can figure out what works best for you. Then I can turn and say, ‘Here are my options. Let’s figure out the one that fits your needs the best.’”
For example, Dubitsky said, investors could choose a “variable annuity with a living benefit rider for somebody who wants equity market growth, potential to take advantage of an up market and at the same time have a guaranteed floor and lifetime income. There are single-premium immediate annuities for someone who wants what I call pure income: needs the money today, wants predictable, steady income, and wants the most guarantees from the product.”
The biggest trend in annuities and the common thread among annuity purchasers is that they all need guaranteed income. Regardless of income level, clients don’t want to have to change their lifestyle after they retire, Dubitsky said. From the mass affluent to the very high-net-worth, clients want to maintain their lifestyle.
One misunderstanding advisors have about how annuities should be used is that some assume they have to annuitize all of a client’s retirement assets rather than just a portion. Instead, Dubitsky said, they should look at retirement holistically and determine the client’s basic lifestyle needs—not just basic expenses like food, clothing and shelter, but what they need to maintain their current lifestyle. By planning for the gap between those basic needs and guaranteed income like pensions or Social Security, advisors can address clients’ discretionary needs and begin planning with products like insurance, mutual funds and other options.
“The reason why you’re able to talk to them about those options is because you’ve guaranteed the basic needs,” Dubitsky said. “You’ve taken the fear factor off the table.” This is important because Dubitsky says one of advisors’ biggest challenges is getting their clients to do anything because they’re “paralyzed with fear,” even if they like the solutions their advisors are proposing.
The worst part of clients’ mistaken belief that not doing anything is better than doing something and making a mistake is that they’re losing time, Dubitsky said.
“Longevity itself is not a risk,” Dubitsky said. “Longevity multiplies all the other risks that you face.”
Dubitsky expects deferred annuity products, what he calls “create your own pension” annuities, to continue to grow in popularity. Guardian has one such product currently in development and expects to launch it before the end of this year. The reason for their success, he says, is that clients are exhausted. “It’s absolutely exhausting to have uncertainty around your financial future after you’ve spent your entire life working.”
In addition to those specific products, guarantees will always be important. Dubitsky also expects a return to simplicity.
“When somebody doesn’t understand something, one of these things are going to happen: They’re not going to be comfortable with it, in which case they might not make the right move, or they’re going to be mis-sold. But if I keep it simple and understandable, and I provide the right training and education, then I have products that people feel comfortable with. I have products that reps feel confident in selling.”
Dubitsky concludes, “The majority of reps out there care about their clients and want to do the right thing. The better I educate them, the better I arm them with the right information and the right solution, the more successful they’ll be.”