What Producers Can Do In A Less-Than-Robust Market For Annuities
Start burning the incense and praying. Grab the divining sticks and start the rain chant. Grab your lucky rabbits foot with the four-leaf clover necklace. In words that could have been uttered by the great basketball coach and announcer Dick Vitelle, “Its ugly out there, baby. The markets are rocking our annuity boat and we have to get back in the game”!
So this month, Im dedicating this column to what you can do in less-than-robust markets. Okay, lets be candidwhat to do in a downright bad market. Actually, theres a lot you can do, but you need to be an effective communicator, a good teacher, and a patient producer.
Logically, the annuity and mutual fund businesses should not be as soft as they are in these trying times. In a recession, people should be saving, not spending. Granted, there may less money to go around, but at these times, folks are focused on making sure that the investments they make are well suited to their needs.
In this assessment of both the clients cash flow and investment strategy, lets not forget that annuities are clearly a savings tool–even more so, one with a long-term, tax-deferred investment strategy. Granted, its difficult for people at a gut level to look at investing as something other than saving, but it is. Additionally, no one likes to invest and see his or her investment value go down.
That said, however, your annuity business should be good, actually much better than your mutual fund business, since you can offer both secure rates of return(s) based on the performance of the market, or a combination of the two.
Following the news on a regular basis these days, you can sense an overall flavor of investment restraint in the hearts of consumers. As a producer, it is incumbent upon you to make a point of touching each and every client that you have and engage them in a review to determine the current appropriateness of their investments.
This type of investment check-up is actually much easier to do when the markets are frothy, since the air of uncertainty leaves consumers seeking advice from someone, dare I say anyone, who has the answers. As you engage in this assessment, you have the opportunity to reposition any inefficient assets that the client or prospect might have.
From an annuity sales perspective, you might ask several questions to identify assets better directed to an annuity. For example, after you ensure that the client has sufficient emergency funds, and has maximized his contributions to qualified plans, you can begin to look at other assets the client has which might be better positioned into the annuity contract.
The past nine months have actually painted a perfect backdrop for the annuity contract. Lest we forget, there are a variety of flavors of annuities, including fixed interest rate, equity-based interest rate and variable rate. You can purchase these to accumulate assets, generate income, or some combination of both. Aside from the obvious advantage of tax-deferred growth and tax-preferred income, there are a number of more subtle reasons to consider the annuity, both tax- and non-tax-related.
To complete the discussion relative to tax-related advantages, lets look at the tax-free movement from one subaccount to another subaccount. If your clients are like my friends, they have engaged in a certain amount of repositioning of their assets by moving from more aggressive funds to less aggressive funds. At this time last year, it seemed like everyone obsessed over technology stocks or related funds. Today, thats where the bottom fishers are trolling.
This move from one mutual fund to another mutual fund generates a tax gain or tax loss at the time of the sale of the fund. While the NASDAQ plummeted late last year and this year, many consumers got out early enough to realize gains, some significant, and all taxable. In the annuity contract, movement from one subaccount to another is done without any tax consequences. Your approach to the client: “Using the variable annuity contract, your movement from subaccount to subaccount is done without incurring taxes on the money that you are saving for retirement.”
Another very important point to emphasize today is the death benefit in the variable annuity contract. As consumers who own VA contracts know, they pay for a death benefit that can range from a guaranteed return of premium up to the highest anniversary value of the contract. While no one likes to look at the grim reaper aspects of the annuity, the fact is that the annuity provides a level of protection that is unparalleled when compared to a mutual fund, a certificate of deposit, a stock or a bond.
If anyone has had the misfortune of having to deal with a death claim over the past six months, the beneficiary of the annuity contract with a highest anniversary value death benefit is likely to be your greatest testimonial to the value of the death benefit feature in the annuity contract.
Your approach to the client: “Annuity contracts offer estate protection that can be invaluable in times of economic uncertainty. Asset protection comes in many forms, and the annuity contract offers protection in many ways.”
Generally speaking, annuity producers tend to fall into two categories–those who sell fixed annuities and occasionally sell variable annuities, and those who sell variable annuities and occasionally sell fixed annuities. From my perspective, the blend of these two is critical to establishing the right mix of annuity products for a customer. If a producer properly positions the annuity contract, it can weather all storms.
An annuity can provide the customer with a safe haven in times of doubt and a tremendous opportunity to capture the upside of the market when times are good. Consistently woven into the fabric of the annuity are the benefits of tax deferral, guaranteed income, enhanced estate benefits and a myriad of choices for investments.
This sounds too good to be true! I wonder why sales are down. To effect a change in behavior, the producer must educate and lead the client. Its too easy to take the path of least resistance.
Service is the mantra when times are good, perseverance is the mantra when times are difficult. And if all else fails, “find a penny pick it up, all day long youll have good luck.” You may even want to think about investing it in your annuity.
, CFP, CLU, ChFC, is CEO of Info-One, a consulting and technology firm based in Campbell, Calif. He can be reached at [email protected].
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.