Annuities Have A Story To Tell Now, Producers Say
Right now, consumers are pretty much in a holding pattern, where their annuity purchases are concerned, say producers interviewed by National Underwriter about how to position annuities in todays uncertain market.
In fact, in the wake of the September 11 terrorist attacks, consumers are pretty much in a holding pattern on finances in general, they say.
Clients are keeping cash “on the sidelines,” for instance. Theyre also holding onto stocks, annuities, and other investments they own, with few bailouts. And theyre investing little extra–other than through the asset allocation, dollar cost averaging, and rebalancing programs previously set upeven though stock prices are lower.
“Theyre holding tight on everything,” notes Ann Fenwick, owner of Fenwick Financial Service LLC, Baltimore, Md. “Some wont buy anything.”
Part of that is due to reduced portfolio values, she speculates. “If the values have dropped by 20% to 30%, people feel as if they cant afford to buy clothing, cars, vacations, or anything else.”
Fenwick also blames the constant flood of “short-term and negative media stories” about the economy. “Were bombarded daily with reports that this went down and that went down,” she says. “It makes investors feel afraid.”
But uncertainty about the future direction of the country and the economy is perhaps the biggest reason, Fenwick says. “Some people are waiting to see what President Bush will do from a defense standpoint,” she says.
“We do get some phone calls from clients about what to do,” allows Stuart H. Leaverton, an insurance broker at Custom Structured Insurance, Katy, Tx.
“But only three of my clients have asked to move their money from the stock market into a fixed product (a single premium deferred annuity). In all cases, the moves were made because clients were entering retirement, not because they were running scared.”
In fact, a number of the calls into his office have been to inquire about whether this is the best time to buynot sellstock, Leaverton says. (His answer: Look ahead five years, and if you do anything, use dollar cost averaging.)
Michael MacDonald, owner of Michael MacDonald Financial Management, Pleasant Hill, Ca., has noticed the same trend. “A lot of people understand this is a buyers market now. So more people are asking me, `Is there something I should start looking at?” (His answer: “This is a choppy market, so why not ride it out? Focus on investing, not timing the market.”)
Where do annuities fit into the holding pattern? More to the point, what can producers say to clients about annuities right now?
“We take an unbiased approach to annuities, whether fixed or variable, as compared to mutual funds,” says Leaverton. “In fact, most of our clients have money in both variable and fixed annuities.”
Some clients may now want to go to fixed annuities, to shelter money from fluctuations or because they want to annuitize, he says. But, even when they express that interest, “I always sit with the client, knee to knee, to discuss ways to manage their money.”
This is not a product sale, he said. “Think of it as selling backwards, from the clients needs and then finding the product.” He uses the approach in all markets.
For instance, if a client wants to move money from mutual funds into a fixed product, he says, “we have a long, three-hour talk.” That “talk” covers the clients time line, goals, options, risk tolerance, and whether they understand the possible results of what they want to do.
“We counsel against making rash judgmentsMy approach is to measure twice and cut once.”
Many times, he adds, “they decide to stay put. They think it will take too much time to `heal back their mutual fund losses in a fixed product.”
“The key to everything is to know your clients,” says Gregory Skrabonja, president of Investment Concepts, Franklin Lakes, N.J.
“Always keep your lines of communication open, and reinforce the message that there is no get-rich-quick method; youve got to give it time.” Now is a time to get back to basics, he stresses.
In particular, Skrabonja says, do whatever is consistent with the clients risk tolerance. And use asset allocation, portfolio diversification, and dollar cost averaging as the tools to help clients get where they want to goas you would in any market, with any product.
About the present uncertainty, “try talking to clients about market volatility and how the economy has responded to past military actions,” from the Gulf War on back, suggests MacDonald of California. “Note what markets were like 12 months later.”
He has been doing this himself, phoning clients and sending them follow up letters, since September 11. This is a planning approach to client concerns, not a product selling approach, he says.