Advisors need to educate affluent clients about the importance of diversified and balanced portfolios–because high-net-worth clients, like everyone else, are vulnerable to market volatility.
Point out that the days of chasing returns are over. Now is the time for long-range strategies, especially for the protection features, tax deferral and income streams annuities can offer, and the tools that empower clients to think beyond daily portfolio values.
Annuities that guarantee income are one piece of such a plan, especially since many high-net-worth clients wont be able to rely on pensions or 401(k)s to fund their retirement.
Deferred fixed annuities. For conservative investors, deferred fixed annuities may be ideal. After all, even wealthy clients may have used bank certificates of deposit in the past year to park assets in a safe environment. What these clients may not know is that fixed annuities have enhancements–like competitive interest rate designs and multiple duration periods–that may make the products a quality choice for this purpose.
The products also have the added attributes of tax deferred accumulation and flexibility of ad-hoc withdrawals. And, unlike CDs, most such annuities allow withdrawal of up to 10% of contract value a year without surrender charge.
Immediate annuities. Single-premium immediate annuities also provide guaranteed income with tax advantages.
Here, in exchange for a sum of money paid into the contract, the client is guaranteed income based upon the payment option chosen (e.g., monthly payment for life.) Such annuities can provide automatic, reliable income that cant be outlived, and they are useful for distributions from Individual Retirement Accounts or qualified plans. Their payouts can be deposited directly into a clients bank or brokerage account, distributed to multiple payees through electronic funds transfer, and directed to pay long-term care insurance and life insurance premiums.
Variable annuities with value-added tools. With effective use of value-added tools and services, a high-net-worth client can use variable annuities to make a comfortable retirement happen, while still taking advantage of long-term returns from equity markets. Since boomers are increasingly worried about outliving their assets, such equity investments will play a crucial role in retirement planning.
However, advisors should be sure the client chooses the VA and its subaccounts carefully. To help accomplish this, suggest using the value-added tools offered with many of todays VAs, such asset allocation programs. These tools can help clients consider how and when they want to retire, why they chose previous portfolios, and what kinds of income streams they will have when not working. Some of these tools are: