Volatility Still Throwing Annuity Clients
Annuity clients are once again reacting to equity market conditions, according to annuity marketers.
Volatility is still evidentlast years 20%+ gains in the equity markets seem to be holding, but there are swings up and down on a weekly basis. Even so, some annuity clients are starting to get itchy. They are calling their advisors or coming in, wanting to know if its time to shed their “safe money solutions” (cash and fixed annuities in particular) and get back in the market.
Or, as some put it, they are wanting to know if its time to time the market.
Given that many advisors scrambled to offer these same clients a raft of safe money solutions all during the recession, this raises the question: What should the producer say now? What to do?
Once clients notice that market conditions have changed, “they do say, gee, maybe I should move this money,” observes W. Andrew Unkefer, owner of Unkefer & Associates, a Glendale, Ariz., annuity wholesaler.
His response: Focus first on reviewing the clients actual goals. “When we do that, we identify the money they want to protect and whether they have enough money to sustain a change in their current financial position.”
He also reminds clients that if they cannot sustain much change, making a move now, say from a fixed annuity or account, can work against them. Such clients may need to keep their money in safe accounts that just grow slowly but dont pose any market risk, he says.
Some clients now are convinced that the worst of the recession is over and they believe they can take some risk, Unkefer points out.
“In that case, you can show the volatility in the market over the last 5 to 10 years. Discuss safety vs. risk with the client. Point out that that even when the market is up, sometime the other shoe will drop.”
If the client is a retiree, as are many of his clients, that is an important message to deliver, he says. “Remember, the retiree has no way to recover what they lose. You might want to say something like this to the client: We didnt talk about safety when you were in your 40s, because you still had time to recover from market lows. But now you are in your 60s. You need to look at things differently. You may even want to think about using this current upturn as an opportunity to transfer money from the market and into something safer.”
In particular, he says, if a fixed annuity is appropriate for the client, “you should point out that the gains will be locked in, the principal is protected and the taxes are deferred. This is guaranteed.”
For boomer clients, the discussion is different, Unkefer allows. “They are generally young enough so that they can benefit from taking on the risk that goes with volatility.”
“What the producer needs to do is figure out how to float in mid-air,” contends Frank Gencarelli, executive vice president in the Retirement Services Group at GE Financial, Richmond, Va.
By that, he says he means “the producer needs to take a balanced approach to the discussion. And, a planning mentality has to rule.”
Operating in the extremes, of market ups and downs, is a “bad idea,” Gencarelli explains.
Still, consumers do tend to hang on the one side or the other, in different market environments, he says. For example, last year, many were “scared,” even though the market was up 20%. They were “circling the wagons with 3% guarantees, and they missed out on opportunities” for equity growth. But now that people are aware the market is back up, some are feeling “greedy,” and want to get some of that gain, he says.
“The question you have to ask is, can people make money that way?” Gencarelli says.
Today, more and more planners are adopting a long-term model, he continues. “They are taking the position that if the client stays with them and the recommended approach, they will achieve their goals.”
The advisors role, when clients bring questions about moving their annuity money, is first to “calm the client down,” he says. “Then, give the best advice you can give.”
Set the tone of balance and long-term planning, Gencarelli suggests. “Be rational. Help the client understand volatility and long-range planning.Create a climate of balance.”
The most winning strategy is to move into equities when others are retreating from equities, and to move into bonds when other people are retreating from bonds, he adds. But some people will do the wrong thing.
In fact, he says, even the best advisor will sometimes need to accommodate a client who insists on say, 3% interest guarantees or, conversely, some kind of futuristic equity account.