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Set The Record Straight On Variable Annuities

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Any astute advisor can overcome the arguments raised by the negative press surrounding annuities

After all these years, it still amazes me that the things my mother tells me are true. I’ve learned that it is easier to follow the crowd than to stand against them–but that it doesn’t always mean the crowd is right.

Since 2001, the popular financial press seems intent on the ruin of variable annuities, particularly variable annuities inside qualified plans.

With my own eyes, I have seen variable annuities being positioned as preying wolves, sins and “simply not appropriate for someone in retirement.” Even the former chair of a large financial company who basically pioneered variable annuities “for the greater good,” now says, “I can’t imagine a situation when I’d recommend a variable annuity.”

Scandals within mutual fund companies (many having subaccounts inside annuity products), mergers and acquisitions of insurance companies, and the change in annuity tax treatment in May 2004 added to the negative press.

A somewhat unpredictable stock market also would lead people to believe the crowd is running away from variable annuities by the busload.

What’s more, over the past five years, the increased scrutiny of variable annuity sales by regulatory agencies, broker-dealers and the press has contributed to uncertainties.

Now, let’s look at what has been happening to variable annuity sales: The sales ended 2004 at a record high, according to data from National Association for Variable Annuities, Reston, Va., and Morningstar, Chicago.

So, how can sales continue to climb when most of the stories about variable annuities have been so negative?

I have spoken to advisors on a daily basis, trying to understand the apparent disparity in what is presented to the public from non-industry sources vs. what is actually occurring inside their offices.

One very successful advisor explained it this way: “I wouldn’t write an article about mechanical engineering based on the opinions of three car owners.”

The point being, any astute financial planner or advisor can overcome the arguments raised by the negative press surrounding annuities. In many cases, published information is incomplete, inaccurate and misrepresentative.

If an objection arises from negative press or public misconception, advisors usually ask clients to consider the source and look at the writer’s area of expertise or what his or her motivation might be.

On fewer than six occasions, clients or prospective clients have approached the advisor mentioned above concerning negative information from the financial press. He says he has yet to “lose” a sale based on information published by the popular financial press or broadcast by supposed financial planning experts.

Innovations in base product design of variable annuities provide advisors with a very full tool kit to tailor an individual product to meet the specific personal and financial goals of each client. Examples include death benefit step-ups and the addition of riders that can guarantee minimum income benefits, accumulation benefits and withdrawal benefits.

Clients’ goals of accumulation, death benefit protection, guaranteed income streams, retirement supplements and hedging savings against the risks of inflation can all be met inside a variable annuity.

Yes, disclosure of benefits, risks and cost must be made and carefully considered. Suitability review, risk tolerance and the highest ethical standards must be upheld. It’s hard to conceive of anyone from a marketing organization, insurance company, bank, professional society or advisor that would argue differently.

Variable annuities certainly aren’t for everyone. But the variable annuity industry is doing a disservice to itself and its customers by laying low and letting the crowd run over it.

For more than 50 years, people have purchased variable annuities (even inside qualified plans) because variable annuities have value. Variable annuities that are used to accumulate savings for use at some future time make sense and in return provide value to the client.

The message to advisors: Be committed to your profession, clients and industry by letting the financial press know when they have the facts wrong. Setting the record straight is critical for all parties concerned.

Molly Swami is annuity product champion-product marketing at The Union Central Life Insurance Company, Cincinnati, Ohio. Her e-mail address is [email protected].

The VA industry is doing a disservice to itself and its customers by laying low and letting the crowd run over it


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