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Taking The Angst Out Of Annuities

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A recent ING survey found 42% of boomers say they are intimidated by annuities. That finding gets to the root of the challenge for annuity producers and carriers: convincing boomers they need this product.

With the first members of the boomer generation about to hit their 60s, annuity marketers are ready to tackle that task. Many have broad consumer education programs under development or already complete.

Industry executives are making an effort to put annuities close to the top of the minds of financial planners and advisors.

“We go directly to independent planners,” explains Gregory Garvin, vice president of business development for Security Benefit Group of Companies, Topeka, Kan. “We think that’s a critical part of the boomer education process. A large and growing percentage of boomers are going to financial planners. And we can find planners willing to work with every demographic of boomers.”

Whether through seminars, CD-ROMs or face-to-face presentations, annuity manufacturers’ messages to consumers and planners consistently hit the same themes:

Risk: There are many threats to retirement income security to talk about with boomers, notes Gumer Alvero, vice president and general manager for annuities of Ameriprise Financial Inc., Minneapolis. His company, formerly American Express Financial Advisors, emphasizes the risks of inflation, premature withdrawal, unexpected longevity and investment loss.

“We focus on how the benefits of variable annuities can reduce and alleviate all these concerns,” Alvero says.

Flexibility: Like a number of other carriers, Security Benefit is taking an “unbundled” approach to annuities, says Garvin. The basic function of an annuity is to offer a guaranteed income stream, but with various riders, Ameritas may offer the client 10 variations on that theme.

“The boomer only pays for the features he or she wants to buy,” Garvin explains. “If they don’t want an income benefit or extra credit in their contract, they don’t pay for that. It helps us structure this piece of the retirement plan very efficiently.”

Emphasize solutions: “Our education is needs-based, not product-based,” says Richard Hiller, vice president of institutional development for TIAA-CREF, New York. “We look at what that individual is trying to achieve.”

The key is to ask the individuals about their personal objectives when they retire and what other sources of income they might expect in retirement, Hiller says.

But perhaps the most compelling way to tell the annuity story is to show where it fits in the individual’s overall retirement scheme, these experts say.

“Rather than evaluate a variable annuity as a sole investment decision, we show them to look at how it can be integrated into an investment or retirement income portfolio,” says John Diehl, vice president of advanced markets and product development for the Hartford Financial Services Group Inc. “Variable annuities offer an interesting alternative to more traditional ways, be they municipal bonds or bond funds.”

To get these points across, manufacturers are polishing educational programs to reach out to both consumers and the advisors that develop their financial plans.

Jackson National Life Insurance Company, Lansing, Mich., recently released a new multimedia presentation, “But What If I Live? The American Retirement Crisis.” It took two years to develop and is available on CD-ROM for presentation in seminars and in advisors’ offices.

“The program walks the client in excruciating detail through the seven challenges to retirement: inflation, taxes, longevity, the death of traditional pensions, ‘social insecurity,’ health care and investor errors,” says Greg Salsbury, executive vice president of Jackson National Life Distributors.

A powerful section of the presentation is devoted to video testimonials of retirement crises actually faced by real people, Salsbury says. For example, a United Airline pilot talks about the demise of his company’s pension plan, leaving him with 75% less retirement income than he had planned on.

Nationwide Financial Inc., Columbus, Ohio, is simplifying illustrations and sales and marketing materials offered to advisors.

“We’re focusing on when it’s appropriate to use annuities for accumulation and when for income,” says Mark Phelan, senior vice president of Nationwide’s individual investment group. “It’s a simple story. The simpler we make it for the advisor, the simpler it is for the consumer.”

Diehl of the Hartford says his company, too, is focusing new training material on the differences between the accumulation and retirement income phases of life.

The program, still in the planning phase, will ask clients to develop an income plan based on existing assets and projected expenses, and to see the difference between income needs and their desired lifestyle.

That would set them up for Hartford’s message that a variable annuity is guaranteed income they can’t outlive.

“The sales proposition to boomers is that the definition of retirement is changing,” Diehl says. “People are going to be retired a long time. They can expect to live 10 to 30 years or more, so they must have long-term objectives. They probably have not done any kind of calculation on how their investment portfolios relate to a retirement income plan. We will emphasize that VAs marry income and death benefit guarantees with the upside potential of equities and show them how that fits into a retirement income plan.”

Minnesota Life Insurance Company, a division of Securian Financial Group, St. Paul, Minn., has introduced a couple of new campaigns.

One, “Wising Up,” targets women, providing advisors with marketing tools emphasizing simple points such as inflation protection and female longevity. Advisors find those messages can be communicated easily in workshops.

“‘Wising Up’ has played well,” says Kerry Geurkink, director of annuity marketing for Minnesota Life. “A lot of advisors are using that as a marketing approach.”

Perhaps the most intimidating part of buying an annuity is the paperwork, experts say. They note regulations, such as suitability requirements, have made much of the red tape unavoidable.

Still, some are making serious efforts to make it less onerous.

ING Americas, for example, has offered a VA that has been streamlined by offering few options, making it simpler to understand, according to a company spokeswoman.

Security Benefit has automated its distribution system so that once an individual has filled out a form for, say, life insurance, the information is readily shared with other forms. “It eliminates redundancy,” says Garvin.

“Sure, the paperwork puts off some people,” acknowledges Jackson National’s Salsbury. “But our products are intermediated by an internal advisor who helps producers with the process, so it’s not as much of a challenge as you might think.”

Nationwide offers what it calls its Ambassador Service to preferred producers, notes Phelan. “We bring in an advisor to fill out the paperwork for them based on the information they give us over the phone.”

It also has a team of about 20 people tackling the problem of simplifying the paperwork, Phelan says. “They’re looking at every application and contract and trying to simplify it.”

Baby Boomers And Annuities

Questions, Doubts and Fears

?46% say they do not know enough about annuities to decide whether or not they are a good investment.

?42% say they are intimidated by annuities.

?20% think annuities are for wealthy people.

?More than 60% will rely on restricted investment vehicles such as 401(k) plans, Keogh plans or pensions to fund their retirements.

?Fewer than 20% will rely heavily on stocks and bonds to fund their retirements.

?Nearly 70% of boomers believe annuities can provide a reliable savings source for income in retirement.

?Nearly 70% expect to maintain their current lifestyles in retirement.

Source: ING U.S. Financial Services/Roper Public Affairs


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