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The Critical Need: Education On Income Planning And Products

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Time was when Tema Steele, a Cherry Hill, N.J., agent with New York Life, did not sell income annuities.

She does now. A lot of them, she says.

What happened? In late 2004, Steele says she heard a presentation about how immediate annuities address client concerns about outliving their money. She listened to how ownership of the annuities can make it easier for retired clients to relax and enjoy life, knowing they have guaranteed monthly income for life.

Then she went out and “ran with it.”

The story underscores findings from a recent National Underwriter/New York Life telephone survey, pointing to greater need for agent education on immediate annuities.

In the survey, 48% of the advisors gave their peers a grade of “C,” when asked how well the advisors do in explaining annuities to clients. Only 27% gave their peers a “B.”

Furthermore, even though 65% believe the number of people who need to spend their nest egg in retirement will grow, and even though 49% predict their use of annuities for generating lifetime income will increase, only 19% rated annuities “an essential holding” in an income plan.

“If advisors understood more about immediate annuities, more of them would describe the products as ‘essential,’” suggests Paul Pasteris, senior vice president-retirement income at New York Life Insurance Company, New York.

Over half the polled advisors (53%) said they would sell more annuities for retirement income if the product had “better performance.” Also, 47% said they would do so if annuities had “better press,” and 44% said the same if annuities had “better pricing” and “greater awareness among investors.”

However, Chris Blunt, executive vice president, New York Life Investment Management, New York, believes greater advisor education on retirement income needs and solutions would make the most difference. Advisors will then be able to educate clients, he says, noting that a NU/NYL consumer survey, conducted as a companion to the NU/NYL advisor survey, found many consumers are ill-informed in this area. They will be “screaming for help” when retirement comes, Blunt predicts.

[This is one reason why New York Life developed and now hosts two informational websites on retirement income. One is for advisors ( and the other is for consumers (]

Greater advisor education on retirement income issues, strategies and products results in greater revenues, notes Ted Mathas, executive vice president, New York Life Insurance Company, New York. “For instance, our agents’ income annuity business in the past two years basically tripled as we initiated training for the retirement income market as a discrete discipline.”

The NU/NYL survey shows advisors do understand that clients want retirement income guarantees, Blunt stresses. For instance, 96% of advisors said clients would be “very” or “somewhat” interested in a $100,000 immediate annuity bought at age 65 that pays $7,100 per year for life and that guarantees, if death occurs before all principal is paid, the remaining principal will be paid to heirs.

“This is a big opportunity for advisors,” Blunt stresses, reiterating that advisors need more education so they can tap into it.

Steele agrees. Before she started working with immediate annuities, she says she was “aware” of them but did not know how they fit into her clients’ portfolio or lives, nor did she know how to present them.

Getting educated on the product “was essential to my being able to offer immediate annuities,” she says.

Today, Steele not only sells immediate annuities; she also helps train other agents on the issues and products. For instance, in a video sales presentation for agents, shown on a New York Life portal, she demonstrates how to present an income plan that includes immediate annuities. Agents tell her it is “extremely helpful,” because they, too, have been confused about where the product fits and how to present it.

“They need it explained to them,” Blunt concurs. “The vast majority of advisors have never had an income annuity explained to them.”

Clients need to understand, too, says Pasteris. The survey supports that. For instance, 83% of advisors said client understanding of retirement income needs is a “very important” factor in the sale of income-producing annuities. In addition, 80% said how much income the consumer gets for the dollar is “very important,” and 77% named client understanding of the product as “very important.”

Different products have different plusses and minuses, Pasteris allows. Advisors need education on how to match the product in a way that optimizes the client’s objectives in each case.

For example, he says, an advisor may want to use a variable annuity with a guaranteed minimum withdrawal benefit to maximize downside protection on client assets that have market exposure. “But it’s hard to beat an immediate annuity for optimizing income [that the client needs] for basic expenses,” Pasteris says.

Lately, he says, many insurers have been putting out “great information” about immediate annuities, says Jim Pedigo, executive vice president, Financial Rate Watcher$ Inc., Longwood, Fla.

However, the material is often marked “for broker use only,” he says, “so we can’t share it with the consumer in that format. And, if we rewrite it, we have to get it approved by the insurer’s compliance department, and that’s too much hassle.”

That’s one example of the education hurdles that currently exist, he says.

Another problem Pedigo sees is that the focus, up to now, has been in helping high-net-worth clients take income via systematic withdrawals from securities. “Mid-income America has been ignored,” he says.

Agents do understand immediate annuities in general, he emphasizes. “But they don’t know how to use the products for mid-income clients….They don’t know how to apply it to the customer’s needs. They don’t know the right questions to ask.”

The immediate annuity industry needs to take the responsibility for this education, he says. “Make it a regular part of estate and retirement income planning, for instance.”

Agents always are asking Pedigo how to illustrate the product and show it to the client. “People want to see it on paper,” he says. “They don’t necessarily need a spreadsheet, but they need to see visually how they will get from Point A to Point B.”

Education of the advisor is a “front burner issue,” he concludes.

John P. Schwan, co-owner of Schwan Financial Group, LLC, Aberdeen, S.D., thinks most industry professionals have just passed the “ah-ha” stage regarding income planning and immediate annuities.

Awareness is high, he says. “And now, you’re starting to see asset allocation models that show how immediate annuities stabilize a portfolio; this demonstrates the value for the client.”

The next step will require a culture change, Schwan says, from product-pushing to advisors serving as consultants, spending time understanding the client’s complete needs and developing a retirement income plan that is effective for that client.

Education–of the advisor and the client–is a normal part of this, he says. “Case studies would be wonderful. So would sample situations and showing comparisons.”

Advisors do need to be trained on the products themselves and when to apply them, Schwan continues. But they also need to take a broader approach “integrating the client’s entire assets into the plan.”

The lifetime income annuity “cannot be placed effectively without this knowledge,” he concludes.


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