Perhaps no other financial product has stirred up as much bad press, confusion or consumer prejudice as the annuity. The irreversible nature of the buying decision and non-liquidity of funds coupled with media attention surrounding unscrupulous salespeople in recent years has made some clients understandably wary about annuities. Yet the product’s unique benefits often make it a highly appropriate component in a senior’s portfolio. The key to selling annuities is thorough education about the variety of products and complexity of options, a clear understanding of the customer’s financial picture, and usually, good old-fashioned listening skills. Here’s what some top advisors have to say about selling annuities in today’s market.

The big picture

Jesse P. Cunningham IV, a sales veteran with more than 20 years’ experience who represents Senior Benefit Services in Belair, Md., says, “God gave us two ears and one mouth for a reason: We should listen. We need to slow down and take our time during customer meetings. I also always tell my senior clients, ‘If you want to bring your son or daughter along, that would be great.’”

“My job as a financial advisor is to fit my clients into the financial products that best suit their needs,” says Scott Stewart, principal of Stewart Advisory Group in Draper, Utah. “I accomplish that by listening intently with the sole purpose of uncovering a prospect’s ‘real’ needs and wants, and fitting the right product to meet that need. It’s a win-win approach to selling.”

The first meeting

“We initially ask open-ended questions, and take notes about our clients’ desires, fears and goals for their estate today and tomorrow,” says Robert Fedigan, CEP, RFC of Reliance Resources, LLC in Tucson, Ariz. “We’ll ask, ‘What are some of your major concerns and fears since you’ve retired? Do you feel that you have enough assets to support future issues like long term care or income replacement for your spouse? How do you feel about the way your current funds are performing and the safety they bring to your family? What are your short-term and long-term concerns with the liquidity of your funds, and do you have enough funds in an emergency account to cover any immediate needs should they arise?’”

The financial picture

Elmer D. Bontrager, CLU, ChFC, of Bontrager Insurance and Investments in Sarasota, Fla., conducts what he calls a ‘Fact Finder’ to determine where his clients’ money is located. “I’ll ask questions like, ‘What is the money in each account designated for?’” Bontrager says. “‘Do you have children, and if so, can they be trusted with significant assets? Do you have any large purchases such as a new car, remodeling, gifts or trips planned in the next two to three years? How much ready cash do you need for your comfort level in a money market or short-term CD? Are your expenses in line with your income, and do you need additional income from any of these accounts?’”

“After these questions are identified and answered, we start talking about the benefits and features of a deferred annuity,” Bontrager says. “This process usually eliminates most of the concerns of a long-term commitment.”

Raymond Yakaitis, Jr. of Scranton Financial Group in Westbrook, Conn., adds, “We review tax returns, insurance products and investment statements. These documents all leave valuable trails that provide us with dollar values of portfolios, performance, fees, and so forth.”

Cunningham agrees on the importance of asking good questions during initial discussions. “If I discover, for instance, that my client doesn’t have an emergency fund, I generally won’t recommend an annuity. I also ask about their debt structure, and whether they have large future expenses on the horizon; will they be providing college assistance for a grandchild? Does the house need a new roof? Those personal details don’t come out without good conversations and listening.”

The client’s financial personality

“We go through a discovery process to determine our prospects’ risk tolerance,” Yakaitis says. “We ask customers if they consider themselves aggressive or conservative investors, patiently waiting for separate answers when both spouses are present. Since most of our prospects are age 55 and over, most emphatically admit they used to be aggressive, but are now conservative.

“We then ask, as conservative investors, what percent of their portfolio should be exposed to higher-risk investments or the stock market. Once they respond, we ask what the current breakdown of their portfolio is, and it’s not unusual to see a reversal of where they would like to be. At this point we are not even close to suggesting an annuity as a solution; we simply want to listen and hear them tell us they would like to be in a more conservative posture.”

Getting down to the nitty gritty

“We never try to ‘sell’ an annuity,” says Buddy Camper, CSA, CEP, of Asset Preservation Associates in Tyler, Texas. “If it fits, we recommend it. Using the Ben Franklin method, we explain the positives and negatives of each recommendation. The client makes the decision. Our final plan documents everything we’ve discussed and reasons for the choices. Using this method, we generally handle all major concerns in advance.”

“Before we dissect the pros and cons of the investment, we inquire about our client’s other advisor relationships,” says Yakaitis. “These may be CPAs, insurance agents, brokers, even friends or family members. After identifying the advisors, we ask the prospect to rank them. This is where disciplined, patient listening skills are critical. Even though we may see an obvious opportunity for a product or broker change and the client may agree with product flaws you’ve brought to his attention, he may have a 20-plus year relationship with the broker and it can be a challenge to oust the incumbent.”

The next stage is where he might explore more conservative options, Yakaitis says. “We’ll compare the various insured options: banks (CDs), government (bonds), and insurance companies (annuities). Then we ask clients to rank their choices. Often a senior’s top choice will be CDs or money market accounts. Since we are looking for long-term relationships, we have no problem with putting the lion’s share of the portfolio in these accounts instead of annuities.”

Objections to annuities

“The issue of liquidity is a common objection,” Stewart says. “When the question arises I might ask, ‘How long have you had these monies?’ A common answer is 10-plus years. I then ask, ‘How often are you dipping into the account?’ The answer is usually, ‘Never.’ I’ll respond, ‘Okay, if I understand you correctly, what you are saying is not that you want it liquid because you haven’t needed liquidity with this money; you’re really concerned with getting stuck in an underperforming, poor investment. Is that right?’ Eighty-five percent of the time they will say yes. It’s now your job to show how the particular product you’ve chosen will meet the client’s needs and objectives.”

The other issue that is often raised is low returns. “I explain, ‘All financial choices carry risk, whether it’s market risk, credit risk, inflation risk or opportunity cost risk.’ After explaining those terms, I ask, ‘Which risk is the most unacceptable to you?’ For most, it’s market risk,” Stewart says. “I’ll respond, ‘I’ve met with thousands of retirees over the last two decades, and every one of them who has made safety and protection from loss their No. 1 priority, and potential return a secondary priority has always been glad. Doesn’t it make sense at this stage of life to choose safety over an uncertain potential?’”

The best question of all

“I think the No. 1 question to ask clients is, ‘How do you feel about this?’” says Douglas Nickson of Nickson Secure Retirement in Bellevue, Wash. “I often ask this question about current investments, which are logical funds to be potentially transferred to an annuity. Like a doctor, you need to locate the pain. If the patient says, ‘Everything is fine,’ it would normally not be appropriate to operate. On the other hand, if a client says something like, ‘It really bothers me to have all that risk and pay the broker a fee even if my account value goes down,’ you are likely to provide a better solution.”

The payoff

For many advisors, seeing an annuity work the way it’s meant to is the most satisfying part of the selling process. “One couple’s income was all being generated by the husband,” Fedigan says. “By listening to their concerns and evaluating their current portfolio, we found that if he passed away, there would not only be a shortage of income, but the surviving spouse would go broke in a fairly short period of time. This was prior to the market downturn of 2000, and had my clients stayed in their current financial situation, they would have lost over 40 percent of their portfolio. By determining this risk level, the client made the decision to purchase a fixed index annuity, had the options of bonds during that market downturn, and gained in the policy instead of losing. Shortly after 2004 the husband passed away, but the positive outcome is that the wife now has sufficient income and hasn’t had to change her lifestyle.”

“I recently completed a plan for a 61-year-old widow who was eager to retire from the Texas Department of Corrections,” Camper says. “She wanted to be certain she had enough funds to enjoy life and never run out of money no matter how long she lives. Annuities were a great fit for a portion of her portfolio. She now has enough ‘safe money’ to assure that even if the stock market collapses, she’ll never need to put on her TDC uniform again.”