Listen more, sell more annuities

“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.”