Very few products in this industry have evolved like that of the annuity, which has come to take on a variety of shapes and forms while promising to become increasingly flexible as people’s future needs continue to change.

“Variable annuities were often used to provide clients with a platform of multiple money managers,” recalls Roch Tranel, CFP of Tranel Financial Group in Libertyville, Ill., with a slight twinge of nostalgia in his voice. “This was somewhat of a precursor to fee-based money management and was very cost effective.”

Most advisors would agree that not only has the many shapes of the annuity evolved but that they’re swamped with information on upgrades and new products on practically a daily basis.

“New advisors are inundated with variable annuity information,” Tranel says. “It can be overwhelming, especially for those new to the field.”

As Tranel intimates, the industry is rapidly moving to a fee-based advice model and this trend should continue. According to the Tiburon Research and Analysis report entitled “Fee-Only Financial Advisors Best Practices Survey,” more than two-thirds of consumers prefer fee-based advisors to commissioned-based ones. Fee-based/fee-only advisors managed more than $2.2 trillion in 2006 – and should handle over $10 trillion by 2010. The annuity has gone under a near-constant modification process to reflect the growing preference towards fee-based planning as well as other trend factors.

Similarly, as Ibbotson Associates notes in its research paper, “Retirement Portfolio and Variable Annuity with Guaranteed Minimum Withdrawal Benefit,” adding a variable annuity with a lifetime guaranteed minimum withdrawal benefit to a traditional stock and bond retirement portfolio can increase income while decreasing income risk. Studies such as these indicate that there will be good reason to support annuities as part of a long-term retirement strategy.

“Americans are becoming increasingly dependent on their own savings to finance longer retirement horizons, and they need advice, tools, and products to help them and their advisors develop portfolios that mitigate both market risk and retirement income shortfall risk,” says Peng Chen, Ibbotson’s president.

The parade of living benefits now includes such items as automatic rebalancing, optional income, death and accumulation benefits, guaranteed returns, competitive fees, shorter surrender periods, income for life, a wide range of asset-allocation choices, the ability to lock-in gains combined with “floor” protection, tax deferral, various withdrawal options, index linking choices, inflation-adjustment as well as borrowing choices have given annuities a long list of features that advisors have communicated to prospects in order to provide an effective solution. Along the way, fixed and immediate annuities have also evolved, offering many of the same features VAs do, plus we’ve witnessed the dawn of the indexed annuity and its numerous spin-offs. And it’s been sociological and demographic factors that have caused more individuals to consider how an annuity can help them, including Social Security’s questionable future and the gradual demise of company-managed retirement plans. But probably the greatest single factor when considering an annuity is the ever-expanding American life span.

“Even those retirees who truly personify the expression that ?60 is the new 40′ must still prepare for their financial future, many more carefully than their parents did,” says senior advisor Tracy Brown in Latham, N.Y. “The trick is that each client’s financial future is an individual proposition unlike any other. What may have been an ideal solution for one pre-retiree may be entirely wrong for the next.”

Tranel agrees. “Just as advisors need to be informed about the various annuities they need to be equally informed about their clients’ lives. We’re their advocate and must do what’s completely good for them.”

But despite the progressive innovations annuities now offer, the path to retirement may not be obstacle-free and as different factors work their way into the retirement picture, annuity providers will need to continue coming up with fitting solutions.

“The hedging strategies in place to self-insure income guarantees haven’t been tested in a significant down market,” notes TowerGroup senior analyst Rachael Alt-Simmons. “There’s been a lot of buzz about the accuracy of mortality and longevity data worldwide which is changing faster than actuarial assumptions can keep up with. Combined with policyholder behavior, another big unknown especially as investor confidence sinks, it will be interesting to see future product development.”

When accessing an annuity fit, first consider the needs and then the solutions. A senior advisor may need to help the client acknowledge needs after researching their liabilities, as well as their goals on a voyage of joint-discovery and then illustrate how these needs and dreams may be simultaneously satisfied with a tailored solution made possible by an annuity’s seemingly endless benefit but there is a tendency to go overboard.

“Fee-based advisors want to be educated about products, not sold,” says Larry Greenberg, president and CEO of Jefferson National. “Consumers want and need simplified products. Show the value and let them decide. New, unbiased, online tools can provide real-time demos or generate custom proposals to show clients how much they can save and how much more their annuity may grow.”

Today’s annuities seem to pack an endless stream of benefits, augmenting the original promise of guaranteed income for life with innovative, forward-thinking features such as built-in long-term care benefits or asset-allocation choices as cutting-edge as exchange- traded funds.

Old Mutual Financial Network now offers two XTF portfolios as part of its Beacon Advisor variable annuity. It is anticipated that these portfolios will allow investors to take advantage of the price efficiencies, diversification and transparency that ETFs seek to deliver.

“This is an opportunity for financial advisors to help clients reap the advantages of a long-term, ETF-based investment,” said Tom Scuccimarra, head of asset manager XTF Global Asset Management’s sales and distribution office, which is managing the ETFs for Old Mutual. “These model-driven products not only provide diversification across a number of asset classes, but enable investors to participate in managed portfolios that tactically adjust to market conditions, in an attempt to take advantage of growth periods in specific sectors and protect capital in downward trending markets.”

And as long term care promises to be an increasingly expensive item on people’s retirement agendas, annuity companies have responded to that as well. The Living Care Annuity from Mutual of Omaha combines a deferred fixed-rate annuity with built-in long term care benefits. The idea is to give individuals a simple, direct way to save for retirement while planning for the probability of long term care. This relives them of the need to have to save for two needs in one annuity while providing safety and income.

The need for liquidity has been another constant in retirement planning. Sun Life Income on Demand allows income to be turned on and off as needed. This income-for- life feature caters to retirees’ need for security,” notes Harrington.

AXA Equitable’s Cash Value Plus Rider reduces the need to tie up other assets or obtain letters of credit as collateral when financing life insurance. This makes it easier to act, by offering a flexible alternative for clients who are reluctant to move assets for purposes of posting collateral in premium financing arrangements as a client may obtain up to 95 percent of required collateral with the policy alone, minimizing out-of-pocket collateral and often obtaining more favorable financing terms. “By increasing a policy’s cash surrender value,” says Claude Methot, AXA’s senior vice president and chief product officer, “the rider can offset the impact of the premium outlay on a corporation’s books.”

While no one can be sure for how long they’ll need to plan for their retirement, it’s probably safe to say that peace of mind provided by the financial protection, income for life and the other solutions annuities increasingly provide will assure they remain a key feature in any long-term financial plan.

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