Retirement Planning: Warming Up to Annuities

While still taking a cautious approach to their use of annuities, registered investment advisors are steadily increasing their use of immediate annuities for rollover dollars, according to a recent study by Cerulli Associates.

“The current market environment has illuminated the role annuities can play in clients’ portfolios as they seek protection while drawing income,” says Lisa Plotnick, associate director at Cerulli and lead author of the Boston-based research firm’s third annual Annuities and Insurance Update report. “RIAs are taking a second look as immediate annuities provide a relative low-cost means of enhancing clients’ portfolios in need of guaranteed income.”

The study found that 20% of RIAs would consider using immediate annuities for a portion of their clients’ rollover assets. However, most RIAs are still reluctant to use deferred annuities (and other types of annuities) because they are inconsistent with the fee-based model, Cerulli says, because most annuities provide compensation through commissions. “The [annuity] product design is not quite there now to appeal to the RIAs,” Plotnick says. Transitioning from the commission-based model is tough for insurance companies, Plotnick notes, because “it impacts the pricing of the product.” RIAs prefer immediate annuities because they are generally low cost and don’t include the “feature-rich benefits” offered by other types of annuities, she adds.