If you’re a growth-minded advisor who puts stock in surveys, now might be the ideal time to make a concerted push to build your variable annuity book of business. Opportunity is indeed knocking for advisors in the VA marketplace, according to a recent survey of executives from insurance companies, VA asset management firms and broker/dealers.
On a scale of 1 to 5, the growth prospects for variable annuities rate a robust 4.1, according to the survey, which was conducted by the Insured Retirement Institute (IRI) and Cerulli Associates. However, judging by recent sales trends, VAs are far from a sure thing. In fact, sales of variable annuities dropped 18 percent in 2009, according to the insurance industry research organization LIMRA International. That downward trend continued in the first quarter of this year, when IRI saw VA sales dip another 1.5 percent from the previous quarter.
So while the VA industry sees promising days ahead for its products, success in the current challenging sales environment demands that advisors do more than just go through the motions. Here’s what top variable annuity producers are doing today to stay a step ahead of the competition:
1. Be more than a one-trick pony.
There’s no such thing as a one-size-fits-all variable annuity, so for the sake of suitability, it’s wise to offer products from multiple carriers. “Some products are good at some things, some are good at others,” says Kevin Loffredi, senior vice president at Advanced Sales & Marketing Corp., an Oakbrook Terrace, Ill., firm that provides annuity research data and wholesaler productivity tools. “You want to be able to match client situations with the right products.”
An ability to present products from multiple carriers gives advisors “a competitive advantage,” says Ryan P. Klose, an investment and annuity specialist for Mass Mutual in Scottsdale, Ariz. “You’re able to hit many more markets in terms of age groups.” Offering VAs from a range of three to five insurers makes sense, according to Loffredi and colleague John McCarthy. But any more than that could be too much to try to stay on top of.
2. Know your products cold.
Insurers filed more than 140 changes to their VA contracts in the first quarter of 2010, up from 37 the previous quarter, according to figures compiled by Advanced Sales and Marketing. It’s incumbent on advisors not only to keep abreast of those changes but to understand how to use new features when the situation warrants, asserts Brian Appel, principal at Appel Financial Group in Red Bank, N.J. “The savvy advisor does his homework and always comes to the table with two or three [VA] options, lined up side by side,” says Appel, a former VA wholesaler for AXA, “so he can say to the client, ‘Here’s what I like about Options A, B and C, and here’s why I think this option is best for you.’”
3. Stress financial strength.
Among all the factors broker-dealers weigh in selecting VA providers, insurer financial strength (credit rating) ranks highest, according to the Cerulli/IRI survey; likewise, 80 percent of advisors who responded indicated they value financial insurer ratings highest when evaluating VA products to offer clients. Given the beating insurance companies took during the financial meltdown, clients more than ever are seeking assurance that their base annuity contract and any attached guarantees are solid and safe, says Klose. To ease those concerns, he suggests advisors offer VAs from insurers with high credit ratings (A or higher) and high Comdex scores (reflecting a composite of ratings from various agencies). And he suggests they explain to clients exactly what credit ratings and Comdex scores are and why they’re significant.
4. Bring living benefits into the discussion early.
The strongest-selling VAs these days are contracts with robust living benefit guarantees, according to Frank O’Connor, director of insurance solutions at Morningstar, Inc. “Products offering lifetime guaranteed withdrawal benefits with value enhancers such as step-ups and bonus credits represented the lion’s share of [VA] sales. This is a reflection of the VA investor’s desire for higher returns in a low rate environment, coupled with a willingness to exchange a percentage of those potential returns for the protection offered by these benefits.”
Amid high equity-market volatility, the combination of income guarantees and downside protection resonates loudly with clients, says Loffredi. “They feel there’s a layer of protection there, so they can go out and be a little more aggressive with their assets.”
5. Emphasize value.
Appel says he’s frank with clients about the costs associated with a VA because that often opens the door to a discussion of the benefits a variable annuity delivers for the cost. “Costs are only an issue in the absence of value,” he says, “and 95 percent of the time, they understand that they’re getting a plan that might cost a little more but one that’s going to allow them to retire regardless of market conditions.”
Attributes such as a guaranteed lifetime income stream, principal protection, a guaranteed death benefit and tax deferral make the annuity value proposition especially compelling. Be sure to highlight them early in the sales process.
6. Debunk myths and misconceptions.
One is that fixed-rate investments are risk-free and immune from volatility. It’s important that clients understand that’s not the case, says Appel. Reinvestment risk, inflation risk and creditor risk are all real issues with fixed investments that should be weighed when mulling a fixed vs. a variable product. It’s also important, says McCarthy, to point out that a deferred VA isn’t a lockbox–that there are ways to access annuity funds without incurring huge surrender charges via systematic withdrawals and the like.
7. Be ready with a lower-cost annuity option.
In cases where commissions and fees are a deal-breaker, present a lower-cost annuity option. More insurers are rolling out lower-cost, simplified VAs which may appeal to the most cost-sensitive clients. The trade-off usually is less-robust living benefit guarantees, however for clients for whom tax deferral and wealth transfer are top priorities, those guarantees might not matter as much.
8. Show a VA’s conservative side.
It’s important to point out to clients who are fed up with extreme market volatility that many VAs will allow them to allocate a large share of contract assets into fixed subaccounts. “They let you go pretty slow if you want, which I think addresses–though doesn’t eliminate–a lot of volatility concerns,”
9. Lean on outside resources.
As successful as Appel has been selling variable annuities, he acknowledges he couldn’t have done it all without help. Indeed, he continues to lean on VA wholesalers/distributors, industry groups and his peers for support, information and insight. For current info on products and carriers, wholesalers can be invaluable, he says, while sharing ideas, experiences and best practices with colleagues in the advisory community can also provide an edge.
10. Walk the talk.
“Advisors who sell annuities probably should own one themselves,” says Loffredi. What better way to understand the product and the purchaser’s mindset?