In today’s competitive business world, how can annuity producers build their book of business?
To answer this important question, Jim Komoszewski, vice president of strategic business consulting for National Planning Holdings, offered expert practice management advice: “Position yourself as the client’s primary financial advisor.”
This seemingly simple tip is worth repeating because as powerful insight: A $1 million dollar client can have $5 million in total assets, and as the client relies more and more upon their primary advisor, the assets will follow. And the best way to do this is by educating your clients’ and prospects’ existing advisors about the benefits of annuities, both for the consumer and your partner.
Steps to success
Komoszewski outlined concrete steps for becoming the primary advisor, which is really an umbrella category that serves different client needs. For one, he encourages producers to think “outside the portfolio.” There are many ways to do this – defined contribution plans, for example, allow participants to withdraw assets early without penalty.
Client surveys are also often overlooked, yet can identify opportunities for the advisor to address the client’s underserved needs. For instance, surveys may reveal such assets the insurance advisor wasn’t aware of, such as variable annuities. Another effective positioning technique is offering to provide consolidated reporting for clients.
When you become your client’s primary advisor using these types of strategies, it will ultimately do more than increase business – it will benefit clients. An advisor who understands the entire portfolio will be the one who can make the most informed asset allocation decisions.
Products that protect
Another area where advisors can expand their reach is in educating clients about insured income products.
Fortunately, annuity producers have an array of effective messages and methods at their disposal to help educate financial advisors and their clients about the benefits of annuities, including retirement income, protection against market volatility and, most critically, protection against outliving retirement assets. And producers are helping financial advisors better understand how their clients aren’t the only ones who benefit; the financials make sense for their business, as well.
“My fundamental mission is to make income annuities a normal asset class,” said Tom Johnson, head of business development for retirement income security at New York Life. Making these products a normal asset class involves educating advisors and clients not just about the ins and outs of annuities and their unique strengths from a client perspective, but what they offer from a business perspective. In starkest terms, what’s in it for the advisory team?
One pillar of the advisor business case for annuities can be described in very simple terms: They can be treated as a wrapable asset and advisors can receive a wrap fee for their advisory services. For fee-only advisors who aren’t taking a commission, this is fiduciary friendly. After all, the revenue stream from an annuity is part of the planning process and can be part of the client’s statement. Johnson puts it this way, “When a fee-only advisor commits an allocation to an annuity, as opposed to a commission they can receive a wrap for advisor services.”
The second pillar supporting the argument of how advisors benefit from utilizing annuities has to do with preserving assets under management (AUM). As study after study has shown, deploying annuities improves the efficiency of the portfolio, while guaranteeing that clients don’t outlive assets. From the advisor perspective, this means more assets to manage over the long term. Some planners may find the idea counterintuitive, but they and the client will ultimately end up with a bigger pot of money by giving up a sizeable allocation to an annuity, because the remaining AUM is left to grow.
Replacing defined benefits
For clients, it requires even less of a mental jump to present variable annuities as an income product that can be used with Social Security and retirement savings. Clients are already thinking along the lines of how much income they need in retirement, and education by plan sponsors about the effect of the rise in defined contribution plans and the decline of defined benefit plans means that clients already understand that they must somehow find a way to create their own pension plan. The ease with which fixed annuities or variable annuities with guaranteed minimum withdrawal benefits fill this role makes them a natural fit for retirement planning.
When it comes to the benefits of adding annuities to a portfolio, advisors, clients, and annuity producers find themselves in an extremely rare situation in finance: Their interests are aligned. Annuities can preserve portfolios and guarantee income in retirement, fulfilling the planning needs of advisors and clients. Moreover, viewing annuities as a normal asset class with unusual benefits only adds to their appeal.
“Advisors now understand there is a role for annuities with guaranteed income,” said Johnson. “You take people through the arguments and they see it is a win, win, win.”
Cathy Weatherford is the CEO and president of the Insured Retirement Institute. She can be reached at firstname.lastname@example.org or 202-469-3010.