The coming decade is sure to be a boon for annuity producers, given the overwhelming need for their products among the first wave of more than 78 million boomers now entering retirement. But unless the industry moves fast to address a shortage of advisors to serve the midmarket, many of the new retirees will be left financially unprotected.
That was my takeaway from a media forum hosted on April 12 by the Insured Retirement Institute, Washington, in conjunction with National Retirement Planning Week. The morning panel discussion brought together senior executives from five annuity providers–LPL Financial, Prudential Annuities, The Hartford, New York Life and Allianz Life Financial Services–plus an advisor and IRI CEO Cathy Weatherford.
Clearly, the need for products that offer a guaranteed lifetime income stream is huge–and growing. An IRI study that explores attitudes about retirement savings and income, published in April and distributed to reporters at the forum, reveals that three in ten boomers are uncertain as to when they will retire. And a key reason is their concern about having sufficient assets.
Boomers’ retirement confidence took a hit during the recent recession. Nearly half of the respondents–801 adult Americans between ages 50 and 65–said the economic downturn made paying for essential items more difficult. One third of those polled stopped contributing to their 401(k), IRA or other retirement account.
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A rosier outlook is prevalent among the minority of those polled (28%) who own annuities. Nearly eight in ten of these boomers have a higher confidence in funding long-term care needs–a chief concern of respondents. More than eight in ten (86%) say they expect to live comfortably in retirement, as compared to 73% for the entire sample. Similarly high percentages of annuity owners anticipate being able to adequately fund medical expenses (84%) and long-term care (68%) during retirement.
The numbers, as evidenced by the IRI study, make a compelling case for greater annuity sales in coming years. I fear, however, that most of the demand will come from the so-called “mass affluent” crowd: those with $1-2 million or more in investable assets. Individuals with the greatest need for financial security in retirement, those in the middle market with substantially lower net worth, will likely remain underserved and be ill-prepared for retirement.
Why so? The profession suffers from a continuing dearth of advisors to the serve the mid-market. The problem is likely to get worse, given recent trends. Among them: growing compliance requirements; the SEC’s mandate to harmonize the fiduciary standard for investment advisors and broker-dealers; and an increasingly difficult competitive landscape for commission-only producers.