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.
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.
If there’s a solution to closing the advisor gap, the forum panelists failed to provide it.
Bill Dwyer, president of national sales and marketing at LPL Financial, acknowledged during the Q&A that it will be “hard for the industry to catch up with demand” for advice. The shortage of advisors, he added, is reflected in the aging workforce–the average age of producers is 52–and in growing regulatory and client-servicing demands on the advisory’s time–time that could be spent prospecting.
Dwyer added that LPL has been working with annuity manufacturers to introduce solutions that let advisors more efficiently manage accounts, such as by notifying clients of asset allocation changes in VA subaccounts. Such innovation is to be commended. But I suspect it will have only a minor impact in addressing the larger issue.
In answer to my question–whether new no-load VAs for fee-based advisors will squeeze much-needed commission-based producers from the market–the panelists were less than reassuring. They noted the products avail clients of more options with which to compensate advisors; and that commission-based solutions will continue to be offered, including those offering fee-like trailing or levelized commissions.
That’s good to hear, except that such compensation structures generally are only leveraged by seasoned producers who either (1) run fee-based practices; or (2) generate enough in sales that that they can forgo heaped commissions. For commission-only producers–the very people most likely to serve mid-market prospects–surviving in this business will remain an uphill battle.
And so we return to the fundamental question: how to connect non-affluent boomers who are transitioning to retirement to annuity producers who serve this market. The answer may lie in packaging the products to appeal to the 80% of financial advisors who, as Allianz Life Financial Services President Robert DeChellis noted, don’t currently offer them.
Alas, that’s the subject for a future column.