There has been a lot of buzz lately about annuities, and rightly so. In an era where the traditional three pillars of retirement income — Social Security, employer-sponsored defined contribution plans (pensions) and personal savings — are beginning to crumble, financial professionals are embracing annuities as a viable way to give their clients the opportunity for lifetime income with guarantees.
According to LIMRA, variable annuity sales (which make up the bulk of total annuity sales) climbed to $38.9 billion, or 24 percent, in the first quarter of 2011, from $32.2 billion a year earlier. These numbers could lead one to believe that financial professionals of all types are now selling variable annuities, though, in reality, this couldn’t be further from the truth.
In fact, according to industry sources (VARDS, Cerulli Associates, SPARK Institute, ICI and ADL Analysis), of the more than 300,000 financial advisors working today, only about 20 percent are selling variable annuities, with the majority doing so in a commission-based environment. The other 80 percent is comprised of either commission-based financial professionals who do not sell variable annuities, or fee-based advisors who simply can’t sell them under their current platform.
As the changing retirement landscape continues to place more responsibility on personal assets, clients are asking for ways to protect a portion of their savings, and fee-based advisors are searching for solutions to assist their clients in meeting those needs. Helping these advisors address that issue is a significant opportunity for the annuity industry, as the fee-based market has experienced steady growth in the last six years.
This trend has certainly caught the attention of annuity providers over the past year, which is why several newly-designed products are now being made available to advisors that wouldn’t — or more importantly couldn’t — sell them in the past. As more and more clients see the value in relationship-driven, fee-based portfolio management, these advisors need to show that they understand the challenges of generating income in retirements that are lasting 25-30 years or longer, and that they have the tools necessary to offer solutions.
New solutions needed
Regardless of how they work with clients, just about every advisor has a new or existing client who:
- Is still in the accumulation phase and is looking for new tax-deferred growth opportunities
- Wants to add a level of protection to their retirement savings, but is concerned with losing potential or all control of their assets
- Is seeking guarantees as they move from accumulation to distribution
- Has already retired and is taking systematic withdrawals from unprotected assets
- Might like the idea of an insured solution, but is concerned with the cost and/or complexity involved
- Is interested in having a guaranteed income stream for life that can also potentially increase in retirement
In the past, addressing these concerns with variable annuities was a straightforward process for commission-based advisors, but was much more difficult for the fee-based group. Although some fee-based advisors could sell commission-based annuities on fee-based platforms, it was a hassle they would typically avoid, since, in addition to cost concerns, performance reporting would not show up on comprehensive client statements. This made it difficult to include annuities in the holistic planning model fee-based advisors prefer to offer their clients.
With new variable annuity products specifically designed for fee-based advisors, they don’t have to make those sacrifices anymore. The new products allow them to consolidate their offerings and provide a seamless experience with easier, more comprehensive portfolio reviews.
For advisors that already have a fee-based business, the new breed of fee-based annuities can help them attract new clients seeking a cost-effective income strategy without changing the way they do business. They can also assist in retaining existing clients who need protection as they move from accumulation to distribution. Above all, they will be able to supplement unpredictable income strategies and preserve other portfolio assets from being drawn down.
Demand on the rise
This is an important development for the industry because it seems that the demand for these products isn’t going anywhere. According to a 2010 study from Cerulli Associates, 49 percent of advisors reported a client making an unsolicited inquiry about annuities in the prior six months. This desire for information about guaranteed income is echoed in Allianz Life’s Reclaiming the Future study: 50 percent of respondents found the idea of getting insurance to protect a part of their retirement nest egg very appealing.
Thankfully, annuity providers have answered the call by giving the fee-based community new products that are truly proactive in providing the longevity protection their clients desire. For a fee-based annuity to be truly effective, advisors noted that they would need products that offered a variety of options, including things like competitive fees, a diverse lineup of investment options and flexible income and death benefit protection. The new fee-based variable annuities offer this and more — some even include options for lifestyle-sustaining income with payments that have the potential to increase in the future. These product guarantees are backed by the financial strength and claims-paying ability of the issuing company.
As more financial professionals begin to understand the value of variable annuities, the potential for growth in the fee-based market is unlimited. It should be noted, however, that this type of innovation is happening across the board in the annuity industry. So if you haven’t sold annuities in the past and are interested in offering your clients more options for guaranteed income, it’s important to educate yourself on today’s products.
Most likely, there’s a solution out there that can strengthen your client’s portfolio, generate guaranteed income needed to sustain their lifestyle during retirement and help your business grow at the same time.
Corey Walther is senior vice president and head of investment relations and fee-based distribution for Allianz Life Financial Services, LLC.
For more exclusive annuity coverage, visit ASJ’s Annuity Resource Center.
Past annuity stories from ASJ.com: