Photo credit: <a href="http://www.freedigitalphotos.net/images/view_photog.php?photogid=1408">Boaz Yiftach</a>

A product that promises a check in the mail for as long as you live sounds pretty appealing, right? I mean, who wouldn’t want money for life? Many of your clients do.

Yet when it comes to insurance products like annuities that can offer guaranteed lifetime income, not all independent advisors are on board. Or so concluded a white paper, “The Missed Opportunity: Guaranteed Income as an Asset Class,” put forth by NFP Advisor Services Group and the Aite Group.

Of the nearly 250 independent financial advisors contacted by the two firms, 65 percent do recommend guaranteed income products to pre-retirees who may face longevity risk. Not a bad ratio, but considering surveys show many consumers want lifetime income and would be willing to pay more for the benefit, shouldn’t that percentage be higher?

See also: S&P: Annuities Set to Grab Larger Piece of Retirement Income Market

The study also found that an advisor’s affiliation had a significant impact on whether or not he or she routinely advised clients to consider guaranteed income products. Not surprisingly, advisors allied with an insurance broker-dealer (B/D) recommended the products 80 percent of the time, while advisors affiliated with an independent RIA endorsed guaranteed income products half as much. In the middle were advisors affiliated with an independent broker-dealer.

Wanting to know more about these seeming incongruities, I spoke with James Poer, president of NFP Advisor Services Group, to get his take on the findings.

The Austin, Texas-based executive said the purpose of the white paper was not to get more independent advisors to recommend guaranteed income products to their clients, but simply to educate them on the products and their application in certain client situations.

“Our intent is not to articulate that it’s not enough, it’s more to change the perception of when, how and why to employ the tool,” he said.

As for the differences between how the products are viewed based on an advisor’s particular affiliation, Poer chalked it up to contrasting philosophies based on their familiarity with the products and how they get paid.

Insurance B/D-allied advisors are not only more familiar with guaranteed income products, but with the concept of pooling risk, Poer said. “And pooling risk is going to be more and more a reality of the economic future of more and more investors. It’s going to be needed in order for people to achieve their income needs.”

At the other end of the spectrum are those independent advisors who work for pure RIAs that have no broker-dealer affiliation. Many RIAs use a fee-based payment model. “They don’t want to ever use anything that is driven by commission,” Poer said. “Well, the best products in the guaranteed income space are typically driven in the commission world, as of today anyway.”

One of the charts in the white paper details how having a portion of an income portfolio in guaranteed products impacts the annual withdrawal rate. The researchers found that having 60 percent in equities and 40 percent in guaranteed products generated the most income between 2002 and 2011.

By using a guaranteed income product for a portion of a client’s portfolio, an advisor is free to invest the rest of the money in long-term investments that generate growth, Poer said. “Many clients only consider the market risky when it’s going down and this is a challenge for financial advisors,” he said. “So if they secure part of their portfolio to generate that [guaranteed] income then the other part can be focused on the longer-term needs. It creates more flexibility to be more aggressive with another part of the portfolio and invest it in equities that will propel longer-term growth.”

Lately, banks and broker-dealers have been venturing into fixed annuity sales. Does this mean the war between primarily fee-based RIAs and commission-enumerated insurance agents will finally end? Or will they always locked in an endless “The Real Housewives of New Jersey” episode?

If there is a coming together, Poer said, it’s more because independent advisors of all stripes are using all the instruments at their disposal to meet a specific client need. “What I see is a lot more open architecture across the industry, empowering financial advisors to serve their clients in multiple capacities.”

He also noted that the recent white paper has generated strong demand from the advisor community. “Far higher than our expectations.”

So, are you recommending guaranteed income products in your practice more so now and why? Can RIAs ever warm to fixed annuities?

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