Market turbulence has made consumers more fearful of their financial future. Consequently, they gravitate more today toward products like annuities, that pledge guarantees. That was one of many themes that were articulated during a recent media luncheon sponsored by Prudential Financial.
Caroline Feeney, CLU, ChFC, president, agency distribution, for Prudential Financial, said the general feeling among clients is one of “trepidation” and “waning confidence.” Therefore, they want their financial planner “to hold their hand” during market upheavals.
In recent years, that inclination has translated into a product shift toward annuities and mutual funds, Feeney noted. Specifically, sales of variable annuities (VAs) have increased.
However, it was noted that several VA carriers have instituted changes in their products to cope with the low interest rate environment, including Prudential. For example, at the end of August, Prudential upped the age a policyholder could elect the guaranteed income rider from 45 to 50 and increased the age at which withdrawals could begin, from 59-and-a-half to 65. That was done, Feeney said, to ensure the long-term viability of the product.
Financial planner Stephanie Sherman, CFP, of Stephanie Sherman & Associates, said the recent change shouldn’t have much of an impact on VA sales since very few 45-year-olds are currently thinking about guaranteed income in retirement. Instead, they focus on other financial matters, such as helping aging parents and putting their children through college.
The briefing covered a wide range of topics including the possibility of the fiduciary standard being imposed throughout the financial services industry, as it is in the U.K. and other countries. Such a new standard would essentially replace commissions in favor of fee-based compensation.
The potential change is now only in the discussion stage amongst regulators, but Feeney conceded if it did come to pass, “it would be a significant change to Prudential’s business model and infrastructure.”
It could also have an impact on middle-market consumers who want to get financial advice. George R. Barnes, a financial planner with Prudential Insurance’s West Essex office in Towaco, N.J., agreed such a shift would have a meaningful impact on the financial advisory business. “Not everyone can afford a fee,” he said. “How do you adjust the fee so everyone can get the services?”
Another possible regulatory change being bandied about is a reversal of the favored tax treatment of life insurance. While this could be more of a consideration in an estate planning context, Sherman and Barnes said clients are more concerned about the guarantees and the cash a life policy provides at the owner’s passing rather than the tax treatment of the cash build-up. “Non-tax issues are more important than tax considerations,” Barnes said.
For financial advisors and their clients alike, it’s been a struggle to steer calmly in rocky markets. The job, said Sherman, can be all consuming. “Clients are trusting us with their financial futures,” she said. “It’s not for the meek.”