The fear factor in financial planning

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.