Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Annuities

Annuities or investments? Ask yourself this question

Your article was successfully shared with the contacts you provided.

Cats or dogs? Conservative or Liberal? Investments or annuities? What is it about us that causes otherwise reasonable people to take a position on an extreme? When did it become so difficult for us to use the word: and? Is it possible that the reason the answer is so challenging is because we are asking the wrong question? Is it possible that the answer is annuities AND investments?

Whether choosing a pet, a political party, or an advisory model, the decisions we make will have material effects on our actions and outcomes. Our clients deserve us taking the extra time to ask some tough questions.

In the case of financial products, dually licensed advisors appear to have been able to cross the either/or chasm, that place where absolutes gasp for air and extremists dare not reside. For those who have done their research and have invested the time into truly understanding the attributes of both risk-based investments and guaranteed annuities, it is a rich and fertile land where sound and flexible retirement plans win the hearts and minds of discerning clients. But why is it so rare to find an advisor who truly embraces both product categories wholeheartedly? 

Of course there is no single, easy answer. Allow me to highlight three reasons why the advisor community may be so polarized.

1. One approach is to simply follow the money. Which pays the advisor the highest fee, investments or annuities? That must be why he is selling that product or strategy versus the other, right? As René Descartes theorized centuries ago: “Man is incapable of understanding any argument that interferes with his revenue.” Thus, an advisor who is paid by his firm to sell stocks will sell them with vigor and close his mind to seemingly-competing options (like annuities) that do not support his revenue model and advancement. Likewise, an annuity salesperson is held to a premium production standard that may cause her to argue that stocks are too risky and should be avoided at all costs.

Can it really be that simple? After all, an argument that annuities earn huge commissions for the advisors who offer them fails to note that it is generally a one-time fee, a single harvest. The same assets placed into a fee-based investment portfolio will pay a smaller annual fee, but will pay it to the advisor year after year. Certainly, there must be more to the story than simply following the money then.

2. How about the service model? One can argue that managing investments on behalf of clients requires ongoing service to ensure the portfolio is properly balanced and congruent with the client’s needs and objectives. That sounds like work. Why not just sell an annuity that offers guarantees and send the client (customer) on her merry way? After all, what’s left to do? For those advisors with a Type A temperament, building relationships with clients that last years may not suit their personality.  If that’s the case, the investments service model looks like a trap.

risky investments3. Do you even have the ability to offer multiple product types? If you work for a firm or an agency that only offers one type of product, your contract with that business may limit what you can offer. Without options, a temptation is to craft a sales or marketing message that highlights the attributes of your product while highlighting the limitations of the other, leading to further biases.  While this may be what your company does, is this approach in the best interest of the client?

Clearly, there are no easy answers here, nor are there solutions that are right for everyone. That’s my very point. That’s precisely why I believe that our clients will be best served when they have options presented to them for both risk-based investments and guaranteed products. Each product has different attributes that make them very effective when paired together. Using guaranteed income products to solve for essential lifetime income needs while earmarking risk-based investments for discretionary expenses that a retiree may face offers them flexibility and security.

When advisors take the time to investigate multiple approaches to clients’ needs, and have access to a full product offering, the client wins and we win. If we take this approach, we can feel great knowing that we served the needs of the client by using complementary products together in a well-designed plan.

The either/or extremist view is a dangerous one. Learning to adopt an “AND” approach can open up new worlds that weren’t apparent until you began to see your business differently. So why not become a trusted advisor rather than a product salesperson? This means your clients never have reason to leave you. After all, if you’re embracing an “AND” approach, you’ll stand out from other advisors who haven’t crossed the either/or chasm. You’re able to offer strategies to clients that other advisors cannot or will not offer. 

Here’s the question you should ask yourself: “Am I serving my clients as a complete advisor or am I simply selling them a product?”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.