Clients Have Unrealistic Investing Expectations: IRI Advisor Council

Members of the Insured Retirement Institute’s Advisor Council see television shows giving some clients unrealistic expectations about financial returns.

The Washington-based annuity industry group talks about that challenge in the latest IRI State of the Industry Report.

Market Snapshot

The heart of the report is a compendium of annuity market data.

IRI says, for example, that individual fixed annuities accounted for about $104 billion in U.S. sales in 2020, or 50% of the total U.S. annuity market, but that fixed annuities’ share of the market was down from 52% in 2019.

Individual variable annuities’ share of the market increased to 41%, from 38%.

Advisors’ View

IRI has also included a summary of IRI Advisor Council members’ comments about market trends. The council includes 25 financial advisors.

The COVID-19 pandemic and pandemic-related turmoil have increased clients’ interest in safe income, but at the same time, television shows have given some clients’ unrealistic ideas about how investing works, according to the IRI summary of the council members’ remarks.

“Clients stuck at home would watch shows discussing how to triple one’s money overnight,” according to IRI.

Similarly, many clients are asking advisors about what cryptocurrency means for them. Clients want to know “what it is, should they invest in it, what does it mean for the U.S. dollar and markets,” IRI reports.

IRI Advisor Council members also are getting client questions about the frenzy over GameStop stock.

“This is an opportunity for asset management firms to provide advisors with materials they can use with their clients to demystify these new and potentially confusing elements of investing,” IRI says.

Trend Watching

Here are some other annuity market trends IRI talks about in the new report:

1. The market has been changing rapidly since COVID-19.

Sales were terrible in the second and third quarters of 2020, right after the pandemic started, but sales  started to rebound in the fourth quarter of 2020, IRI says.

2. The pandemic has increased client awareness of the risk of death.

Advisor Council members have reported seeing “a lot of work on beneficiary confirmation and ensuring wills and trusts are in place and up to date.”

3. Registered index-linked annuities have been hot.

A RILA — an indexed annuity that’s registered with the U.S. Securities and Exchange Commission as a variable annuity — can provide some protection against loss of annuity value due to investment market drops while letting a holder share in a significant amount of investment market gains. That kind of contract can also help an insurer control the amount of risk it assumes at a time when stock prices are volatile and yields on bonds and other fixed-income investments are low.

Clients fear a new market crash, and they also fear missing out on big market gains, according to the IRI Advisor Council. Clients’ mixed feelings “created a good environment for discussing RILAs with clients,” council members told IRI.

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