Advisors' Biggest Annuity Concerns: Advisors' Advice

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A recent survey by the Insured Retirement Institute found that American workers want guaranteed retirement income, which the report says “bodes well for the inclusion of income-focused annuities in defined contribution plans, as facilitated by the provisions of the Secure Act.”

The survey found that workers are “overwhelmingly in favor of considering retirement investment options that guarantee income for life, yet only about one in five owns an annuity.” These workers, the survey found, “are especially interested in annuity products being made available in defined contribution plans.”

Advisors, however, still voice concerns about annuities. Through the Financial Planning association, we asked advisors about their top annuity worries. Check out their answers in the gallery above.

Melanie Waddell

@Think_MelanieW

NOT FOR REPRINT

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Advisors' Biggest Annuity Concerns: Advisors' Advice

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That they’re not for everyone. And yet those that sell them, and sell them exclusively, will tell you they will solve every problem for you.

Most have many moving parts, and are quite complex. Most end consumers do not understand what they are getting into, and don’t realize how expensive they can be. For the record, I am not against a product concept that has been around since Roman times, if not before that. I own an annuity myself.

— Kashif Ahmed, founder and president of American Private Wealth, Bedford, Massachusetts

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My biggest concern about annuities is the general public’s overall attitude towards these products. Yes, annuities have a bad history for being sold inappropriately, especially from the producers that only focus on their commission. However, there are a handful of products out there that can fulfill client needs. There are no-fee products, downside protection products, and of course, the income paying solutions. My concern is that the general public has a very negative attitude towards annuities in general, when these products could be a great solution to their financial needs.

— Zachary Bachner, investment advisor representative at Summit Financial Consulting, Sterling Heights, Michigan

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My number one concern is that people do not know what they are getting into. The phrase “annuities are not bought, they are sold” definitely has merit to it.

Yes, a person will receive guaranteed income, but at what cost?

The insurance companies are not offering these products for the good of the retiree. They make money by taking fees and a percent out for managing and ensuring their risk. I tell my clients that I believe insurance and investments are like church and state: Both should be independent.

There is a place for annuities in this world, but do not think you are getting a deal or there are no better ways to have income from investments.

— Jordan Benold, Benold Financial Planning, Frisco, Texas

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My number one concern about annuities is that they are pushed and sold due to the high commissions often associated with them. Annuities are a tool and should be used as such. Even the best of tools can be disastrous if used inappropriately. A hammer is a great tool, but not if you’re in the kitchen trying to flip a pancake.

Advisors should work with individuals and identify specific strategies and tools to be solutions to the problems versus, already have a solution in mind and pushing that product or strategy.

— Ashton Lawrence, advisor at Goldfinch Wealth Management, Greenville, South Carolina

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#1 Concern: COST! Annuities were designed to protect against living too long (the opposite of life insurance). At the end of the day, an annuity is an insurance product and you are paying the insurance company extra costs to manage income on your behalf for a specified period of time.

While there are some good quality low-cost annuities available, many annuities have very high costs for not a lot of increased value.

Proceed with caution.

— Julie Hall, Vision Capital Partners, Ann Arbor, Michigan

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Tax deferral on a non-qualified annuity is good, but most are sold without an exit strategy and can become tax nightmare or costly to unwind. Look before you leap.

— David Bize, advisor with First Allied, Dallas, Texas.

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No. 1 concern is cost. Making sure the client is getting value if they pay. Its 1% min just for the tax deferral so can be a good deal for a HNW investor in a high (and rising) tax bracket.

Living benefits and other riders can be of value to the right client in the right % but also add another 1% or so to the cost. Is a sharp kitchen knife a tool or a weapon? Depends on who is using it — a chef or a burglar. Same with annuities: they can be perfect for certain clients and fact patterns; too often, though, they are sold by burglars in this analogy.

— Jeff Farrar, co-founder, partner and executive managing director at Procyon Partners, Wilton, Connecticut

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