It’s evolution or extinction for annuity producers
February 7, 2011 by Jack Marrion
- BY Jack Marrion
Published 2/1/2011
The index annuity sales model for the last decade was to offer consumers the hope of earning a much higher return than they could get from CDs. If expectations weren’t met, the old annuity was exchanged for a new one, with any surrender charges “covered” by the new premium bonus. And with high commissions, even marginal producers could earn a living. That model is dying.
One reason is tougher regulation. This has translated into shorter surrender periods pushing commissions lower, greater scrutiny of annuity exchanges and more attention paid to all annuity sales and sales practices. However, the major reason is lower yield.
As recently as 2008, my compendium composite bond index showed 7 percent yields. By the end of last year, they were under 5 percent and yields could drop even lower in 2011. What this means is it will be more difficult to sell on rate, more difficult to do annuity exchanges and more sales will be needed to earn a living. Producers need to evolve to succeed.
Sell benefits, not rate
If I earn $1,000 in CD interest, I will have to pay taxes on that interest, even if I don’t need use it. If that $1,000 is in an annuity, I decide whether to pay taxes this year or not. Owning an annuity means I control my taxes—not the IRS.
Educate consumers
Financial decisions are always comparisons. If the consumer thinks a 3 to 5 percent potential return is too low, ask him what else he would rather do—CD rates are 1 percent or less and there are investors who have not recovered from the last stock market crash. If the index annuity captures a 5 percent return in 2011, that is equal to 5 years of bank interest.
Sell safe income, not growth
With lifetime withdrawals benefits you can tell the consumer exactly what premium is needed today to produce an income of $10,000 per year tomorrow. The producer is talking to retirees who have witnessed the interest income from $200,000 in CDs fall from $10,000 to $1,300. Tell them you can guarantee them $10,000 in income for a lifetime.
Diversify
In a world of uncertainty, whole life insurance offers guarantees, which is why it is still around. Over half of retirees have set money aside to try to cover nursing home expenses—do they know about annuities with LTC benefits?
Evolve
There will be a winnowing of producers this year, but the survivors will do more business with a more diversified model, which will result in long-term success.
The index annuity sales model for the last decade was to offer consumers the hope of earning a much higher return than they could get from CDs. If expectations weren’t met, the old annuity was exchanged for a new one, with any surrender charges “covered” by the new premium bonus. And with high commissions, even marginal producers could earn a living. That model is dying.
One reason is tougher regulation. This has translated into shorter surrender periods pushing commissions lower, greater scrutiny of annuity exchanges and more attention paid to all annuity sales and sales practices. However, the major reason is lower yield.
As recently as 2008, my compendium composite bond index showed 7 percent yields. By the end of last year, they were under 5 percent and yields could drop even lower in 2011. What this means is it will be more difficult to sell on rate, more difficult to do annuity exchanges and more sales will be needed to earn a living. Producers need to evolve to succeed.
Sell benefits, not rate
If I earn $1,000 in CD interest, I will have to pay taxes on that interest, even if I don’t need use it. If that $1,000 is in an annuity, I decide whether to pay taxes this year or not. Owning an annuity means I control my taxes—not the IRS.
Educate consumers
Financial decisions are always comparisons. If the consumer thinks a 3 to 5 percent potential return is too low, ask him what else he would rather do—CD rates are 1 percent or less and there are investors who have not recovered from the last stock market crash. If the index annuity captures a 5 percent return in 2011, that is equal to 5 years of bank interest.
Sell safe income, not growth
With lifetime withdrawals benefits you can tell the consumer exactly what premium is needed today to produce an income of $10,000 per year tomorrow. The producer is talking to retirees who have witnessed the interest income from $200,000 in CDs fall from $10,000 to $1,300. Tell them you can guarantee them $10,000 in income for a lifetime.
Diversify
In a world of uncertainty, whole life insurance offers guarantees, which is why it is still around. Over half of retirees have set money aside to try to cover nursing home expenses—do they know about annuities with LTC benefits?
Evolve
There will be a winnowing of producers this year, but the survivors will do more business with a more diversified model, which will result in long-term success.
