Annuity myths you must dispel: separating truth from fiction, Pt. 1
January 30, 2013 by Ryan Parker
Thanks to efforts put forth by the industry and its dedicated professionals, not to mention the stark retirement reality underpinned by a mistrust of the stock market, annuity products are garnering more investor attention almost every day. Yet despite industry-wide attempts to educate consumers on the appropriate use and benefits of annuity products in a retirement plan, negative media attacks persist, confusing investors and leading to the development of pervasive annuity myths.
In fact, a market study performed by the Annuities Institute found that after analyzing more than 500 consumer articles written on annuities and financial planning, 90 percent of the popular articles studied contained either inaccurate or damaging statements about annuities and their role in a retirement plan. That’s a lot of negative press to overcome.
This is why when you speak to prospects and clients about annuities, it may be a good idea to disabuse them of any potentially incorrect notions about the product right up front. Why? You never know what kind of media-weighted baggage they may carry with them to the annuity conversation, so dispelling these myths openly and honestly will set their minds at ease and make space for the annuity truths.
Here are a few persistent annuity myths, highlighted in the study, that your prospects and clients may buy into if you don’t address them head-on:
Insurance professionals aren’t qualified in financial planning or annuity sales — You know you don’t need a securities license to talk about the role annuities play in a solid retirement plan, and you can sell most annuity products. However, some investment advisors tend to devalue annuities precisely for this reason, arguing that certain annuities act like securities, implying that insurance-licensed professionals lack the qualifications to make good recommendations for retirement plans.
To counter this myth, be sure your clients know that you only sell fixed and indexed annuities. Help them understand that since there’s no potential for them to incur a loss, as these annuities are not investments, you don’t require a securities license to offer them. It’s also a good idea to inform potential buyers of your education and background when it comes to this product, the continuing education you pursue, and your other efforts to stay at the head of the industry.
If you’re paid a commission, you must be biased — Although it’s a relatively new model, fee-only advisors tend to get better publicity than their commission-only brethren. Furthermore, advisors who choose to be compensated in this manner are seldom involved in the sale of annuity products, even in cases where an annuity would be an ideal solution.
Combating this misunderstanding is easier than you might think. Just like any professional worth their salt, your job is to act solely in you clients’ best interest, and how you’re compensated doesn’t change that commitment. Besides, since they’re most often used as a retirement savings and income tool, annuities are typically a one-time sale, leaving little room for distinction in compensation methods.
Annuities carry hefty penalties and surrender charges — Despite the fact that annuities enjoy many of the same tax-deferred treatments granted to 401(k)s and IRAs, and are also chosen as long-term savings products that provide security in the form of guarantees, some media tend to point to the penalties for early withdrawal as being less than ideal.
When you discuss these types of penalties and fees with prospective annuity buyers, remind them that if they want to withdraw funds from their IRA or 401(k) prematurely, they’ll pay a similar penalty. After all, these products were designed for long-term savings, so don’t forget to highlight the benefits this strategy affords annuity owners.
So far, we’ve discussed three of the biggest misconceptions your prospects and clients may have regarding annuities in retirement planning as identified by Annuities Institute. In part two of this article, we’ll explore three more crucial myths you must overcome in order to sell more annuities.
