Financial professionals underestimate appeal of annuities
December 27, 2013 by IFAwebnews Staff
Consumers perceive annuities more positively than financial professionals give them credit for, according to The Future of Retirement Income, a new study released by Genworth.
The study, a culmination of in-depth interviews, focus groups and quantitative surveys with financial professionals, annuity owners and non-annuity owners, revealed that 68% of non-annuity owners have a neutral to positive impression of annuities. For annuity owners, it’s even higher: 91% neutral to positive. In addition, the majority of annuity owners are satisfied with access to their account, fees and asset growth, according to Genworth, which is based in suburban Richmond, Va.
The findings also suggest that financial professionals who avoid talking to clients about annuities are missing out on potential sales. According to the survey, 40% of qualified non-annuity owners who would consider purchasing an annuity have never been presented with the opportunity by their financial professional.
“Many financial professionals simply don’t present annuities to their clients, perhaps believing that these products have a bad reputation among consumers,” said Charlie Gipple, national director of index products at Genworth. “Our research shows that this is not universally true.”
“With low interest rates, disappearing defined benefit pensions and uncertainty about the future of Social Security, it has never been more challenging to create a reliable income stream in retirement,” said Gipple. “With their ability to protect principal from market downturns and rising interest rates (in the case of bond funds) and guarantee an income stream for life, annuities offer more predictability in these unpredictable times. But many financial professionals may be overlooking this tool due to their own misperceptions about the product’s appeal among consumers.”
Best practices of highly effective fixed index annuity sellers
In addition to gauging consumers’ attitudes about annuities, the study also looked at the best practices of high sellers of fixed index annuities. The study revealed the following statistically significant findings that high-volume FIA sellers:
- Are more likely to view younger clients, age 40-49, as an ideal candidate
- Reject the notion that FIAs are only for very conservative investors. In fact, they are more likely to include those with a moderate (versus low) risk tolerance among their ideal target for FIAs (52% versus 36% of producers that infrequently sell FIAs) than focus on low-risk-tolerant clients
- Have clients who fund annuity purchases through a wider range of sources: qualified retirement savings (26%); savings/money market accounts (24%); CDs/bonds (14%) and 1035 exchange of another annuity (9%).
“The findings suggest that producers need to consider a broader target profile for annuity prospects,” said Gipple. “Successful sellers are recommending annuities to younger, more risk-tolerant consumers and positioning it as a vehicle for a wider array of retirement funds.”
Addressing concerns about annuities
The survey found that the majority of annuity owners are satisfied with their purchase, and especially satisfied with their annuity’s growth, expenses and access to funds, refuting the top objections that producers hear most often from consumers.
Access: Seventy-eight percent of those who own annuities are satisfied with their level of access to their funds. It is important to note that while most annuities have surrender charge periods, generally between 5 and 10 years, and some also have a Market Value Adjustment, many allow up to 10% withdrawals of contract value each year free from surrender charges and a Market Value Adjustment.
Growth: Although 53% of consumers considering annuities are reluctant about purchasing them because they would rather invest directly in the market, financial professionals need only remind their clients about the casualties from the last financial crisis.
“As recent years have shown, for those in or nearing retirement, the risk of exposure to volatile markets may be too great for most seeking to grow assets intended to provide income for life,” Gipple said. “Alternatively, fixed index annuities use interest crediting strategies linked to the performance of a market index, which provides both upside potential and downside protection.”
Expense: The majority (70%) of annuity owners say the fees are worth the benefits they are receiving. Even among annuity considerers, 61% said they would be willing to pay additional fees to guarantee that an investment would never lose value in a down market while allowing it to capture some growth in an up market, which is the hallmark of fixed annuities.
Additionally, it is important to note that fees vary by type of annuity. Variable annuities can include fees and expenses of 200 to 400 basis points annually. However, fixed annuities generally do not charge specific fees or expenses as a part of the core contract. Many fixed index annuities offer an optional guaranteed lifetime income rider, charging an annual fee, generally of less than 100 basis points per year.
“Our survey underscores the degree to which consumers appreciate how well annuities can help them manage today’s challenging financial environment,” Gipple said. “That’s why we firmly believe that annuities will play an important role in the future of retirement income.”
Charlie Gipple
