I began my career in financial services more than 18 years ago. One of the first product lines I learned about were annuities. Even with all of the advancements in annuity technology over the years one thing regarding annuities has remained consistent…annuities are one of the most misunderstood products in the financial services industry.
One of the most common objections given by annuity prospects is that they read that annuities are “bad”. There is good reason why prospects give this response; if you do an internet search on the word “annuity”, the majority of the top results usually say something like “don’t buy annuities” or “learn the truth about annuities”. The common thread in these articles is that annuities are complex products that can be easily confused or flat out misrepresented. That negative point of view may be valid, but also annuities can help simplify a client’s financial strategy and if positioned properly provide positive benefits…it all depends on how an annuity is positioned.
During my time as a mutual fund wholesaler, I cannot remember a client ever saying that they read that mutual funds were bad and they should never buy one. I also cannot recall a time where a conservative client who had money invested in an aggressive mutual fund blamed the mutual fund industry for causing them to lose money. In this case, the financial professional could be held accountable for not considering their client’s risk tolerance.
Annuities, like any other financial vehicle, can be misapplied. Mutual funds can be incorrectly sold over variable annuities and vice versa. Variable annuities can be incorrectly sold over fixed annuities and vice versa. For some unknown reason, annuities continue to take the blame for the work of poorly trained sales people.
In most anti-annuity articles the focus is on the internal costs or fees associated with annuities. The general belief is that these fees or costs create uncompetitive returns for the client. What these negative articles fail to mention is that the fees and costs can provide valuable features and benefits. There is a saying that comes to mind when I think of the costs of owning an annuity, “Price is only an Issue in the Absence of Value”, meaning that if the client is not getting any benefit from the additional fees or costs than yes an annuity might not be the best option. I believe that people purchasing annuities understand the benefits provided by their annuity in exchange for higher fees or costs versus other types of financial vehicles.
Here are just a few reasons why some people should consider an annuity to be a part of their financial strategy:
- Contractual guarantees – guaranteed minimum interest rates and principal protection
- Transfer risk to the insurance company – the annuity carrier bears the market risk not the policy owner
- Alternative product to traditional conservative investment options – addresses interest rate risk and sequence of returns risk
- Multi-purpose product – optional riders may be available to provide enhanced death benefit guarantees or nursing home benefits
- Additional retirement income – lifetime income riders can provide guaranteed income that will continue even after the annuity contract is depleted of any cash value
At the end of the day, it all depends on the client’s situation whether an annuity can be right for them. It is important in the financial strategy process to understand the contractual benefits of annuities along with the accumulation potential, as well as the fees and expenses of these products. For the right client an annuity can provide features and benefits to help ensure financial stability and may provide a solution.
Here at FIG, we take a comprehensive approach to building client solutions. Our team of Sales Consultants are some of the most experienced and knowledgeable people in the fixed annuity industry. We can assist you in leveraging the benefits of an annuity product to help enhance a client’s financial strategy.
Let us help you determine whether an annuity is an appropriate tool for your upcoming client appointments.
Disclosures:
Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company.
FIG does not give tax or legal advice. Your client should consult with and rely on their own tax and legal advisors regarding their particular situation.
This is not a comprehensive overview of all the relevant features and benefits of any particular product. Be sure to review all of the material details about any products referenced in this article before making specific recommendations to clients.