Thursday, July 21, 2016

"Experts" Hate Annuities - Clients Disagree

By: Charlie Gipple, CLU, ChFC, SVP Sales and Marketing at Partners Advantage Insurance Services, LLC

I was most of the way through my fourth seminar of the week, just wrapping up with a discussion on “sequence of returns risk” as one of the five retirement risks and I was about to enter the last part of the seminar where I propose potential solutions to this risk.  I went on to discuss that the conventional “rule” for withdrawing money from a securities portfolio is 4% adjusted for inflation (i.e. if you have $1 million at retirement then the first year of retirement you can withdraw $40,000 per year). I then went on to explain an alternative solution which can often times allow one retiring at 65 to withdraw maybe 5% of their “income value” guaranteed* for the life of the client. 

At this point I had to introduce the audience to the harsh reality that this potential solution is (hold your breath!), an annuity.  I told the audience what I just explained was a Fixed Indexed Annuity (FIA) with a Guaranteed Lifetime Withdrawal Benefit (GLWB).  After doing this, you would never guess what the reaction was from the audience, again, for the fourth time that week.  Here is what they did; they nodded their heads in agreement and wrote down on their notepads the words, Fixed Indexed Annuity!

Not dramatic, but the point is that consumers’ disgust toward low annuity rates and annuities in general was more in my head than any of the clients’ heads.  That is because over the last 16 years the stock market has been chopped in half twice!  The consumers in the room know that all too well and they are also familiar with the historically low rates on bank savings products. I believe that while discussing annuities with clients you should have a conversation about the relativity of annuities to what the clients do know (market, bank-type products, etc.).  And we should be confident in discussing this “relativity” because when the market was being chopped in half, clients with retirement dollars in an FIA would not have lost any of their premium or interest.** 

Consumers also appear to disagree with what the financial “experts” like Suze Orman and Ken Fisher say about annuities.  In fact, 78% of people who own annuities are satisfied with their access to their money.1 More than 80% of fixed annuity buyers are happy with their purchase2, which is a very high happiness factor among financial products.

Even in light of the challenges we face with the Department of Labor’s Fiduciary Rule, I am confident we will adjust and FIAs will continue to be a mainstay of our industry.  However, in the short run we will likely experience some changes with the FIA product line. For financial professionals that may have their businesses highly concentrated on FIAs, I would propose a way to “smooth out” the volatility in your practice. I propose Life Insurance!  If you don’t like underwriting, there are attractive Simplified Issue Life Insurance products.  There are also Single Premium Whole Life products and Single Premium Indexed Universal Life products, which offer an attractive alternative to FIAs, when the client doesn't need the money during their lifetime. 

I can comfortably assure you that if you know FIAs, it's not a very far leap to also learn and write IUL.  I have taken this leap myself and at the time I had less educational resources and support than what you have when you partner with a marketing organization with a strong training platform. This is what we at Partners Advantage specializes in -  Education that Causes Sales. I encourage you to prepare for the future of our industry and continue to broaden your knowledge to truly serve your clients needs. 

For financial professional use only.  Not for use with the public.

* Guarantees are backed by the Financial Strength and claims-paying ability of issuing company.
**Insurance and annuity products: Are not deposits. Are not guaranteed by a bank or its affiliates.  May decrease in value. Are not insured by the FDIC or any other federal government agency.

1 Genworth The Future of Retirement Income Study 2014
2 LIMRA Study – August 2012

Annuities are designed to meet long-term needs for retirement income. They provide guarantees against the loss of premium and credited interest, and the reassurance of a death benefit for beneficiaries.
An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional costs. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities.

Pursuant to IRS Circular 230, Partners Advantage Insurance Services and their representatives do not give tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney.

The information contained in this article is not intended to serve as tax or legal advice and is not intended to provide financial or legal advice and does not address individual circumstances.