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<\/p>\n\nIf you want to convince someone of the need for an annuity, position it as part of a strategy instead of merely presenting it as a product.<\/p>\n
\nThat was one takeaway for advisors after the fifth annual Guaranteed Lifetime Income Survey showed a gap between what consumers think of annuities and what advisors are telling them about retirement income solutions. The survey was conducted by Greenwald & Associates and CANNEX.<\/p>\n
\nThe big difference between the 2019 survey and those of prior years was that 2019 marked the first year in which the researchers studied advisors in addition to consumers. Prior surveys focused on consumers only.<\/p>\n
\nThe study showed strong consumer interest in guaranteed lifetime income, with more than two-thirds saying they saw a high value in having such income on top of Social Security. Despite the value consumers place on having retirement income they can\u2019t outlive, some of them still balk when the word \u201cannuity\u201d is mentioned. The study found 35% of consumers would be less interested in a product offering guaranteed income if it were labeled as an annuity than they would if offered an unnamed product that offered the same benefit.<\/p>\n
\nSo what can advisors do to keep annuities from being the \u201cA Word?\u201d<\/p>\n
\nCommunication is the key to breaking down confusion over annuities, as is educating consumers on the product\u2019s value proposition, said Tamiko Toland, head of annuity research at CANNEX.<\/p>\n
\n\u201cI think one of the confusing aspects of these products is that they actually provide a set of different values based on what the client is looking for. Sometimes they\u2019re sold more as a bond alternative. Sometimes they\u2019re sold purely for income,\u201d she said. \u201cI think focusing on the value proposition as opposed to the term \u2018annuity\u2019 is really the key because people like what annuities do. But they get scared off and told in the media or by peers that annuities are bad.\u201d<\/p>\n
\nStudy director Doug Kincaid of Greenwald & Associates recommended framing annuities as a strategy.<\/p>\n
\n\u201cWhen we talk about guaranteed lifetime income as a concept, there is a lot of appreciation for that,\u201d Kincaid said. \u201cWhen we talk about it as a product \u2014 especially as an annuity \u2014 you start to see consumers\u2019 interest in it chip away as people get more skittish about their interest in that.\u201d<\/p>\n
\nKincaid said the researchers walked the consumers they surveyed through what he called \u201ca floor plan\u201d of figuring out their expenses in retirement, figuring out how much of those expenses Social Security will cover, and then buying a product to provide income to cover the gap and investing the rest of their money as they want and having the ability to use it for discretionary spending.<\/p>\n
\n\u201cWhat we saw is a large amount of interest from the consumers we surveyed \u2014 71% said that seemed to be a good strategy for them,\u201d he said.<\/p>\n
\n\u201cWhen you\u2019re shown exactly what an annuity does and it gives you this guarantee throughout retirement, all of a sudden consumers are really on board with annuities and interested in what annuities can do for them.\u201d<\/p>\n
\nThe study showed a perception gap between advisors and clients when it comes to discussing lifetime income strategies. Advisors said they discuss income strategies with an average of 79% of their clients age 55 and older, but only 55% of those clients report having discussed income strategies with their advisor.<\/p>\n
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\nAdvisors also consistently underestimate client interest in guaranteed lifetime income products, the study showed, with advisors saying anywhere from 10% to 39% of their clients are interested in annuities with guaranteed income. But between 43% and 56% of clients said they are either highly interested in annuities or already own them.<\/p>\n
\nThat interest gap is especially pronounced among wealthier clients and clients who are several years from retirement. And although advisors think that interest in annuities with guaranteed lifetime income increases with client asset levels, the opposite appears to be true.<\/p>\n
\nClients with assets between $100,000 and $499,000 had the highest interest in annuities. Half (50%) of clients with assets of $100,000 to $249,000 were interested in guaranteed lifetime income, closely followed by 49% of those with $250,000 to $499,000 in assets.<\/p>\n
\n\u201cAdvisors are envisioning that higher-asset clients are most interested in these products, where we see that it\u2019s lower-asset clients who are reporting the most interest,\u201d Kincaid said. \u201cObviously, the caveat to that is that if you have a lower asset level, you may be actually more reluctant to put some of that money into one of these products. But I think it downplays the fact that these people may feel they are closer to the edge of needing that guaranteed income to protect them, so their interest level is that much higher.\u201d<\/p>\n
\nIn addition to the perception gap, the survey showed that advisors and consumers are at odds in their opinions of why consumers don\u2019t own annuities.<\/p>\n
\nAdvisors appear to far exaggerate the impact of financial expert warnings against annuities on client receptivity; 95% of advisors say consumers don\u2019t own annuities because financial experts have warned against them, while only 50% of consumers said that\u2019s the case.<\/p>\n
\nHowever, the survey also found that about half of consumers said they heard positive things about annuities from financial advisors while about 38% of consumers said advisors gave them negative information about annuities.<\/p>\n
\n\u201cSo it\u2019s not that we\u2019re seeing this overwhelming negative narrative about annuities,\u201d Kincaid said. \u201cIn fact, we\u2019re finding that if consumers have heard something about annuities, it\u2019s more likely to be something positive.\u201d<\/p>\n