More Tips for Discussing Annuities With Clients

As has been widely noted, including in this space, some facts about annuities are coming into the spotlight. Those include advisors and clients paying renewed attention to these products and that misconceptions linger around annuities.

Like any other product that’s purchased by consumers, clients are apt to have some pre-conceived notions about annuities, some of which are superficial in nature. Fortunately, superficial notions are often easy to dispel, including those regarding price. Put simply, many clients assume that annuities are too expensive when in reality, that’s not the case.

Point is annuities are becoming relevant again and that means advisors need to be prepared to bust some myths while framing the benefits of these products in such a way that clients don’t feel as though they’re dealing with a “hard sell.”

With that in mind, here are some ideas advisors can consider deploying during annuities conversations with clients.

Understanding What Annuities Are

A solid starting point for demystifying annuities to clients is articulating what these instruments are designed to accomplish. In addition to lifetime income, annuities can offer guaranteed interest rates as well tax-deferred growth – the former being pertinent at a time when more Federal Reserve rate hikes appear unlikely. As for tax- deferred growth, that has benefits to a broad swath of clients.

“But actually, the purpose of the annuity should be to do one thing, which is to provide sustainable guaranteed income for life,” Kelli Hueler, CEO and founder of Hueler Companies, in an interview with Morningstar. “And if you take out that baseline capability and you look at it and that’s what an annuity vehicle is, it’s very different from what people’s perceptions are and the reality of what people buy in the retail space. So, in fairness to everybody out there, there is probably a very good reason that people feel skeptical and hesitant around when the word annuity is mentioned.”

Another point of emphasis should be understanding clients’ aversion and apprehension regarding annuities. Much of that boils down to putting assets generated over time by “blood, sweat and tears” into a vehicle in which they have no control. Lost control, particularly over their money, is a hard concept for many clients to endorse, but that doesn’t imply they won’t garner benefits from annuities.

“So, I think people shy away because those realities that when you put your money in and it turns into income, you don’t get to have it back. You’re transferring risk,” adds Hueler. “You’re transferring risk to the insurance company with a portion of your resources to guarantee income for life. But what’s not talked about is the fact that that decision should never be made in isolation. It should be made along with looking at your whole savings portfolio.”

Clarity, Honesty Matter

It’s often said that “honesty is the best policy” and that’s always true in the advisory business. Annuities are part of that rule, not an exception.

Clarity should be categorized with honesty. Both are essential when it comes to annuities. A lack of one or both and the annuities conversation is likely to die an early, but rapid death.

“But I think really what’s been missing is a discussion about where this fits in as a tool to manage risk and longevity and market risk in the paydown phase,” concludes Hueler. “So, I’m hoping that this continues to be a conversation that the academic community has but also that the advisor community has more openly about how these products and this capability and this risk mitigation fits into a balanced portfolio.”

Related: Retirement Sentiment Improves, but ‘Financial Vortex’ Lingers