John Douglass, President, Annuities Exchange
Richard Hellerich, President, Great Plains Annuity & Life Marketing
Q: What annuity products are most attractive in today’s marketplace?
John Douglass: A lot of new features and improvements being added to existing product lines are the current topics of discussion. Annuities offer the versatility of lifetime income, confinement benefits, and new allocation options to name a few. The annuity today is “not your father’s Oldsmobile,” as the car ads said. Today’s annuities are fresh, innovative products to cover life issues that retirees are facing—from the accumulation phase to income needs during retirement to cover ultra-high nursing home costs. I like the new indexed products, but watch cap renewal rate histories to be sure clients receive fair treatment in the future. Unfortunately, not all companies are providing competitive renewal caps, so be watchful. Multi-year guaranteed annuities (MYGAs) remain very popular relative to the low CD and money market rates. Advice with MYGAs is to watch for interest rate specials to get your client a good deal when available. Lastly, immediate annuities, which should be called income annuities because of the ability to defer the start date into the future, remain hot. For conservative clients worried about today’s uncertainties, there is nothing like an income annuity’s guaranteed check in the mailbox every month.
Rich Hellerich: Determining what annuity products are most attractive in today’s marketplace depends on a number of variables: individual prospect’s age, risk tolerance, financial situation and future goals. Matching the right annuity solution(s) to the right client can be challenging for agents and brokers, given the plethora of available products. I wonder how many income riders are sold on fixed indexed annuity (FIA) contracts where the client really was only concerned about avoiding market risk and guaranteed accumulation.
The additional challenge of the low interest rate environment has been with us for some time, but for risk-averse clients the contractual guarantees found in fixed or fixed indexed annuity products may provide just the peace of mind they are seeking for protecting their retirement savings from market risk. Risk-averse clients are well aware of the impact 2000 and 2008 had on their 401(k) balances. There is plenty of media ink being spread regarding the potential of another significant market downturn in the near future.
Agents who truly listen to their prospects’ retirement accumulation and income concerns have a wider array of arrows available in today’s annuity product quiver than ever before. I believe the key to helping agents convert prospects into clients is partnering with an annuity brokerage firm with a qualified, experienced annuity marketing specialist. When the agent has an effective back-office champion and partner to assist with case development and interfacing with the home office, they better serve their clients and are better informed regarding industry developments and up-to-the-minute product information. I see this arrangement work to the benefit of all parties every day.
Q: What annuity sales ideas do you offer brokers to increase their ability to serve clients well?
Hellerich: You could devote an entire issue of Broker World to this topic. I will focus my response on sales ideas rather than lead generation, which are interchangeable terms for many annuity agents.
• Listen to your client. Ask questions, shut up and listen. What is the express purpose for the financial assets in question? What are your prospect’s financial concerns? Over the past 30 years I have witnessed some agents approaching every annuity sale with their product “hammer-du-jour” and treating every prospect like a nail needing to be beaten into submission. Don’t use a bulldozer when a shovel is called for, and be aware of buyer cues and signals indicating additional financial products may be called for to best serve the need.
• Educate yourself. Continue to expand your knowledge of annuity topics including tax issues and how they relate to the needs of your clients. Products and riders are continually changing, and being up to date on the current offerings can only serve to better you and your clients. Also, if you are adept at explaining how your solutions will resolve the client’s needs and/or goals, your referral base is bound to increase!
• Educate your client. Fixed and fixed indexed annuities do not sell themselves. I believe it is fair to say there is much to do in better educating those nearing retirement. There is rarely a product that matches all of the client’s requirements for retirement, but with proper planning and coordination with your client you can ladder several products to create a comprehensive plan. I have seen this type of planning develop lasting client relationships, with the producer’s name being top of mind when their friends or colleagues are looking for advice.
Douglass: The annuity sales idea that is the easiest and most often overlooked is staying in touch with your client base, i.e., the annual review, quarterly portfolio updates, and newsletters. For example, offer a new product idea every three months to encourage callbacks for information on addressing current concerns. The old saying is true: The best new clients are your existing ones! Be innovative! Re-invent yourself to adjust to market trends. We have many unique niche products popular today.
Q: What income options do you like best, and why?
Douglass: Income options is a huge topic to promote with clients. Clients have no idea of the variety and tax treatment of income payouts. Review the options with your clients, such as annual withdrawals, annuitization and lifetime income payouts triggered from rollups. The advantages and taxes of all should be discussed.
Hellerich: “The question isn’t at what age I want to retire, it’s at what income.” George Foreman
With the variety of income options available in today’s market, it really comes down to which one suits your client’s needs/goals. Trying to match a client with a product depends on a number of factors: When does the client want income? How much does he need? Are beneficiaries a primary focus? etc. Clients also need to understand the importance of planning timing and product options that can help combat future inflation. Answers to each of these questions lead to a different product requiring lots of research on the part of the producer. Fortunately, there are many tools available today that allow the producer to compare different income options based on the client’s specific situation. These tools allow the producer to put the decision back into the hands of the client, which is where it belongs.
Q: In what ways can annuities play a part in long term care planning today?
Hellerich: The introduction of chronic care riders in some annuity contracts allows policyholders to consider having their retirement savings dollars “multi-task” within an annuity contract offering such a benefit. This feature may alleviate the “use it or lose it” concerns of paying LTCI premiums, or supplement an existing LTCI policy if needed. Most of these chronic care options do not require extensive underwriting, opening these benefits to clients who might not qualify for traditional LTCI policies. Clients who are healthy and qualify should consider qualified, underwritten combination annuity/LTCI products with the annuity LTC rider providing benefits that may be tax-free if used for LTC needs.
Douglass: Long term care is a huge concern for seniors, and the industry has shut down many products for lack of the ability to price them for benefits in the future. I like the simple approach of a base annuity with increased benefits for long term care up to three times the value. The client receives current value and future benefits, unlike a policy that may or may not be in force in the future or even utilized at all. Every time I listen to seminars on these products I am excited, because they make so much sense in today’s uncertain health care market.
Q: What annuity riders do you think fill consumer needs well, and why?
Douglass: Selling annuities is a specialty, and it is annuity riders that illustrate that very well. For example, we offer a la carte annuities, where we can design a custom annuity with the riders a client wants and eliminate the ones he doesn’t, squeezing all the interest we can out of the contract for the benefit of the client. If you don’t need a withdrawal rider, don’t pay for it. If you’re competing against a bank CD, match it benefit for benefit, eliminating costs in exchange for increasing yield! Let the client design his own annuity. He will feel you really understand his needs when you give him a custom designed product.
Hellerich: A majority of the time the rider that provides the highest amount of income for the least amount of premium is the one that works the best. However, there are situations in which the client needs a bucket of money to provide multiple benefits. This is where an experienced annuity advisor can help a producer find the right product, or series of products, to help the client make the best decision. There are some riders that provide greater income within a few years of issue; others are better after many years of deferral. When considering the overall retirement plan, a careful selection that matches as many of the goals as possible is the one that fills the customer’s needs.
Q: What advantages and disadvantages of variable versus traditional fixed annuities should a broker be well able to discuss with clients and prospects?
Hellerich: If the broker is having any in-depth client discussions regarding the merits of fixed vs. variable annuities, he needs to have the appropriate securities license(s). That said, the prospect needs to understand these basic but major differences, with the assumption that both contracts are held to the length of contract terms:
Investment risk. With a fixed annuity, the insurance company assumes any market or investment risk in exchange for a guaranteed minimum or contractual return on your premium. Variable annuities transfer this investment risk to the contract owner and returns or losses will be based on the underlying investments the client has selected. Simply stated, the traditional fixed annuity offers a guaranteed fixed return, whereas the variable annuity may result in a higher return or lose principal, depending on the level of investment risk the investor (client) accepted. With the volatility of the market, are you comfortable assuming more risk in exchange for the opportunity of an enhanced return?
Fees. With most traditional fixed annuities, 100 percent of premium goes to work for the client’s contractually guaranteed rate of interest. Clients and prospects considering a variable annuity purchase need to completely understand the cost of fees built into the contract, along with their investment risk. A significant portion of gains can be lost to fees inside a variable contract.
Douglass: I feel there is a place for both equity based variable annuities and guaranteed fixed annuities. It comes down to objectives and suitability, to use the FINRA language. Is the client in accumulation mode, or younger? Does the client like the ability to move allocations depending on the market, or is the client older and more conservative, wanting guarantees? Brokers make the mistake of being on one side or the other in regard to products. The top brokers promote both! The brokerage houses do brokers a disservice because fixed annuities don’t fit well on their sales platforms, so they don’t encourage the brokers to sell them. However, the needs of the client should dictate product. The broker who sells both variable and fixed annuities has a major edge, especially with an aging client base and an increased need for income options.
