John Douglass

Accumulation products are the foundation of many clients’ investment portfolios.  I will focus on two product area riders with tremendous growing appeal.  In the annuity market, the living benefit rider and in the life insurance market, the accelerated income rider.

The two riders have similarities. Both have taken a traditional life or annuity product and enhanced the benefits to provide living benefits!  They are providing tremendous added benefits to improve your clients’ lives in ways we had not served in the past.

We all know of the rising financial needs of our clients as they age.  Today, when an individual retires, the cost of living continues to increase due to health insurance, living expenses, taxes, and maintaining their homes.  The savings individuals are putting away is at historically low levels.  The loss of benefit plans and revisions to reduce benefits in government programs have resulted in income gaps.  These gaps have created a need for accumulation products to fill.  Insurance companies have developed these riders to solve these problems and supply income to fill these gaps.  In respect to our new product riders: regardless of whether they are for life insurance or an annuity these riders fill the gap for clients today, providing access to income while living and increased flexibility.

After family and good health, most clients will agree their biggest concern is to not run out of money and to maintain their standard of living.  As an added plus, I find very exciting for consumers today life products that can provide home health care supplemental benefits.  In the past, the standard language to trigger benefits was, “confined in a nursing home.”  That was very restrictive.  How many would actually benefit?  The new “accelerated benefit rider” may trigger a payout by simply the inability to perform two or three ADLs, providing benefits when a client can really use them to maintain their ability to stay in their home and enjoy their standard of living as we mentioned.  Home health care benefits are an attention getter to begin a discussion with your clients.  As producers, we can provide peace-of-mind and access to income options while alive that were not available on products in the past.  

In regards to annuities, the living benefit rider creates or allows more flexibility than a 10 percent free withdrawal or standard annuitization features by providing income roll ups and other benefits.  SPWL, individual life, or UL contracts with the accelerated income rider will provide access to cash payouts of a portion of the death benefit versus just a policy loan concept.

As brokers and agents we need to do our best to inform clients of these riders and take the time to explain the complexities, even though it is easier to just sell interest rates on annuities or low cost on a life policy.  The rider language is complex but can be very beneficial for your clients.  Accumulation products will be center stage in 2017 with the focus on these income-producing riders.  These are what companies are promoting and the features on which company reps are providing training. I urge you to attend training sessions and learn about these features.  The time will be well spent!

What changes do you foresee for carriers, wholesalers and brokers if the new DOL fiduciary guidelines remain unchanged?

John Douglass: The U.S. Department of Labor’s new proposed rules defining fiduciary investment advice is a huge issue for registered reps, broker/dealers and insurance representatives.  Broker/dealers are re-evaluating compliance rules for their reps.  Brokers with minimal production or only collecting trail income from a few clients not actively managed will be a liability and could receive a U-5 if the liability is considered too high.  I foresee E&O costs are likely to go up and these changes will force many brokers who are not active enough to justify the additional expense and liabilities to consider retirement.  To further complicate the situation, regarding insurance reps, each insurance company develops its own agent guidelines so each will approach the proposed rules differently.  

There are many troubling new regulations in the works in respect to the U.S. Department of Labor’s new set of proposed rules defining fiduciary investment advice, but one provision in particular opens the door for lawsuits involving brokers and firms.  [It does not allow the investment advice contract between the adviser and the retirement investor to provide for the retirement investor’s waiver of his right to bring a class action lawsuit in court to resolve disputes or to include any exculpatory provisions disclaiming or limiting the adviser’s liability for violation of the contract.] This is a troublesome new era we are entering.

I would like to mention the implications and predict the fallout of these regulations.  These regulations will be the final bullet to many brokers to give up security licenses and keep their life insurance licenses.  Let’s look at the positive implication—this will bring more brokers to the independent channel who will need help in addressing these new regulations.  We offer cost savings, along with the variety of product choices and assistance on applications.  We are ready to embrace the new guidelines and move on, offering attractive alternatives for many brokers to help them build their business.

Rich Hellerich: Based on numerous conference calls and meetings with home office management and distribution partners in our industry, I wish we all had a clearer picture of the changes the DOL Fiduciary Rule will bring to brokerage distribution if it goes into effect. I still cling to hope that one of the industry lawsuits that have been filed will result in the DOL being forced to comply with the appropriate analysis of the impact of this regulation on both the consumers they are purporting to protect and our industry in terms of ridiculous compliance expense and potential employment reduction. 

Hopefully, judges hearing suits filed challenging the Labor Department will find merit in arguments that:

• The rule is “impermissibly vague”;

• The DOL lacks statutory authority to redefine the  term ”fiduciary”;

• Advice to roll 401(k) assets to an IRA raises to the level of fiduciary recommendation;

• The definition of reasonable compensation is vague;

• Question the legality of FIAs being regulated under the Best Interest Contract Exemption (BICE);

• The rule creates a new “private right of action” which gives individuals/classes the ability to sue. This right can only be created by Congress (and was upheld in a 2001 Supreme Court decision: Alexander v. Sandoval).  

Your question states “if the fiduciary ‘guidelines’ remain unchanged” (I have inserted regulation since “guidelines” usually suggest participation is voluntary), so I will not spend time presenting a compelling argument that insurance products (fixed indexed annuities) regulated by state insurance departments are different from variable annuities and other securities investment options for qualified funds. Heaven knows many financial reporters have failed to understand the difference between fixed indexed and variable annuities for years. I wonder if there was any review of the number of consumer complaints regarding FIAs versus other financial products that come under this rule?

Based on the information I have presently here are some possible (probable?) outcomes I anticipate:

• This rule will create substantial unintended consequences in the fixed annuity marketplace for most annuity carriers, AMOs, and licensed producers since sales using qualified premiums are 50 percent or more of total sales.

• Carriers that do not become “Financial Institutions” may exit the fixed indexed annuity marketplace resulting in fewer product options and less competition to benefit the consumer.

• Heaped compensation is probably modified, with insurance-only agents expected to embrace and adapt to a new model of trail commissions.

• Because of the new costs of meeting this regulation on top of stringent annuity sale suitability review that went into effect January 1, 2012, many carriers may modify products and streamline their annuity portfolios (again reducing choice and benefits currently available to the public).

• If the DOL is allowed to create a new “private right of action” (consumer lawsuits) E&O premiums may rise dramatically.

• A possible scenario where “independent brokers” might ultimately be forced back into captive or PPGA distribution models with limited access to carriers and products. Due to the application of “financial institution” and “fiduciary” legal liabilities, I believe brokers could be limited to 2-4 carrier solutions rather than scores of carriers and products available today.  (By the way, I find this result ironic in that my broker’s ability to search the entire marketplace for my best insurance solution may come down to 2-4 options rather than the numerous solutions available today.)

• Safety-conscious consumers nearing retirement with only 401k/qualified accounts set aside for retirement will lose access to advisors and insurance products that help them understand and eliminate market-risk to their savings, move the longevity risk to the insurance carrier and provide them guarantees.  

No matter how well-intentioned this and other regulation is, we seem to always end up with more and more Federal bureaucratic control increasing the cost of the product or service, reducing product benefits and features, and resulting in hundreds if not thousands of new government jobs while harming the very people they were claiming to protect. The Patient Protection and Affordable Care Act comes to mind as an example. Seems to me that recent legislation, bills and other decrees are written that create the opposite outcome of how the regulation is named.           

Ron Lane: Wholesalers are planning to beef up their in-house underwriting departments.  If the DOL is able to implement their approved regulations, additional pre-underwriting steps will have to be taken before a qualified annuity case can be submitted to a home office.  Although most wholesalers already have compliance and suitability departments, if the DOL implements their approved regulations, many additional pre-underwriting steps will have to be taken before an annuity case can be submitted to a home office. 

Brokers will have to form alliances with broker/dealers if they don’t already possess them.  Many brokers have these relationships already, but have been reluctant to utilize them due to the resulting costs.  BDs usually mandate that new business goes through the “grid.” In that case, either the rep or the broker gets a haircut on the override commission. If the DOL is successful in implementing the new rules, carriers may not accept new business directly from a writing agent that isn’t represented by an up-line entity.  

Carriers will build stronger partitions between the producers and themselves.  I say this because, ultimately, insurance carriers are still responsible for the actions of their licensed representatives.  The carriers want/need layers between their writing agents and home offices.  Before a qualified annuity is approved, it first will have to go through more rigorous processes like double suitability and double compliance from the departments of the registered rep, RIA or bank to reduce the carriers’ liability.

Living benefit riders on indexed annuities have become a popular presentation tool. How have these income options changed the market place?

John Douglass: The annuity market had focused on accumulation versus income with the tax advantages they offer over traditional CDs or other investments.  The living benefit rider dramatically changed the focus to income.  The low interest rate environment, reduced cap rates, and market volatility has made this a strong talking point with retirees.  I see indexed annuities as another tool in the tool box, not the only focus.  The living benefit option can be oversold, and easy to do while offering a lot of attractive benefits.

Many agencies and companies have the attitude that an indexed annuity with a living benefit rider is the product you are going to sell and will tell you how to do it!  Obviously, these products have captured millions of dollars that will be with insurance companies for years into the future.  Think of sales future and building a block of business you control as your clients’ needs change.  A reminder, there are many options for obtaining future monies from annuities:  SPIAs; periodic withdrawals; or your clients may never need additional income.  A prudent broker puts his client’s objectives and needs first.  The fact finder interview with your client will determine their needs and where to begin the planning process to determine the product choice:  MYGA, SPIA, SPWL, or fixed index annuities to name a few, each offering unique benefits.  Your independent brokerage firm offers various product options with different durations, meeting different objectives, and can help diversify a portfolio to meet each client’s unique needs.

Rich Hellerich: I believe the presentation of these riders is popular because the fixed annuity marketplace has once again brought innovative solutions to meet the concerns consumers have when planning for a long retirement. Imagine you are sitting with a couple nearing retirement that asks the following three questions:

• What if one of us lives to be 95?

• What if one of us faces chronic care health issues?

• What if we die unexpectedly?

We can now offer our clients options to address their concerns with numerous solutions from excellent insurance carriers. Educating your prospects on the idea of maintaining control of their financial assets while addressing these concerns has to be rewarding! 

If recent industry and academic studies are correct regarding savings most pre-retirees have earmarked for their financial futures, what other products offer the flexibility, benefits and guarantees found in fixed and fixed indexed annuities? The ability for the same premium dollars to “multi-task” to provide this insurance, without the fear of paying premiums for coverage you may not need, is both appealing and popular.     

Ron Lane: The long term care side of the insurance market has been greatly affected by living benefit riders. It can be difficult for clients past a certain age to qualify for LTCI policies.  Generally, LTCI policies aren’t what they used to be when considering price versus benefits.  Many older consumers find that LTCI policies are “too little, too late” and don’t bother with a stand-alone policy. Annuities with living benefit riders can provide some peace of mind in lieu of one of these LTCI policies or to supplement them.  Although the riders don’t cover all the benefits of long term care entirely, they can certainly help.  Policies providing early access to monies in a time of need can help diminish the reluctance clients may have toward purchasing an annuity.  

We also see many producers offering annuity products with living benefit riders to older clients who want to earn something on their money but are afraid to lock it up in case of changes in their financial picture or changes in their health.  When a client is in a situation where they are worried about paying the high cost of long term care but seek a future income stream that could be doubled or even tripled, an indexed annuity with living benefit riders should fit nicely with their needs. 

The low interest rate environment is continuing. How can brokers address the topic with consumers while promoting annuities?  

John Douglass: The low interest environment has hurt a lot of investment options.  For the last eight years, we have had to deal with the uncertainty of interest rates.  Many annuity policies have maintained a 3.00 percent contractual minimum interest rate.  These strong guarantees have helped many investors keep a reasonable floor on their return.  Regarding sales of new policies, annuities compete strongly with other products experiencing the same historically low rates.  We have been very strong in attracting money market funds and bank CD monies offering competitive interest rates for 1-10 years.  We continue to watch for existing annuities that are dropping to low guaranteed rates, providing the broker an opportunity to improve the interest rate with a new product sale.  The sales remain strong, mainly to an older market and the increase to age 90 issue ages has helped.  Risk of market fluctuation and loss of principal is a scary thought for fixed annuity potential buyers, making guaranteed annuities an attractive alternative.  The guarantees that fixed annuities can offer are reassuring product choices for many investors.  An alternative sales tip is to be aware of other product ideas, like the very popular SPWL with new living benefit riders.  

Rich Hellerich: Take back control of our currency from the Federal Reserve? No, that’s not likely.

I believe the answer lies in first evaluating the client’s risk profile and reviewing their other financial options compared to fixed/fixed indexed annuities. The second aspect is addressing the differences, benefits and guarantees of annuities when compared to other financial vehicles. 

For the conservative saver, current rates of return on CDs make many multi-year guaranteed annuities (MYGAs) attractive provided they understand the specifics of the annuity contract, any available liquidity features and potential surrender charges on early withdrawals. That combined with techniques like yield laddering into longer maturity annuities can increase overall returns.

More aggressive savers can recognize the value proposition of a fixed indexed annuity that guarantees no losses to principal due to stock market declines and a better–than-average chance to earn better–than-average interest credits over the life of the contract.

We may be stuck in this low rate environment for years to come, so agents need to be working with a production partner that can help them effectively present this message and educate their prospects.   

This is the year for the accumulation insurance products to regain their throne, the king of retirement planning!  That is a bold statement, but at the time I am writing this article, 2016 is off to a very slow start with indexes at low levels.  The Wall Street Journal stated, “Investors are approaching 2016 with low expectations after a year of disappointment in everything from U.S. stocks to emerging markets and junk bonds.”  Investors are realizing that the bubble is over in the stock market.  The Fed’s low interest rate policy reached a point where they were forced to begin the process of raising rates.  In regards to insurance products, this return to a more normal interest rate environment is a good thing after the last eight years.  Already, Multi-Year Guaranteed Annuity (MYGA) rates have improved and companies who moved to the sidelines are re-introducing products.  Let’s focus on which products are exciting for 2016.  Here are the most popular products I forecast.  

MYGA interest rates will continue to improve, regaining popularity with new features, shorter durations, and increased issue ages.  Plus, the return to the marketplace of higher rated carriers.

Single Premium Whole Life (SPWL) is an exploding market offering a guaranteed death benefit and estate benefits.  SPWL products with new features for liquidity for emergencies or health needs add to their appeal, along with older issue ages.

Indexed Annuities focusing on accumulation vs. income with attractive bonuses and growth options.  Products offer more investment choices, commission payout selections and still offer attractive withdrawal options.  

Guaranteed Universal Life or Whole Life, both with new features and flexibility.  The move back to cash value build-up is strong. These life policies offer many uses for cash value deferred compensation, pension funding, and withdrawals for health care needs (living benefits).  The UL (term to 100) contracts have lost many of the traditional benefits with the focus on low cost.  The uses for business life insurance policies to grow tax-deductible dollars for policy owners is strong as the markets recover.  Policy owners have always looked for avenues to shelter dollars.  In addition to trust and survivorship estate planning, special needs and private savings are needed as your clients face future concerns.  The accumulation products mentioned can build high cash value—tax-favored and accessible.  

Sales Tip: Take time to explain and communicate these new “living benefits” and withdrawal options.  Many times buried in the illustrations, they go unnoticed when comparing plans when cost is the only discussion.  The benefits are added at little or no cost and can provide peace of mind with added flexibility.  

Sales Tip:  The 3.00 percent interest rate time bomb is about to go off!  After years of low interest rates and policies dropping to minimum interest guarantees, many policies have been renewing at these contractual levels at 3.00 percent and become liquid.  We have millions of MYGA dollars ready to move to higher rates as rates increase.  The opportunities are tremendous to reconnect with clients and consumers forced to take a more aggressive position to achieve needed income or growth.  We are about to break this 3.00 percent barrier by mid-year.  

Act now to be ready to take advantage of this opportunity. As brokers, 2016 looks to be one of the best in recent years for sales in accumulations.  If you started your career in selling life products, re-visit their attractive features and investigate the new added living benefits.  Look at the new Medicare annuities, SPWL, and pension product areas.  Happy sales and here’s to a prosperous 2016! 

JohnDouglass, President, Annuities Exchange

Richard Hellerich, President, Great Plains Annuity & Life Marketing

Ron Lane, President, Fairlane Financial Corporation

Q: In what innovative ways can brokers use annuities to increase sales and better serve their clients?

John Douglass: Serving our clients is key, and annuities have done an excellent job! Since 2008, when financial markets were going into recession, we have experienced many things—bank money markets paying next to nothing, mutual funds, variable annuities, and stocks taking major hits. Even the American standby, your home, was experiencing dropping values, and yet in this same market you see annuities excel! Multi-year guaranteed annuities (MYGAs) guaranteed interest rates of 2 to 5 percent provide peace of mind to policyholders. We have point-to-point cap rates that paid 6 percent and continue with no reductions, even after being issued a few years ago. Every month we receive copies of single premium immediate annuity (SPIA) statements showing payments continuing to be unaffected by the current economic woes. Last, while unsecured investments left the investor taking all the risk, insurance state guarantee funds, in most states, have doubled protection levels. Annuities have done their job of providing guaranteed income streams to thousands of retirees. As annuity brokers, we have delivered while other investments faltered. My point in all this is that the best way to increase sales is to tell the story of the successes to your prospective clients as to how annuities can be used in innovative ways to balance portfolios, limit risk exposure and provide income streams. Tell your own success stories! Annuities deliver guaranteed financial rewards well into the future!

Richard Hellerich: 1: Work every day to become the recognized local expert on fixed annuities. If you strive to reach that goal you will ultimately have more referrals than you can handle. Successful brokers know that while access to carriers, product and commissions is widely available, it is important to partner with a competent annuity marketing organization (AMO). Look for an experienced annuity marketing specialist to partner with who can provide advanced case development, product education and sales concepts.

 2: Consumers are looking for education, not a sales pitch. If you have a website, consider providing financial calculators and education on the use of annuities and income planning. Many of the top annuity carriers have quality consumer marketing tools such as videos, point-of-sale materials, white papers, and third-party materials to help you educate your clients and make more sales. Some of the best annuity concepts have been around for a while and withstood the test of time. Examples of these include the split annuity concept, laddered annuity concept and annuity-life arbitrage. If you are not familiar with these concepts, ask your AMO for assistance.

 3: Ask your prospects/clients to invite their adult children to the planning/sales presentations. We know an agent enjoying tremendous results with the children becoming her clients and generating additional quality business. When the clients’ children (usually in their late 40s to early 60s) witness first-hand the effort and expertise that went into their parents’ plans, they often ask to schedule an appointment to discuss their own situation. Though she never asked for them, this agent has also received referrals from the children to their friends. The children frequently share their experiences with their friends and co-workers, resulting in additional “painless” referral opportunities created by raving client fans. This has not only generated some terrific annuity and long term income planning cases, but substantial life cases as well.

Ron Lane: Seniors can benefit greatly from being able to leave money to their grandchildren for college or other living expenses through gifting. Where else can a loving grandparent purchase something today and know that at some future date a monthly monetary gift will be delivered to their grandchild’s door. An annuity can serve as a lasting reminder of a grandparent’s love.

Q: What are the best ways to utilize annuities in a rising interest rate environment?

Hellerich: Interest rate risk is a serious concern for many investors looking for a safe return on their money, especially those on fixed income. However, an even greater risk is staying on the sidelines too long.

Approximately seven years ago we believed we were at all-time low interest rates, and many clients were scared to lock up their money in a 5-year MYGA for fear that interest rates would soon increase and they would be stuck with a low rate. Hindsight is always 20/20, and had the clients known interest rates would continue to decline, they might have taken advantage of that “low” rate at the time they were offered it.

For some clients the answer may be “diversify,” but this advice is applicable only for those clients who have actually accumulated enough financial assets to enjoy the luxury of diversification. According to an Insured Retirement Institute (IRI) study1 released earlier this year, only 19 percent of boomers have $250,000 or more saved for retirement, and four in 10 reported having no savings for retirement. Assuming these numbers are accurate, 81 percent of boomers need help with a retirement savings plan, and I would place low interest rates way down their list of potential retirement problems. Seeing that 40 percent have no savings for retirement speaks volumes for both the lack of financial education in America and the severity of our economic issues.

Fixed and fixed indexed annuities can deliver real value to the appropriate clients regardless of the interest rate scenario. These clients are conservative, safety-conscious savers who value downside protection and upside potential. The opportunity is right in front of you—and according to the IRI study I cited, millions of prospects need our help to put the retirement savings they have managed to accumulate on a secure footing now.

Lane: Wow. What a concept: a rising interest rate environment! In the event interest rates increase more than a quarter point, and the U.S. Treasury yield also has a significant increase, it would be time to visit with all of the dormant policyholders who have been sitting patiently on the sidelines. Many life and health advisors sold fixed annuities years ago with 3 percent minimum rate guarantees. Their clients will soon be clamoring for higher rates of return.

One may ask whether it would be prudent for clients to exchange annuities that are out of their existing surrender periods for higher interest rates. Advisors may find that clients in this situation have kept funds deferred for reasons too numerous to mention. We think it would be prudent to review those old annuity policies to update beneficiaries, ownerships (trusts) and, ultimately, the overall plans for the monies. We think a percentage of policyholders would be enamored with higher rates of return. Advisors can’t know until they ask.

Douglass: The flexibility of annuities to adjust to rising interest rates is best reflected in the ability to set durations currently from 3 to 10 years and utilize the income riders to be turned on when needed at the optimum time. The MYGA products have increased liquidity to up to 15 percent, and some plans offer cumulative withdrawals up to 50 percent. The ability to reposition without penalties as rates rise is crucial. We want to be able to catch the wave of rising interest rates, reward our clients and generate new sales.

Q: How do you best position annuities with an aging client base?

Lane: Advisors can be successful reminding their clients that an annuity is simply a warehouse for monies. Dollars allocated to annuities may be thought of as a hedge against other investment losses. It’s like money in the bank, except at a significantly higher interest rate.

Older investors relish the fact that they can place a percentage of their wealth in tax deferred products and be guaranteed safety of principle. At their stage of life they are acutely aware of the importance of prudent investment safety. Agents should recommend that aging clients keep their investment horizons short (about 5-7 years). The successful advisor should position annuities as an interim place for growth and, if needed, future income streams.

Douglass: Annuities are an excellent vehicle for older clients. We have annuities that issue through age 90, even 100! The annuity market caters to seniors at a time when guarantees and flexibility are needed. Bank CDs and mutual funds are vehicles to hold monies, but annuities are king on payouts and lifetime income options. I feel it is important to note how complicated investing has become. As brokers, dealing with older clients especially, it is important to know that your clients understand the product—for their protection as well as yours. How will they explain or provide information to other family members if they do not understand the products? Annuities can provide a solution.

Hellerich: You could easily devote an entire issue of Broker World to this question!

Fixed and fixed indexed annuities can be an appropriate cornerstone for many financial plans. Experienced annuity agents also know when to suggest that clients take advantage of the various fixed annuity types, including immediate, multi-year guarantee, fixed indexed and deferred income, depending on the specific planning situation.

Here is a short list of fixed annuity benefits to discuss with clients:

 • Minimum guarantees

 • Safety from market losses

 • Guaranteed lifetime income options

 • Flexible payout options

 • Tax-advantaged growth

 • Competitive rates compared to CDs or savings accounts

 • Estate planning benefits

 • Living benefits for chronic care and wealth transfer

In addition, astute brokers are familiar with utilizing annuities for a number of concept sales such as laddering income planning, split-annuity and annuity-life arbitrage. Annuities offer a tremendous amount of planning solutions and flexibility when properly applied.

Always be prospecting for premium such as:

 • Existing under-performing annuity contracts out of surrender

 • Savings dollars inappropriately exposed to potential market loss

 • CDs and savings accounts with little or no interest credit

 • Required minimum distributions (RMDs) that could be repositioned into a single premium life (SPL) policy

Your annuity marketing organization and advisor should be helping you master these concepts and how to recognize potential opportunities to help your clients.

Q: How significant is the impact of increased emphasis on­ living benefits for the industry and the clients your ­brokers serve?

Douglass: Living benefits is a great tool promoted by brokers as the Swiss army knife of annuities—able to provide multiple benefits. Let me say it has dominated the market because insurance companies hope to control the monies long term, and the higher commissions make them attractive to sell. Remember, MYGA products often designed with options such as bonuses, cumulative withdrawals and Medicare coverage are just as significant. Though they do not get as much attention, our sales of MYGAs continue to be strong.

There are many unique uses for annuities. Two that are gaining increased popularity are pension funding and deferred income SPIAs. Annuities are a fantastic pension funding vehicle for professionals and small employers. Deferred SPIAs allow guaranteed payouts of future benefits. Annuities, as I mentioned, have served clients well, providing guarantees and flexibility in many product designs for accumulation or payouts.

Hellerich: Living benefits, including guaranteed lifetime withdrawals, chronic care and enhanced death benefits have created new annuity sales opportunities that didn’t exist prior to their introduction almost 10 years ago. For the brokers we serve, active in the income planning arena, these benefits have captured the attention of prospects looking for additional protection and flexibility for potential “what-ifs” that could derail their retirement planning.

Carrier competition and continuing improvement of these benefits provide consumers with valuable planning options and the ability for their premium to multi-task, offering financial protection for enhanced guaranteed income, potential chronic health issues and death benefits.

Broker education is critical! Allowing a client to think that a guaranteed 7 percent guaranteed lifetime withdrawal benefit (GLWB) roll-up rate is credited to account value may close the sale, but belies what is really happening. While a chronic care rider can provide significant financial assistance in the right circumstance, it does not automatically eliminate the value of traditional long term care coverage. These benefits have expanded the topics to cover during the planning phase, but clients must be thoroughly and accurately educated on how these benefits work.

There is no “silver bullet” annuity that works for every client, and navigating the growing number of riders available can become a full time job. Brokers need to thoroughly understand these enhanced benefits and recognize when to suggest their use for the appropriate client(s). An experienced and knowledgeable annuity marketing advisor can help you with education, selection and best use of these riders for your clients’ needs.

Are we working with a client who is only concerned with purchasing a safe accumulation product offering a better than average chance for a better than average return, or a client focused on guaranteed income with potential health and wealth transfer benefits? The broker should be absolutely confident regarding which client he is serving, and offer appropriate solutions based on the client’s primary goals.

Living benefits have been a tremendous positive for fixed indexed annuity sales, with valuable additional protection and benefits for the right clients.

Lane: Many of our advisors are showing the guaranteed lifetime withdrawal benefit (GLWB) on their proposals. The future living benefits attribute is attractive to today’s middle-aged clients because they like the idea of having an income stream they can never outlive while still having some control over their investment.

For the industry, however, the living benefits can be a double-edged sword. Policies enjoy better persistency when clients understand that they can convert their deferred annuities into future income streams—and that they are being charged for that feature. This low lapse rate helps carriers profit during the deferral periods and the payout phases of their policies.

The other edge of the sword cuts out any future repositioning of GLWB policies to other carriers. Advisors find it difficult to offer alternative annuity products to clients after their policies’ deferral periods have ended. The jury is still out as to whether the living benefits have been a blessing or a curse for 1035 business. Probably the latter!

Q: How can brokers help clients moving from the accumulation phase to the distri­bution phase?

Hellerich: Our job is to help our clients enjoy a worry-free retirement. Traditional retirement transitions are rare. Clients working continuously 45-50 years, getting a gold watch and then sitting on the porch are mostly a thing of the past. With the economic volatility of the past 15 years, the new normal is helping clients who are dealing with their own unique transition, by force or by choice. Some are still working today because the 2008 market crash decimated their retirement assets. Some were forced into early retirement by unexpected termination or downsizing, some due to unforeseen health issues, and the lucky ones actually planned their retirement date or left their job to turn a hobby or avocation into a new career. These unique situations create unique solutions based on the client’s financial situation, expectations and reality.

The best way to prepare clients is to start planning and discussing this transition well before it occurs. In a perfect world we would help clients start envisioning their retirement goals at least 10 years out. This gives us time to explore the “what-ifs” of continued employment, potential health issues and economic forecasting. The further out we start the planning process and consistently update our goals, the greater our ability to react and navigate the threats to our financial security.

Obvious concerns today include:

 • Longevity—outliving savings

 • Affordable health care

 • Financial impact of chronic illness

 • Social Security viability

 • Exposure to market losses just prior to retirement

 • Federal deficits

 • Planning ignorance

No wonder many clients have an uneasy feeling about tapping their nest egg or lack confidence in the hope of enjoying a secure retirement someday.

The distribution phase strategy that works best is a well balanced retirement plan. This strategy involves working with the client to break this down to three components: need based planning, luxury based planning and legacy based planning.

 a) Need based planning: This part of the strategy covers the income that is required, such as mortgage payments, car payments, insurance premiums, food, clothing, etc.

 b) Luxury based planning: This part covers the income that is wanted to take vacations, give gifts to kids, charitable donations, etc.

 c) Legacy based planning: This part covers the remainder of the assets and what the clients want to have happen after they have passed.

This planning is one of the most important services you can provide. You bring real value to your clients by helping them understand how far their current savings will take them and discussing the best distribution methods for their situations. I suggest that guarantees and benefits offered by fixed and fixed indexed annuities should be included in that discussion. Look for assistance from a quality annuity marketing organization that can help you create and present the best solutions for a secure retirement and reliable lifetime income. [RH]

Lane: Clients should be shown how to take a portion of their deferred annuities and enact a partial annuitization. This keeps some of the funds deferred and lets some of the money turn into an income stream. Most annuity policy provisions permit partial annuitization after some deferral period. Advisors who do annual asset reviews should be able to identify annuities that can be converted to their distribution phase. [RL]

Douglass: The best way to assist clients transitioning from the accumulation phase to the distribution phase, going into retirement or from a death, is to provide options. Annuities, more than any other vehicle, shine in the unique variety of product and payout options. This is a great opportunity for an agent to show his knowledge in the review of product choices and strengths of each, review of cost basis, tax status, length of benefits, etc. Each annuity type brings different talking points—for example, systematic withdrawals from a SPIA or an income rider, or periodic withdrawals from a MYGA. A good example: We recently saved a client a huge tax bill. The husband died, and his widow was ready to take a lump sum disbursement from an $800,000 IRA account. The broker set up an extended payout benefit, spreading taxes and benefiting the family. In summary, whether turning income on for retirement or receiving death proceeds, the payout phase shows the strength of annuities and stresses the need for an agent’s expertise. [JD]

Footnote:

 1. http://irionline.org/newsroom/newsroom-­detail-view/boomers-confidence-in-secure-retirement-sinks-to-five-year-low

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.

Q: The hot topic seems to be product innovation, with all of the combo and living benefit riders. The problem is that while these products are similar, they are different enough that producers must take great care in choosing the proper one for their clients. What suggestions do you have for producers about this dilemma?

John Douglass: Watching benefit riders develop has been very interesting. Initially they were very popular as part of variable annuities, and they have transcended into being the number one driver on indexed annuities. These riders have positives and negatives.

The positives are guaranteed income, impressive roll-ups even in hard times, and now the added death benefit, confinement benefits, etc.—all in one product. The negatives would be the increasing fees, lowering roll-up interest rates, and loss of liquidity to completely exit a contract in the future.

If there is anything guaranteed in this world, it is that these current products have a shelf life that will expire, and the next generation will then be introduced. Look how much the products have changed in just the last five years. Agents selling these riders will be dealing with customer service centers to make sure that promises made at the point-of-sale will be delivered at a point in the future—in some cases 10 years out. This could be a slippery slope for many insurance brokers when they make promises to clients at the point-of-sale and need to deliver in the long term when the client “turns on” the benefits.

I am concerned with the income rider benefits’ projections. I do not find a lot of detail regarding actual guaranteed benefits in the sales materials, which is common in the insurance industry today. [JD]

Rich Hellerich: One of the best educational resources agents and financial advisors should rely on is their independent marketing organization (IMO). I believe you are correct in suggesting that “the devil is in the details” regarding subtle and not-so-subtle differences in features, benefits and charges found in these new product offerings. With the multitude of carriers and recent product launches, it is impossible for a busy producer to stay abreast of all the developments and changes in the market, and their IMO annuity marketing specialist should be their first source of information to assist with addressing client needs and offering appropriate case solutions. Another benefit in working with their IMO should be the education in how to properly position these new benefit enhancements for the prospect. This is a great opportunity for producers to discuss the financial impact a chronic care issue might have on a prospect’s retirement nest egg, and how any available death benefits work to the advantage of the spouse and heirs. Such a conversation will greatly assist agents in educating their prospects on these issues and in improving thorough fact-finding to determine appropriate and suitable solutions. Depending on the specific client situation, the solutions may be to offer traditional LTC or life insurance products in addition to, or rather than, a combo product.

The introduction of these new products gives quality producers the opportunity to provide greater value to clients and prospects while helping them create a financial plan that addresses the “what-ifs” of retirement. In addition to access to guaranteed lifetime income, clients can access these additional benefits and flexibility with chronic care protection and enhanced death benefits with the appropriate fixed indexed annuity (FIA).

The bottom line is to not be a product pusher, offering all prospects the same product solution. Take advantage of the assistance and expertise of your annuity and life marketing resources! [RH]

Ron Lane: Let’s quickly review annuity product design during the last several years. To gain or keep market share, actuaries tweaked fixed annuity products to compensate for low interest rates. Each carrier was forced to keep up with the others by offering their tweaks along the same lines. Insurance producers found it harder to differentiate products due to the number of carriers adding guaranteed lifetime withdrawal benefits, long term care waivers and enhanced life insurance benefits.

Product actuaries knew there were only 100 pennies in a dollar and that every additional policy attribute would cost something—either a percentage of the gain for each year or lower caps. Of course all annuity products must be balanced to generate value for the client, compensation for the producer and profit for the carrier. These consumer-centric annuities with additional attributes usually offered less compensation to the producer or lower cap rates for the client.

Before agents can suggest or recommend annuities with their various benefits (and various costs), they must ascertain their clients’ short and long term goals. Agents need not offer GLWB riders to clients who are using their fixed annuity as a warehouse for money which they intend to pass to a loved one at death.

In most cases, when explaining income riders to interested clients, agents should first focus on the payout percentage before going over the roll-up rate. The agent should always discuss and determine an appropriate deferral period for the client. It is also important to discuss the rider cost and to provide illustrations for a target date which show how the income account will grow over time. Roll-up rates, payout factors and additional comparative information is available through numerous websites.

Agents should determine each client’s investment temperament. Some clients will be worried about outliving their funds; they may be more receptive to purchasing income riders. Other clients may only be interested in deferring their accounts and leaving an inheritance for loved ones. In those cases, there are some excellent death benefit riders that can almost double the death benefit if paid out over a period of time.

To maintain good relationships, agents should arrange annual follow-up meetings with clients to review their statements. These meetings remind clients of the value annuities play in their retirement portfolios. They can also uncover new situations that may lead to changes in policies, and generate additional purchases or referrals. [RL]

Q: Now that the market appears to be starting to turn around, what do you see in the future for indexed annuities?

Hellerich: I would ask if the market is really starting to turn around and what are the odds of long term gains and improvement? What is the primary source of monies coming into the market today, and is this growth sustainable given other realities in our economy? Regardless of your answers to these questions, we can still make a great case for considering FIAs in preparing a sound retirement financial plan!

Some obvious benefits of traditional fixed annuities, subject to holding the contract to term and specific policy provisions, include:

 •  Guarantee of principal (safety)

 •  Guaranteed minimum growth

 •  Tax-deferral (triple compounding)

 •  Guaranteed lifetime income options

 •  Liquidity

 •  Estate planning benefits (probate)

In addition, we know FIAs offer the potential of market-linked growth without exposure to market risk. In this low interest rate environment, a policyowner enjoys all the benefits of a traditional fixed annuity plus the potential of higher credited interest to the contract without risking principal! Add the multiple indexing strategies found in most FIA contracts, plus the option of a declared fixed-interest credit, and you have a guaranteed insurance product that every baby boomer should be acquainted with when developing their financial strategy for retirement. Also consider the FIA for clients desiring a guaranteed amount of lifetime income benefits with riders offering roll-up rates of 4 to 6 percent or more for purposes of income.

Can you think of a better financial vehicle to offer safety-conscious consumers approaching retirement with today’s uncertain economic climate?

We are bullish on fixed indexed annuities. With 10,000 baby boomers turning 65 every day (and another 10,000 turning 64, 63, 62, etc.) there has never been a better time to present the FIA value proposition. In addition, fewer agents are entering the marketplace, so existing producers who embrace educating prospects on the FIA value proposition should flourish. [RH]

Lane: The market turnaround may be coming to a close with the presumption of higher interest rates around the corner. As I draft this response, 10-year Treasury notes are yielding 2.69 percent. Now let’s compare that to a record low of 1.379 percent on July 25, 2012. 

I think we will see higher interest rates in the future and that usually coincides with market decline. With higher interest rates, lackluster fixed annuities will regain their glow. However, I do not feel that minimum guaranteed interest rates will ever return to the 3 percent or higher rates of yesteryear. That provision almost destroyed some insurance carriers when interest rates hit rock bottom a few years ago.

Conversely, if we assume that the markets will continue to increase, indexed annuities should be made more attractive than they are today. It’s really about carriers being able to make their spreads while still offering consumers viable annuity products. The industry needs to find ways to simplify indexed annuities so that more agents will feel comfortable offering them to clients.

I have to admit, there are so many ways of crediting interest, charging for riders, and dealing with hundreds of other indexed annuity nuances that I even get lost sometimes—and I work with this all day, every day. I can only imagine what insurance professionals must go through when they are also offering life, health, disability, LTC, P&C…you get the point. [RL]

Douglass: What do I see in terms of the future for annuities? Red-hot! We have seen a jump in the cap rates on indexed products. It has been a resounding echo that the market is coming alive. As these cap rates go higher and as more brokers sell products, it shows that the economy is starting to turn around. I look forward to higher cap rates and better product features, and I think the indexed world is going to thrive—perhaps not as strong as when we first introduced them in the 1990s—but we’re coming back!

Multi-year guaranteed annuity rates are also increasing to higher interest yields on shorter durations. I expect a very strong 2014.

Brokers should contract now and get product suitability training up-to-date and be ready as rates rise. Since many brokers may have lost their company appointments due to inactivity, they must act now to be ready for the next sale. Better days are coming fast! [JD]

Q: We were all surprised at the conviction of Glenn Neasham for wrongfully selling an annuity to an 83-year-od woman. Do you believe that this conviction is fair? Has this situation influenced your business? If so, how? What long term ramifications do you believe this situation will have on future annuity sales to senior citizens?

John Douglass: Unbelievable! The con­viction of Glenn Neasham has literally rocked the insurance industry. Since news of this conviction hit the Internet and was covered in national publications, many agents continue to be afraid and unsure of how to proceed. The devastating effect that this conviction has had on Mr. Neasham’s career and family is horrendous. He is like many other agents, and I think that is why it hits home so hard. We all feel any one of us could be in this same situation.

He worked hard, he was successful, and he was caught in a conflict of litigation and regulations gone wrong. I want to quickly get to the point of who I feel is at fault: the legal system, state insurance departments and the insurance companies that we represent.

All of us are quick to focus on an over-aggressive prosecutor or the state strapped for cash, looking for any dollar it can get at anyone’s expense. Yet what is very sad is that state insurance commissioners’ offices no longer feel they have to support insurance agents—whether it is in the state of California, or anywhere else in the United States. Today, as individual agents, we stand alone.

The only good thing to come out of this situation is that it has created an awareness of these issues. If it had not been so absurdly ridiculous that Glenn Neasham was prosecuted, many situations, not quite as severe, may continue to go totally unnoticed.

Let’s not leave the companies we represent out of the blame. In our own agency, we have experienced ridiculous situations where insurance companies, without even a phone call to the brokers to hear their side, have reversed cases that have been on the books for up to two years and charged back commissions to avoid any legal conflicts. Our outrage regarding these insurance companies’ reversals has been totally ignored. Our disapproval of new compliance procedures falls on deaf ears. The answer to our complaints has been met with more compliance requirements from some companies!

An agent meets a brick wall when questioning any compliance form. Insurance companies will not question any of their compliance procedures, and the only option for an agent is to fall in line and swallow it. Frequently the response from the insurance com­panies is, “If you don’t like it, don’t do business with us.”

Quite frankly, my answer is that I hope these insurance companies feel the impact in lost business and brokers. If they don’t care about their insurance agents’ concerns, why should we care about them? Unfortunately, companies feel no agent or agency is worth putting themselves in conflict with regulators.

There needs to be more understanding of what it takes to be in the trenches, trying to write a piece of business and filling out a dozen pages of compliance information (that in many cases is to the point of ridiculousness). I object…as hard as I possibly can! If this is the way it is going to continue, there will no longer be any agents left to write annuities or life insurance contracts. The insurance companies can sit on their pile of cash and hopefully find some place to invest it, because the agents will not be there to write new business.

It was not always this way. Our national organizations stuck up for us. We had representation in the form of national lobby groups. I felt being a member of a national insurance group meant something. I am so disappointed right now with our insurance lobbyists in the way that they have allowed the federal government to walk all over us.

This is a serious time in the insurance industry. Is the agent system going to survive? Will agents feel comfortable writing a case without being worried about being sued?

I hope this Glenn Neasham case is a wake-up call to the insurance industry as a whole. It is time that brokers and companies get together and, working with legislators and regulators, start challenging these injustices, rather than lying back and letting insurance agents like Glenn Neasham take the fall.

In summary, I stand 100 percent behind the agent who is working hard to prospect and develop cases, despite being overburdened by unnecessary paperwork regarding suitability. Yet I am afraid that because of this case we are going to have to put in place a cognitive testing program to make sure people are mentally capable—which will be just one more hurdle for agents.

If a case is placed, are we going to be questioning whether a company is going to come back and take our commissions away a year or two later (well past any free-look period) when our client decides he no longer likes the product he bought?

Are we to just have an open checkbook for the insurance companies to come in and take the commissions back just because they do not want to fight or defend us?

Will we get a new dose of compliance regulations for cognitive testing?

Will the regulators go unchecked? Let’s hope not…then we can actually spend our time selling! [JD]

Rich Hellerich: Without first-hand information and full knowledge of the particulars of this case, saying Glenn Neasham’s conviction was fair or unfair is at best speculation. Did the client appear lucid and understand what she was purchasing? Why was the specific product recommended, and did it meet the expressed needs and desires of the client?

I believe the punishment is severe when you consider the product was approved by the state insurance department, issued to age 85, and processed by the issuing insurance carrier with no apparent problems.

My question is: Why was this case not in the jurisdiction of the state insurance department? There was no evidence of actual theft of the client’s premium and, in fact, it is reported the client received her original premium plus interest.

This situation calls attention to the extra care that should be taken when making an annuity recommendation to any client older than age 80. The need to completely document all aspects of what the sale is intending to accomplish is obvious, and I believe that, when possible, the prospect’s adult child(ren) or an heir should be included in all presentations to ensure everyone is on the same page. Who better than a family member or someone with an intimate knowledge of a prospect’s behavior to be present if there are concerns regarding dementia or mental capacity?

We have several brokers who always try to include at least one adult child in the fact-finding and sales sessions with older clients, and this often results in additional business from the children regarding their own retirement assets and planning. When they experience the expertise and effort put forth for the benefit of their parent(s), asking that same advisor for help with their planning is the frequent result. Annuity professionals who always strive to do right by their clients will have no shortage of referrals.

The influence and ramifications of this case and fallout from the SEC’s attempt to regulate FIA sales practices continues to evolve. As the baby boomers flood the retirement landscape, we anticipate more issues with trying to recognize a prospect’s potential cognitive impairment and what the agent’s role will be in that effort.

My concern is that this could become a “slippery slope” at point-of-sale in requiring the writing agent to be accountable for determining the client’s mental capacity. It is one thing when a lack of mental capability is obvious and quite another when the prospect is capable of hiding the issue.

If someone can hide his condition from a trained medical professional, what will be required of the agent to determine mental impairment at point-of-sale? Will each carrier have its own standard as we see today on financial suitability issues?

We have witnessed some financial suitability standards that, frankly, seem to be a moving target. Carriers that are not communicating their standards or are applying one set of standards for all clients, regardless of issue age, have become more of a challenge this year. While we appreciate and understand the carrier’s need to avoid obvious market conduct problems, we have also seen some decisions using the “blanket” approach mentioned above rather than common sense and honoring the client’s desire for long term protection of assets earmarked for their retirement. [RH]

Ron Lane: Speaking as a licensed insurance professional for 36 years, I do not believe that Mr. Neasham should have been convicted of felony theft by a jury of his peers. He did not appropriate funds from the 83-year-old client’s insurance policies for his personal use, nor did he induce the client to loan or give him any monies. However, I do wholeheartedly believe he used poor judgment in the type of annuity he offered to this elderly client.

In my opinion, it would have been more prudent for the California Insurance Commissioner to contact the insurance carrier that issued the annuity policy to discern whether this “senior case” was properly underwritten. During a case review, if the carrier found that the owner lacked the proper mental capacity to enter into a contract, they could have cancelled the agent’s licensing appointment, charged him back the commissions and/or ultimately petitioned the California Insurance Department to impose an agent fine.

The Neasham case may affect all insurance professionals psychologically—we can only hope in a positive way. Regardless of how methodically annuity products are presented to seniors, insurance professionals can never assume consumers are processing all of that information. The prospect needs to be questioned throughout the sales process to verify that he understands the policy provisions being offered.

Field underwriting by an agent can only go so far. I would also recommend that insurance carriers stay more ivolved in the underwriting process for seniors. In the future, signed forms and financial data may not be enough to discern whether a person has the capacity to understand all of the complicated provisions of an annuity contract. [RL]

Q: What do you consider to be the best new product or product enhancement that you are recommending to brokers? Is there a product or product enhancement not currently available that you would like to see introduced?

Hellerich: Any producer active in the fixed annuity market should agree that up until the introduction of guaranteed lifetime withdrawal benefits (GLWBs), referred to as income riders generically, fixed annuities were primarily a vehicle by which to transfer assets to heirs. With the market losses of 2008, many consumers who had saved diligently for retirement were left with half those savings, with the prospect that their retirement date would move well into the future. Current volatility in the stock market, consumer fears regarding the economy, and the long term viability of Social Security have moved income planning and the strategic decumulation of retirement assets to center stage. Consumers worried about outliving their assets now enjoy more planning options and control with GLWBs versus the purchase of a single premium immediate annuity.

In this low interest rate environment, secondary benefits and/or riders have become additional options for consumers to consider in making their purchasing decisions. We are experiencing tremendous response from brokers with two key benefits—chronic care and enhanced death benefit riders.

The advent of chronic care benefits within some annuity (or life) policies provide the opportunity for a conversation every broker should have with his prospect—if only to avoid a potential E&O claim. We know many consumers have the attitude that LTC is too expensive, or that they will pay for a benefit they will never use, despite industry statistics and the articles published in Broker World on this topic.

When clients decide to self-insure for possible LTC health issues without grasping the financial catastrophe such planning can wreak on their savings, children or heirs can be quick to ask if such coverage was presented.

While chronic care benefits are not always a replacement for such coverage, they can provide consumers a tremendous option with the coverage they do provide. This is especially true when the decision comes down to rising premium costs for a consumer’s current LTC coverage, a “use it or lose it” mindset regarding LTC premiums, or a simple lack of assets available to purchase LTC, even though they want the coverage. This rider offers the ability to augment existing coverage that may be in place to help control premium outlays, avoids the belief that the premium was wasted in the event such coverage was not needed, and provides peace-of-mind for those who might not be able to afford such coverage otherwise.

Again, we believe this approach is an excellent way for the annuity broker to protect himself from a possible inquiry as to why chronic care or LTC benefits were not part of the sales discussion with the client. Such a conversation may well be as important as the client’s liquid assets when reviewing suitability of the sale and avoiding a potential E&O claim.

Another feature recently introduced with some annuity contracts is enhanced death benefits for beneficiaries. This provides clients—especially those utilizing laddered income planning—comfort in knowing that an enhanced death benefit is available to their beneficiaries in excess of the premium until the guaranteed income begins. This is an important feature to policyholders concerned with access to guaranteed lifetime income benefits, but enhanced family wealth transfer value in the event of death.

I imagine that there may well be a number of new annuity products with additional secondary benefits to benefit consumers, but I don’t anticipate many new annuity products in the near future. We work in an industry known for innovation and fast response with product and benefits to meet consumer needs, but given our current interest rate and economic reality, we need to understand that carriers face difficult challenges today in pricing annuity products, making their necessary investment spread, and managing the resulting strain on reserves. This point is brought home with a review of recent interest and option rate credits, and we have begun to see some commission reductions in the marketplace.

One way to address this might be an “à la carte” fixed indexed annuity. Comparable to a multi-year guarantee (MYGA), the base product offers the best credited interest rate and option budget. Clients can select the benefits most important to them, such as guaranteed lifetime income, liquidity benefits, enhanced death benefit, etc. I would see this product on a longer term chassis, perhaps 10 year. With this timeframe, carriers would have more room in pricing, push better crediting rate opportunities to clients, and address suitability issues. Knowing the success some MYGA products have enjoyed with this à la carte concept, this might be worth a look, utilizing a fixed indexed annuity frame.

With the annuity products we do have available today, challenges with evolving suitability review and the economic concerns for the client, carrier and agent, I believe it is now more important than ever that brokers find and take advantage of a solid partnership with an annuity marketing organization (AMO). A broker needs to evaluate such a relationship on the AMO’s ability to truly offer independent advice and case development that best serves the broker and his client, enhances the broker’s relationship with the annuity carrier, and keeps the broker informed on ever-changing market/product conditions. [RH]

Lane: There aren’t many new product enhancements in the annuity arena. Guaranteed minimum withdrawal benefit riders are still in vogue, as are some of the long term care riders. It is so difficult in today’s investment climate for carriers to earn decent spreads; thus, they aren’t working on many new product ideas.

I like bailout provisions and return of premium features in annuity products. I know they cost basis points, but consumers still rally around the perceived value of these benefits.

Somewhere down the road we may see a selection process in annuity products that permit a policyholder to elect various benefit riders at issue, such as accidental death benefits, double indemnity, LTC, bailouts, return of premium, GMWBs with inflation riders, annuitization bonuses, cumulative withdrawals and annual completion benefits that guard against mass disintermediation when rates increase. [RL]

Douglass: Unfortunately the trend in this low interest rate environment is for insurance companies to withdraw products or increase prices. The agent is taking the hit for the current economic policies, which are forcing this low interest rate environment on consumers.

Until interest rate markets return to normalcy, it is going to be interesting to see how the insurance companies are able to produce a profit and how agents are going to have competitive products to sell.

Let’s hope that in the coming months we will see some major changes in economic policies despite who is in office. We need to return to a market where there is a reasonable profit for companies and consumers—where competitive interest rates are paid, giving some relief to seniors and other consumers who need our products. [JD]

John Douglass is principal of Annuities Exchange/Financial Products Corp. He can be reached at Annuities Exchange, 2600 North Mayfair Road, Suite 1190, Milwaukee, WI 63226. Telephone: 800-572-7283. Website: www.annuitiesexchange.com.

Richard (Rich) Hellerich is the principal of Great Plains Annuity & Life Marketing, Inc. He can be reached at Great Plains Annuity & Life Marketing, Inc., 11900 West 87th Street, Suite 115, Lenexa, KS 66215. Email: [email protected]. Website: www.­greatplainsannuity.com.

Ronald J. Lane, Sr., is president of Fairlane Financial Corp. He can be reached at Fairlane Financial Corp., 1200 South Pine Island Road, Suite 100, Fort Lauderdale, FL 33324. Telephone: 800-327-1460. Email: [email protected].

Q: This year the first baby boomers turn 65 and many are either retired or planning to retire within the next few years. What annuity product advice do you have for brokers when working with boomer clients?

John Douglass: I would like to put a very positive spin on the question of the future of retirement planning and the huge influx of baby boomers now reaching what was to be the classic retirement age of 65. However, I do not think many retirees are hitching up their Airstream trailers and heading out to the open road to enjoy their golden years. That vision has long since disappeared; which means that the need for financial planning today is more crucial than ever with our current financial problems. I think you will find most retirement age couples willing to sit down and talk about ideas and how they can more successfully plan for the future.

Companies have enabled us to help these boomers with some creative products we did not have even a few years ago. The new income riders with guaranteed roll-ups that are available, along with the death benefit riders on indexed plans now entering the market, and critical illness plans all have a valuable need in planning for the future. We all know someone affected by a critical illness. Wealth transfer products, designed to pass on financial security to future generations, have provided brokers with attractive products with which to approach future retirees.

Plus, with life insurance companies no longer providing the incubating system to bring new agents into the field, the number of financial planners is greatly decreasing. Agents who have been in the field for many years have opted for retirement instead of dealing with new product training, anti-money laundering, and developing the technology skills to download materials, emails, etc., due to lack of phone support with many of the insurance companies today.

If agents are willing to meet the challenges of today’s marketplace in the form of technology skills, product training, and developing a savvy marketing sense, they are going to find success. The need for financial planners is growing and the companies are eager to support us with new, creative products. I think our industry has a very bright future meeting the concerns of the baby boomer generation, and who knows? With proper planning, maybe someday they actually can afford to retire. [JD]

Richard Hellerich: More than 10,000 boomers will reach age 65 every single day for the next 19 years, making this the largest annuity marketing segment in history. My advice to brokers is to understand that the sales process with boomers is quite different from the preceding silent, or greatest, generation.

Boomers are generally more educated, affluent and healthier. Many were anticipating a financially secure retirement, but are now dealing with aging parents or adult children dependent on their help, in addition to the current and long term impact of the economic downturn on their nest egg. These pressures, coupled with the desire to have a fulfilling and enjoyable retirement, have made them more receptive to the guarantees and benefits offered by traditional and fixed indexed annuity products.

Boomers prefer to have information presented in terms of categories and options using straightforward facts to help make purchasing decisions. Anticipate that whatever information you present to them at the point of sale will be researched and confirmed. You should also keep this in mind when developing content for your website or marketing materials. Using word-of-mouth communication and referrals from other trusted advisors (attorneys, CPAs, etc.) is also very effective in reaching them.

Pushing a particular carrier/product before the initial fact-finding interview will greatly reduce the chance of a sale. This does not apply to just the boomer market, and I hope this is obvious to all annuity professionals. Boomers are very skeptical of cookie-cutter solutions and expect an advisor to consider the unique aspects of their individual situations.

Here are fixed annuity product benefits appealing to boomers:

• Safety: The principal is protected, which prevents market losses.

• Longevity “insurance”: guaranteed lifetime income with flexibility.

• Estate planning: Once a beneficiary is named, the probate process is typically avoided.

• Liquidity: If needs change, annuities have several liquidity advantages.

• Living benefits: nursing home/long term care.

Fixed and fixed indexed annuities are back in vogue after years of being maligned in the consumer press. Financial editors and reporters have frequently assigned the traits of variable annuity products to fixed annuities, confusing consumers looking for vehicles to protect their retirement assets.

Boomers, still smarting from the market downturn of 2008, are very interested in protection from market downturns and guaranteed payouts for their lifetime. A broker who can help them create personalized and flexible income plans that also provide safety and tax benefits is likely to become the trusted advisor. [RH]

Tip Huffman: Being at the front end of the baby boom generations helps me to understand that brokers working with boomers need to be aware that boomers are fearful about maintaining and growing their retirement funds. They are fearful about having enough income to last through their retirement years. They are fearful about the potential costs of long term care. To be successful, agents need to be able to discuss these fears with their clients and prospects and have rock solid solutions to offer. [TH]

Ron Lane: Being a baby boomer myself, I marvel at the numerous insurance products aimed at my generation. And it’s no wonder; boomers are richer, better educated and more independent-minded than any other generation. They number 76 million strong—with $18 trillion of wealth. However, compared to their parents’ generation, boomers have alarmingly less than adequate retirement plans.

A few years ago we were asked to develop boomer products for carriers which required an exhaustive two-year study of baby boomers’ habits. We found they are not as financially savvy as we expected. Half of all affluent boomers had never consulted a professional advisor, but 75 percent were open to seeking help.

This brings us to some annuity product advice for brokers dealing with boomer clients. I suggest after your initial fact finding, you keep your product recommendations very straightforward. Don’t get caught up in explaining too many different products and their credit movements that influence gains after caps, spreads and participation rates. Heck, some index annuity products still confuse me, and I deal with them every day.

Remember, this age group is at the top of their income producing years. Their homes may be paid for, their children grown and, often, their spouse is employed too. Boomers want to continue their current lifestyles after retirement and will respond to a financial professional who can help them achieve that goal. [RL]

Sheryl Moore: Seven years ago, the boomers’ dilemma bothered me so much that I stayed awake at night trying to solve the problem: How can we get them to move their trillions of dollars that are accumulating into retirement income?

Boomers weren’t being told the retirement income story. Annuitization had existed for many, many years; so why weren’t agents talking about it? Only 2 percent of annuity purchasers were guaranteeing lifetime income via annuitization.

My research revealed that insurance agents didn’t talk about annuitization because (1) they would lose control of their clients’ assets, (2) they would be paid 4 percent street level compensation at best, and (3) clients would lose flexibility in obtaining funds from the assets. It was at this time that I developed the concept of guaranteed lifetime withdrawal benefits (GLWBs) on fixed and indexed annuities. GLWBs had been used on variable annuities as a way to add an element of safety to a “risk money” product. However, using the GLWB on a product that already had principal protection provided an alternative to annuitization on fixed and indexed annuities.

Today, 58 percent of indexed annuity sales have GLWB elected on the contract and 10 percent of these sales are actively taking income out under the GLWB! Retirement income problem solved!

My advice to brokers selling deferred annuities to boomers today is: Don’t forget the retirement income story! Providing a guaranteed income that boomers cannot outlive is paramount in this age of dwindling retirement account balances and ever-extending longevity. The GLWB helps you to tell this story. [SM]

Q: Is there an annuity product or marketing trend with significant potential that you would recommend to a producer?

Moore: I recommend GLWBs on both fixed and indexed annuities for those selling to boomer clients. Yet you need to know that GLWBs come in two varieties: for clients needing income today and for clients needing income tomorrow. Any GLWB that has a bonus that is credited to the benefit base of a GLWB, rather than to the account value of the annuity, performs best when the guaranteed lifetime income is turned on in the first few years of the contract. (These are those annuities advertising 15, 20 and 25 percent bonuses.)

Any GLWB that has a rollup which is credited every year the client defers income performs best when the guaranteed lifetime income is turned on after 7 to 10 years or even longer. (These are those annuities advertising “guaranteed [8 percent] growth every year that the annuitant defers income.”)

If you need help getting started with GLWBs, ask. If you don’t, you’ll be missing the boat with your boomer clients. [SM]

Lane: Because 80 percent of boomers plan to keep working past their normal retirement age, a prudent product would be a flexible premium deferred annuity. There is one we use with a first year premium bonus. The boomer clients can continue to make payments to such an account and when ready to receive a steady income stream, they also receive an additional annuitization bonus.

Young and old boomers have no difficulty in understanding this simple flexible premium, fixed interest annuity. Although these products may offer a lower fixed interest rate, when the bonus interest is added, these products beat the “stuffin’” out of certificates of deposit or money market accounts. There is an A+ rated carrier that has developed such a product and appropriately named it boomer annuity. [RL]

Huffman: We at TWH Agency believe very strongly in two specific product trends that address these fears:

1. Index-linked fixed annuities with guaranteed lifetime income riders. These plans offer rock solid guarantees that give boomers the ability to see their money grow tax-deferred without potential loss and can provide a guaranteed lifetime income benefit base that can produce outstanding lifetime monthly guaranteed income. In addition, many of the newer income riders also offer substantial guaranteed death benefits for those who want to pass assets on to heirs.

2. Linked-benefit life insurance and annuity-based long term care policies which serve multiple purposes. They provide substantial tax-free death benefits as well as long term care coverage. They solve the objection to the question “What happens if I never need to use my LTC coverage?” The answer is “Instead of ending up with a basket of receipts, either your heirs will receive a substantial tax-free death benefit or you can retrieve all or most of your premiums simply by cashing in the policy.”

Without a doubt, sales of these two product lines will be robust for the boomer market in the years ahead. [TH]

Hellerich: Currently, I believe the most significant trend in the fixed annuity market is income planning, Boomers are concerned about the continued viability of Social Security and the economy in general and are more  motivated than ever to create their own retirement paychecks. These concerns place fixed indexed annuities with lifetime income benefits in a favorable spotlight.

We have found great success in helping brokers and advisors create income and asset preservation plans tailored to the specific needs of clients and their families. If you listen to your prospects closely during the initial interview as they discuss their lifestyles and family goals, and if you have asked them to have the appropriate financial information available to discuss, your annuity marketing organization should be able to help you meet your client’s particular needs and apply appropriate product solutions to help you become the trusted advisor.

If you can help boomer clients sleep well at night knowing they have ensured their future, they will share your expertise with friends, relatives and associates. There is no better prospect referral than one given to you by an existing client.

Remember, more than 10,000 boomers will reach age 65 every single day for the next 19 years. Brokers who can assist boomer clients in creating guaranteed lifetime income by crafting a plan designed and built to meet unique needs and desires are going to be very busy. [RH]

Douglass: In regard to products, we have had success offering alternatives to low interest rates currently available on money markets and certificates of deposit for more conservative investors. With the ability to ladder these from one to ten years, some very competitive scenarios can be created.

Another product I particularly like is a single premium immediate annuity. The creative planning that can be done with an SPIA is tremendous—and now we have liquidity riders available, which gives us the ability to have return of premium with an SPIA!

People today are looking for flexibility and guarantees. The products today are delivering liquidity with guarantees. The guaranteed liquidity option is available in the life market on term, universal life, second-to-die and, now, on indexed annuities and SPIAs. The ability to rethink decisions and adjust in the future offers tremendous peace of mind and many selling opportunities as you make your clients aware of these flexible new products.

I suggest brokers expand their horizons and look at some of these niche product areas they have perhaps overlooked, particularly products available in the critical illness (extremely popular now, available as a stand-alone policy or rider), guaranteed issue life (for rated clients), wealth transfer (for qualified or non-qualified monies), traditional and indexed annuities—all excellent in covering various planning aspects for future retirees. [JD]

What are the top three factors an agent must consider when recommending an annuity to a client? Why?

John Douglass: Age would have to take center stage. With issue ages advancing to people who are 80, 85 and 90, we’re working with a senior population, which requires an agent to be especially careful in his presentation to make sure that the client understands the product completely.

It’s very tempting to sell “the sizzle,” especially when you’re talking about bonus indexed annuities. You want to avoid confusion. Unfortunately, after the agent leaves the appointment, many seniors can forget some of the details. If they are talking with other family members, it can also create some confusion on what was presented.

Obviously for these reasons, when working with older clients, especially because enforcement in many states is heavily regulated in regard to marketing materials and presentation disclosures, an agent has to be extremely careful that he has covered all his bases, not only to protect his clients, but to protect himself.

The second important point would be liquidity. Many contracts in the past have offered aggressive cumulative withdrawals, or at least 10 percent yearly, but now we’re down to interest only in some cases. As these contracts become increasingly less liquid, withdrawals are sometimes not available until the end of the first year. If you’re working with people with limited assets, you’d have to be aware of their liquidity needs.

Also you need to consider minimum mandatory IRS withdrawals that may be necessary, or withdrawals to pay premiums on life or LTC insurance policies which they are funding with the annuity they are purchasing. So liquidity becomes increasingly something to be aware of.

This liquidity discussion must include annuitization options. In some cases the companies have pushed out annuitization options far into the future, again, keeping the contracts very illiquid. If an emergency should arise, you don’t want to be in a position where you have to say to your client, “I’m sorry, but you’re going to have to incur a surrender charge to get access to your monies.”

We must consider the client’s level of sophistication (product understanding), as well as their net worth, which go hand-in-hand. If your client is not that sophisticated, you have to make extra effort to make sure he understands the contract. Obviously, people with higher net worth, who are used to handling larger sums of money, may be a little bit more savvy in regard to understanding annuity products, but even then you don’t want to take their understanding of the product features for granted.

Last, realize that competition is keen. We should always make sure that we put our best products in front of the client at all times. With that I mean that you have to lead with your best product.

If an agent proceeds with recommending a contract that pays him the most, he’s walking on dangerous ground. If there’s any other broker that these clients come in contact with (with the local bank or a brokerage house) they will certainly be quick to identify a contract that isn’t as competitive as it could be.

We all want to put our client’s interests first!

Rich Hellerich: The top three factors an agent must consider when recommending an annuity are (1) the purpose for the funds (dreams, desires and goals); (2) its place in the overall retirement plan; and (3) how it will impact the overall estate plan. All three of these factors come into play to ensure that the agent “does no harm,” an adage we take very seriously here at Great Plains.

The first and foremost factor an agent must consider is the client’s response to: What are your dreams, desires and goals for the future? This is how we get the client to define his purposes for the funds.

Clients usually do not want to learn how the “Swiss watch works,” but they are very interested to learn about financial solutions that help them accomplish their dreams and goals, especially if that can be accomplished with contractual guarantees and protecting the assets they have strived a lifetime to accumulate.

A good fact-finding session will expose those desires and a competent insurance professional will start to plan strategies and solutions to help the client. I believe it is wise for insurance advisors to share the fact-finding results with their marketing outlet(s) for input as well. Trying to keep up with hundreds of products, let alone rate changes, is a daunting task. Brokerage marketing agencies are a great resource to producers for crafting tax-efficient and well thought out strategies to present to their clients, as well as assistance with specific carrier and product solutions that should be considered.

The second consideration when recommending an annuity is: Its place in the overall retirement plan. Again, a competent insurance advisor is listening to the client and obtaining a clear understanding of their desires and needs, not simply justifying an annuity sale.

If the asset is destined for wealth transfer purposes, perhaps a life insurance solution should be considered. LTC is a consideration in a prudent discussion of future exposure to the expense of failing health in later years, unless your client can afford to self-insure or has other financial products to protect his nest egg. We must also consider—and respect—the client’s risk-tolerance. Recommendations for a single, 75-year-old female with $250,000 in assets should look quite different from a couple aged 62 with $2.5 million.

Annuities are phenomenal tools to guarantee lifetime and period-certain income. The safety, tax-deferral and liquidity benefits of fixed and fixed indexed annuities can bring great peace of mind to clients. A client’s overall retirement plan will carry the most weight in suggesting an annuity solution.

The third consideration is: How do these recommendations impact the overall estate plan? Once again, completion of an intensive fact-finder will lay the foundation for an existing plan, lack of a plan, or a plan no longer meeting needs and goals. If an agent can passionately present recommendations to a client as well as his CPA and attorney, the chances for implementation rise dramatically.

Many may disagree, especially those who have had a sale or recommendation blown up by a CPA or attorney in the past. My response is this confirms the importance of having a relationship with your clients. If you sense there is an adversarial relationship in working with these advisors, chances are they have clients who were harmed by poor annuity planning or they are simply misinformed and need to be educated. It is a lot easier to understand why an attorney wants his client’s financial plan to follow his legal plan when you know the attorney has dealt with poor financial planning. You must be viewed as a professional more than just a product peddler. If you can accomplish this, you’ll find other advisors might become great referral sources for your practice.

All three factors above contribute to my belief that offering an annuity solution should work in concert with the client’s dreams, desires and goals, with positive impact on an existing financial plan or part of a new and better strategy. Do no harm!

Ron Lane: Suitability should be a broker’s first concern when recommending a fixed annuity to a client. Clients have vastly different investment goals, and only through a series of questions can the insurance professional glean enough information to discern whether a certain annuity achieves the client’s objectives. This includes tax-free exchanges.

Client understanding is the second factor in making a fixed annuity sale. During the sales interview it remains paramount that the insurance professional keep clients involved in the conversation, asking them to restate their investment tolerances and goals. The procuring agent must be assured that their clients understand interest rate guarantees, policy attributes and surrender costs.

Affordability is the third prerequisite. Many times repositioning funds from stagnant accounts into annuity products makes sense. However, emergencies can arise, and if too many dollars were allocated to a deferred annuity and those funds needed to be accessed during the surrender periods, loss of interest and surrender penalties could negate growth.

Roger McCarty: Before recommending an annuity to a client, it’s always important that an agent first determine if an annuity is suitable, or the most appropriate product, for the client’s specific needs.

When determining the most appropriate product, an agent will more than likely take into consideration (at a minimum) the following three factors: (1) the client’s long term use of and/or need for his savings, (2) the client’s comfort level with a safe and conservative rate of interest, and (3) if and when the client will need to take income from the annuity.

These three factors are important because they set the stage for retirement savings. If a client needs immediate access to savings or will need to access savings in the near future, he will need an adequate amount of liquidity available. Because annuities are meant to build retirement savings, certain penalties apply if more funds are accessed than allowed by the annuity contract and, of course, the federal penalty (10 percent) if taken before age 591/2.

An annuity offers a safe and conservative rate of interest. As a client approaches retirement age, he may be less inclined to place money in retirement vehicles that expose his savings to risk. By purchasing an indexed annuity, retirement savings are protected against market losses while still allowing for growth potential.

The timeframe in which a client will need to take income from an annuity will largely impact the type of annuity that is purchased. As with most retirement savings vehicles, the longer the money is allowed to accumulate, the higher the future income payments will be for the client.

It’s also important for an agent to know how a client plans to use the money being placed in an annuity. If the client does not plan to use the money but would like to pass it on to a beneficiary, there may be more tax efficient products, such as life insurance, that can better meet the client’s needs.

Have there been innovative new products or useful “tweaks” to existing products in the annuity marketplace?

Hellerich: There have been several recent innovations or “tweaks” to fixed and fixed indexed annuities. The introduction of guaranteed lifetime income benefits (GLIBs) and annuities with long term care riders are examples of our industry’s continuing efforts to meet the needs of the consumer.

Historically, the vast majority of fixed annuities sold were transferred at death, without liquidation or decumulation by the original owner or annuitant. I believe we are going to see a dramatic shift to income planning going forward.

The losses to baby boomer 401(k) plans, Social Security solvency concerns, and the economy in general have educated consumers about being responsible for creating their own retirement paycheck going forward. This makes the value of GLIBs an incredible tool in planning for reliable retirement income. Ongoing consumer concerns about Social Security and future market risk make GLIBs an obvious consideration to self-insure retirement income.

Agents should also find success with GLIBs by introducing the concept of laddering the client’s assets over time, in multiple “buckets,” which will give flexibility and liquidity in facing future economic and tax issues. This concept should find great acceptance in mapping retirement and estate planning goals and providing peace of mind.

Another product development to note is the LTC benefits tied to annuities now being introduced to the market. Clients who are concerned about the cost of LTC and worried about economic ruin in the event of declining health should have great interest in these products. The comfort with this type of LTC self-insurance solution, within the annuity, allows a client to avoid feeling like he is paying premiums for coverage he may never need.

Lane: Until 2010, the words innovation and annuity had no correlation. For the last several years the industry has dealt with a sagging economy and flat interest rates. Carriers were able to enhance annuity products with premium bonuses and lifetime withdrawal riders.

Fast forwarding to this year, we see interesting combo-annuity products being built. For the first time in history, a combo-annuity owner can withdraw funds from his non-qualified annuity to pay for a long term care benefit rider. There is no federal income tax charged on LTC benefits through combo-annuity products. Finally, some innovation comes to our arena.

McCarty: There have been both innovative new products and “tweaks” to existing products in the annuity marketplace. An example of an innovative new product would be the creation of combination annuity products, also known as hybrid annuity products. These products combine long term care insurance with annuities and allow a consumer to position a portion of retirement assets into one policy that can address multiple retirement needs including: (1) ensuring retirement assets that may last many years in retirement, (2) protecting at least a portion of these assets from market losses, and (3) limiting the impact long term care risks can have on an overall retirement plan. Combination annuity products are also an attractive alternative for consumers who feel long term care insurance is too expensive and may never be needed.

Further additions and enhancements to available income riders continue to evolve. Some benefits available to consumers through income riders include: (1) the ability for clients to receive joint lifetime income payments on qualified dollars, (2) the option for clients to choose to receive lifetime income payments that increase each year, (3) the opportunity to receive benefits that double in the event that the annuitant is confined to a nursing home, and (4) the capability for beneficiaries to receive the growth from an annuity’s income account value upon the annuitant’s death.

Douglass: Regarding useful tweaks to existing products in the annuity marketplace, I like to present indexed annuities in conjunction with single premium immediate annuities. By having a guaranteed income stream, the payout to the client in conjunction with a bonus indexed annuity presents a strong up-front package with the annuity bonus as well as the liquidity coming in the future if the S&P, or whatever index you’ve chosen, does not perform the way you wish. There’s always going to be liquidity flowing to the client through those years when the contract is not performing at its best. It makes a great tandem play.

As for new, innovative product “tweaks”—immediate annuities have come into play with a lot of unique new features which we haven’t had in the past. For example, the ability to get up-front checks for up to 12 months with many contracts (at no additional cost) in case the client wishes to take care of an emergency need; plus, another is the utilization of the new LTC annuity contracts that offer tax-favored payouts for long term care needs.

Last, some niche products like return-of-premium term, guarantee liquidity options on second-to-die and universal life products. The marketplace is loaded with new, innovative concepts.

Indexed annuities have taken the spotlight for many reasons over the last few years; however, the traditional “old standby” annuity products and riders are important, too. What are some of your favorites and why?

Lane: We have been developing and marketing annuity products for numerous carriers over the last 30 years. During the 1980s, some of our favorite annuities were the bailout products. They became prominent due to their underlying promise to pay a certain interest rate each year. If the insurance company did not pay that annual projected rate (as high as 14.75 percent), the client could simply “bail out” or leave their contract without incurring any surrender penalty costs.

The staid-and-true products of yesteryear then brought us multi-year guaranteed interest products. The mid-1990s low rate environment brought us first year premium bonuses and then annuitization bonuses. Those were the good old days! [RL]

McCarty: Following a large market decline, the normal response from most consumers is to remove or limit the amount of their money from the market in favor of what they consider safer alternatives. Because indexed annuities offer consumers the potential to receive higher interest without the risk of market losses, fixed indexed annuities have become a viable retirement savings solution for consumers.

I do have annuities that I prefer; however, not all annuities are created equal and what may work best for me and my situation may not fit the specific needs of someone else.

Having said that, my favorite aspects of annuities are the core benefits they offer consumers, such as tax-deferred interest, lifetime income options, taxation on withdrawals using the “last in, first out” method, minimum guaranteed interest, and the possibility of avoiding probate. Another favorable benefit offered through some annuities is the option of additional liquidity through checkbook access.

Annuities, when appropriate, are meant to supplement a comprehensive retirement savings plan, which should also be complemented by life insurance, long term care insurance, and/or annuities with income riders that offer some of the same benefits as life insurance and long term care products. [RM]

Douglass: My favorite products would have to be short term guaranteed annuity contracts because they offer a fixed, guaranteed rate. We have contracts with two-year and three-year rates that get us through these rough times so the money can be repositioned at a future time.

One important comment in regard to guaranteed contracts is for agents to look at companies that aren’t necessarily rated A– or better. I realize this is a problem for agents when it comes to E&O coverage and, for that reason, many agents have not given B rated companies a second look. However, I personally have excellent relationships with several B to B++ rated companies. They’re a joy to work with, offer competitive products, and based on our own due diligence—I feel they are an excellent choice.

On our website we have interviews with numerous companies like this, companies with below A– ratings, to talk about their unique company’s financials.

Agents should do their own due diligence by looking at all the agencies, A.M. Best, Fitch, Standard & Poors. They should also contact the companies and/or check out their websites. Never pass by a golden opportunity to represent a fine company! [JD]

Hellerich: One of the most important traditional fixed annuity products is the single premium immediate annuity (SPIA). SPIAs are more than just a guaranteed lifetime or period-certain income stream in exchange for the premium deposited with the carrier.

These products are a helpful tool in life insurance planning when a SPIA is purchased to ensure ongoing life insurance premium payments into the future. Older clients don’t have to worry about remembering to make annual payments on a life policy. This is particularly important on life policies used for wealth transfer purposes, where a lapse could have catastrophic financial consequences.

When an SPIA is determined to be the appropriate solution for reliable income needs, an advisor can rely on his marketing company to see which carriers are offering the most competitive payouts. We have a very active market for SPIAs in our shop for a number of reasons and find the top payout rates and best carrier options change weekly.

Safety, tax-deferral, yield, liquidity and estate planning benefits are the most important “old-standby” characteristics of annuities. If you can effectively present these characteristics, you should be able to benefit many clients who need your help as well as their other advisors who may be operating from misinformation found in consumer media. [RH]

John Douglass founded Annuities Exchange/Financial Products Corp. 30 years ago. In 1995, the organization introduced indexed annuity products on its newly created website. Leading a national marketing group offering indexed annuities, Douglass is very much aware of pending legislation and brokers’ sentiments in regard to current regulations. He keeps a watchful eye on the marketplace and is very optimistic the equity indexes will continue to be a competitive part of the marketplace, with expanded markets and more consumer friendly products.

McCarty can be reached at Brokers International, Ltd., Lake Panorama, 1200 East Main Street, Panora, IA 50216. Telephone: 800-362-1097.