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Advisors and Clients Stuck in Strategies Ignoring Longevity
Annuities are the answers to the biggest concern older clients in their 50s and 60s have about their retirement portfolios.
They just don’t know it yet. So said Mark Fitzgerald, national sales manager at Saybrus Partners, a subsidiary of The Phoenix Companies.
The problem is that financial professionals and clients are stuck in old retirement strategies that do not address longevity, he explained. Education is needed for both sides, he added.


Saybrus decided to survey financial professionals about what worried their older clients most. The survey was conducted among advisors who were attending this year’s annual conference of the Financial Planning Association in Boston.
The answers revealed a puzzling picture on the advisory front, but one where “tremendous upside opportunity” lies ahead in the annuity future with both manufacturers and wholesalers providing more comprehensive support for financial professionals, Fitzgerald said.
The puzzle is that clients see the financial risks they face in retirement, but advisors are still focusing their attention mostly on helping clients with accumulation strategies.

The Survey

The survey sampled the views of 141 financial professionals. They included registered investment advisors, bank financial advisors, advisors affiliated with an independent broker/dealer, advisors affiliated with a national wirehouse and advisors affiliated with an insurance company.
Given the pronounced investment orientation of the group, one might think that “market volatility” might top the list of retirement portfolio risks that are on the minds of older clients. But only 16 percent of the advisors said their 50- and 60-year-old clients believe volatility is the biggest risk to their retirement portfolios.
Might taxes be the lead concern? Or inflation? Nope. Just 6 percent and 1 percent, respectively, named these exposures. How about a major health crisis? Only 17 percent chose that answer.
Instead, the top risk among older clients is something very familiar to insurance and annuity professionals — outliving their savings. Nearly 60 percent of advisors said their clients see outliving their savings as the biggest risk to their retirement portfolios.
That dovetails with another finding — that well over half (65 percent) of advisors believe “retirement income distribution planning” will be the biggest goal for 50- and 60-year-old clients in the next five years.
However, there was a disconnect too. This has to do with the products that the advisors said they actually recommend.

Product Recommendation Problem

Specifically, only 35 percent of the advisors said they “most frequently recommend” variable annuities to their 50- and 60-year-old clients as part of their retirement plans. Only 27 percent said they most frequently recommend fixed or indexed annuities.


By comparison, more than half (60 percent) said they most frequently recommend mutual funds, and 60 percent also said they most frequently recommend advisory services/actively managed funds.
The comparatively small percentage of advisors giving annuity recommendations is surprising. After all, more than half the advisors had noticed their older clients’ concern about outliving savings, and more than half had predicted that retirement distribution planning will be their older clients’ main goal in five years.
Since an annuity is the only financial product that can guarantee lifetime income, more advisors should be focusing on recommending annuities to this segment of clients.
Fitzgerald is not discouraged, however. He told InsuranceNewsNet that he sees growth ahead for annuity sales, not only because of the increased retirement needs of the aging marketplace, but also because of the expanded portfolio of products available to meet those needs.
He gave FIA sales as an example. As noted, only 27 percent of advisors said they frequently recommend fixed indexed annuities (FIAs) or fixed annuities. But in the bank and broker/dealer (B/D) channels — where FIAs are still in the early stages of distribution — their FIA market share rose by 10 percent in 2014, Fitzgerald said. He cited data from LIMRA Secure Retirement Institute (SRI).
He predicted these channels will continue to grow in both FIA recommendations and FIA sales, due in part to the evolution in FIA designs and in part to education.
Today’s FIA products offer not only upside potential and downside guarantees but also additional benefits and features that are of “strategic” interest to the more mature customers that tend to use banks and B/Ds, he explained. Examples include lifetime guaranteed income riders, critical illness riders, riders that pay for care in the event of two of six activities of daily living, and guaranteed rollup death benefits.
If advisors in banks and B/Ds learn more about how the new FIA features address retirement needs, he reasoned, the advisors will likely start using FIAs more frequently.

The Accumulation Hurdle



That said, Fitzgerald noted that many advisors who sell FIAs are doing so to address the accumulation needs of clients as opposed to their retirement needs. Case in point: In banks, even when FIAs with lifetime income riders are available, fewer than 30 percent of FIAs sold in that channel have the rider attached, he said, citing LIMRA statistics.
That could be happening because clients may be more focused on accumulation or because clients may think that they’ve already addressed their retirement issues, Fitzgerald said.
“This is where education needs to come into the picture,” he said. Clients may need help with understanding the distribution issues they will face in retirement, and how these differ from the issues with accumulating assets for retirement.
Also, increased education about living benefits in that channel may bring about greater interest in purchasing an FIA to meet retirement income needs in addition to accumulation needs.
As for variable annuities and traditional fixed annuities, the specific design and positioning issues may differ, but the importance of education and innovation is the same.
As Fitzgerald presented it, the innovation in annuity features and the need for more education of advisors and clients about annuities are keys to future opportunities. The education will help build greater awareness of the features, and that will trigger more recommendations by advisors — and more purchases by customers. 

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected] [email protected].

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