Retirement anxiety has been persistent since the Great Recession. Fewer than 40% of nonretired adults said they think their retirement savings are on track, according to an annual Federal Reserve System poll. And 25% of workers have no retirement savings or pension.
While the findings are alarming, the surveys represent a significant opportunity for advisors to help people navigate the road to financial security in retirement. Despite all the free online advice and self-directed platforms, financial professionals still have a big role to play in making financial health in retirement attainable for more Americans.
The Fed surveys have consistently found that even among those who are saving, individuals said they lack confidence in their ability to manage their retirement investments.
The transition to retirement used to be relatively simple, at least for individuals with traditional pensions offering predictable payments. But defined benefit plans have been shrinking. In 2017, only 16% of Fortune 500 companies offered a defined benefit plan (traditional or hybrid) to new hires, down from 59% among the same employers in 1998, according to Willis Towers Watson.
That has left people on their own, with self-directed, employer-sponsored plans and individual retirement accounts to supplement Social Security.
Yet people still desire a steady stream of payments for the rest of their lives when they retire, making annuities an attractive option. According to research by LIMRA, retirees who own an annuity feel more confident that they can afford their preferred lifestyle — even if they live to age 90 or older — than those who do not own an annuity.
Innovation In Annuities
There is a new chapter being written in the story of annuities. Recent headlines have teased that annuities may be coming to 401(k) plans in the future, driven by legislation that’s currently working its way through Congress. The bill at play would encourage companies to offer retirement savings plans with annuities with the thinking that annuities would enable companies to incorporate an element of old-fashioned pensions into 401(k)-type plans.
BlackRock is in-part leading the charge, building products for workplace savings plans that would help employees generate steady, long-term income. Though BlackRock isn’t in the annuities business currently, they are in talks with insurers to provide such instruments within retirement offerings they plan to launch in the future.
Beyond the push to bring annuities to 401(k)s, we’ve seen several innovations to simplify products over the past several months, making annuities more accessible and addressing consumer concerns for more comprehensive and personalized financial advice and offerings. The new solutions are being driven by the long-overdue digitization of the life insurance industry. One such company providing a new, seamless digital experience is Pacific Life with their new brand Next by Pacific Life. The approach is to create transparent products and an engaging customer experience by starting with the customer and working backwards. The idea is that, as the customer’s life and retirement needs change over time, their annuity can, too.
Additionally, a variety of different platforms have emerged to meet advisor and consumer expectations for digital, intuitive and efficient purchasing models.
Orion Advisor Services and Envestnet, two of the biggest technology platforms in wealth management, are racing to bring annuities into the fold. In March, Envestnet announced the launch of its insurance exchange with six carriers. The exchange will integrate wealth management, insurance and financial advice. More than 96,000 financial advisors use Envestnet’s technology and services.
The portal is an achievement in collaboration because it isn’t easy working with multiple carriers. Standardization is one of the biggest challenges to a broad marketplace because annuities are complex products and insurers all speak a different language. Advisors must be able to understand the products they are selling so they can be confident in the comparisons they show their clients.
Envestnet’s tool will make account opening, processing and management of annuities easier. It also will allow advisors to track the daily performance of annuities and integrate them into asset allocation models. By building annuities into the wealth management process, advisors will be able to provide the holistic financial advice that clients are demanding.
Research suggests that advisors would use more annuities if they had more options from providers. Global Atlantic Financial Group, in a survey of 400 advisors, found that 90% find it difficult to address client needs using a “one-size-fits-all” approach with a single type of annuity. Of these advisors, nearly all said they would favor a multi-product platform.
Carriers Update Advisor Experience
Brighthouse Financial is among the first carriers to offer annuities on Envestnet’s platform. Like other insurers, Brighthouse is pushing to provide a simple advisor experience at every touch point and across every channel.
Part of its digital strategy is the creation of its own online platform to help their captive advisors navigate the fixed annuity purchase from start to finish. Its Digital Desk, announced last year, assists agents in educating their clients about various products. From there, the tool lets advisors submit the annuity suitability questionnaire and application electronically.
With stagnant sales and increasing regulation, insurers are under pressure to better serve agents and consumers.
Fintech Consumer Solutions
That has opened the door to financial technology startups that see opportunities to sell direct to consumers. One such firm, New York-based Blueprint Income, started with the challenge of addressing how to help consumers minimize the risk in self-directed retirement plans while also guaranteeing a steady retirement paycheck.
The company calls its product a “personal pension.” What’s more, in contrast to annuities, which require an upfront investment of upwards of $100,000, Blueprint Income enables customers to pay for a guaranteed pension through smaller payments over time.
Self-directed platforms are springing up aggressively like mint plants in the garden. They are trying to attract younger generations of digitally minded consumers who so far have been an elusive market for life insurers.
But buying annuities is a lot like buying a mattress. It’s hard to comparison shop because companies selling annuities use a lot of jargon and proprietary names for things that are often only slightly different.
Advisors can fill the education gap, but to effectively engage with today’s tech-enabled consumers, they need to adapt their practices and adopt new digital tools. Indeed, LIMRA research shows 63% of consumers expect to conduct more of their financial business online in the next five years.
Meeting this preference means more than having an informative website. Almost four in 10 millennials prefer meeting with an agent or advisor virtually rather than in person, a LIMRA-Ernst & Young survey revealed. Digital platforms that give consumers the freedom to shop and also provide access to professional advice are the future.
With knowledge gaps and diminishing defined benefit plans, annuities are adapting to the changing industry and transforming into accessible solutions that provide comprehensive financial advice. By meeting today’s consumer expectations with innovative technologies, multi-user platforms, and an updated advisor experience, and with the government and large financial firms as an advocate, annuities are becoming a more front-and-center option to consider for creating income for life.
Platform For Takeoff
96.4% of advisors said they would likely increase their use of annuities if they had a multi- product platform.
57% of advisors said a multi-product annuity platform allows for customizable retirement planning based on client need and lifestyle
51% of advisors said they liked the simplicity of a single point of contact for multiple product offerings.
Source: 2018 Global Atlantic Financial Advisor Survey