With the recent volatility in the stock market and higher interest rates, as well as June being Annuity Awareness Month, it seems like a good time to talk about annuities. From what I’ve seen, many RIAs and all-around financial advisors don’t talk about or recommend annuities to their clients every day. For advisors, there seems to be a gap between what annuities are and what they can do. This is a shame, because annuities can be used in the right situations to help improve a client’s asset allocation and, more importantly, their financial outcomes and financial life plan.
In this article, I’ll explain how they work, where they belong, and why now might be a good time to start talking about them with your clients.
I think it’s important to point out that annuities can now be bought with “fees only.” “Fee-only” annuities have taken away many of the reasons why advisors didn’t want to use them before. Now, an advisor can charge a fee instead of getting a commission.
Market Returns vs. Investor Returns
Recent stock market volatility has been very high, and there is no sign that things will settle down soon. This puts the behaviour of investors in the spotlight. Research shows that returns for investors are usually much lower than returns for the market as a whole. Because of this, annuities can be a great way to talk to a client about behaviour risk. When a fixed index annuity is used as part of a larger portfolio, the fact that it can share in some of the market’s upside without any downside risk can be very appealing during times of high volatility. One of the things that people think is bad about these investments is that the average return is between 3 and 6 percent. But people may need to change their minds because research shows that investor returns usually fall in those ranges anyway.
Retirement Ready
It’s harder to retire now than it was in the past. People’s lifestyles in retirement are at risk without company pensions and because people are living longer. Annuities are a great way to talk to a client about protecting their lifestyle in retirement. Immediate annuities can give clients a “personal pension” that they might not get from their current employer. Or, “assets under management” and possible proceeds for beneficiaries can be used to create a similar lifetime income with a Fixed Index Annuity that comes with a guaranteed income. We want you to think about using an annuity to fill in some of your clients’ income gaps. With pensions, Social Security, and annuities, it’s easy for them to take care of their basic needs in retirement. It’s a smart choice that makes sense to a lot of clients when they think about their retirement. My company has tools and presentations that are easy for clients to use and that let you talk to clients about planning in this way. Feel free to get in touch with me at any time.
The Alternative for Conservatives
With interest rates going up, MYGAs have become a great option for investors who want to keep their money safe. A MYGA is a fixed annuity with a fixed interest rate that is guaranteed for a certain amount of time, usually between two and ten years. A MYGA could be good for someone who is getting close to retirement and wants to put off paying taxes and get a guaranteed return. MYGAs can be a great alternative to CDs for people who want to keep their money until they are 59.5 years old.
This is your chance
It seems like a lot of advisors say that they are “comprehensive” in their marketing. But a lot of the ones we talk to don’t talk about risk management as part of their practise. Or, they talk about it briefly but don’t really try to come up with ideas and solutions. We think that these advisors are missing out on a great chance. The world of financial advice has changed, and because of that, more clients want a full-service experience (hence why so many advisors now market themselves this way). But the real opportunity is for advisors who can offer a full experience. A simple first step is to take the time to learn about and use annuities and other risk-management tools.
