Retirement, much like the average American lifespan, is beginning to last longer and longer. It's become ordinary for a person to spend as much time in retirement as they did in the work force. We all know this. Equally well-known is the questionable strength of the Social Security system, the decline of company-sponsored pension plans, and the near inevitability of outliving one's assets.
Americans are becoming increasingly responsible for their financial futures, and an annuity, in many forms, is the one product specifically designed to address this need.
This same product, however, remains one of the biggest targets of personal-finance writers. Consider, for example, the following headline from the San Diego Union Tribune: "Don't Be Suckered into Purchasing a Variable Annuity."
People tend to trust what they read in newspapers -- but what could you say to counter such a headline? Today, the media is more likely to throw up obstacles to annuity sales. The fees are too high. The death benefits are inadequate. The products are too complicated. But there's more to it than that.
Accentuating the positive
What's not to like about a product that produces a lifetime income guarantee later in exchange for payments today? Apparently a lot, according to much of the press. It's not, however terribly difficult for you to turn the tide.
"Does an annuity solve the client's problem? Does it make sense for them?" asks Roch Tranel of The Tranel Financial Group in Libertyville, IL of addressing the suitability of specific annuity products with clients. "Don't base your presentation on the bells and whistles. Communicate the basic problem-solving abilities of the annuity."
According to Tranel, clients don't question annuities as much as they wonder how they're going to pay for the retirement they've imagined but for which they probably have not adequately planned.
This can be addressed using a basic, easy-to-understand illustration with prospects.
Harley Kaplan of Sherborn, MA takes the suitability debate to the next level.
"We're able to provide a great deal of innovation and choice with various annuity products," he said.
"This helps us meet the needs of those looking to supplement their retirement income. No other product offers as much choice as an annuity."
The list of existing annuity offerings is nearly endless and includes tax deferral, in-depth asset-allocation choices, systematic withdrawals, a death benefit, and a steady, predictable income stream that can provide a feeling of security to clients by helping them offset other regular bills, such as a mortgage, insurance premiums, or child support. It's up to you to point out considerations such as these in the face of negativity.
What about the criticisms about cost? Well, annuities cost more because they do more -- just consider the features named above. And are they complicated? Possibly, when compared with a certificate of deposit -- but does a CD offer anything but an enhanced and taxable interest rate?
"Clients generally like annuities once they see what they can do for them," said Kaplan. "Properly explaining what they can and cannot do is vital to avoiding future misunderstandings. (The products) can be ideal for someone who's maximized all other retirement sources. They're not commonly sold for the death benefit, but rather as a retirement vehicle."
It often takes more than in-depth product knowledge to make a sale. Pointing out that fees have been steadily declining, for example, is one way to counter the "high-fee" objection.
The idea of never outliving one's income and the peace of mind such products can provide remain key annuity attractions. The concept of placing risk on the shoulders of the insurance carrier can also be a relief to clients. How you market your products, in other words, is key in today's competitive marketplace; innovative marketers leverage traditional methods in ways that many of their competitors probably never imagined possible.
Ineffective communication when describing the role an annuity can play in a client's retirement portfolio can be the kiss of death for your presentation. Part of the problem with annuities, as presented by the media, is that the product is complex, with benefits that depend on several user variables, including age, tax status, and estate planning needs, as well as risk tolerance and the need to maximize qualified savings. The real annuity benefit list is long and must be better explained and presented to your clients before they sign on the dotted line.
In the end, knowing what you're up against and learning the ins and outs of the products you're offering -- and their features, suitability, and drawbacks -- can be essential in combating any negative media attention directed at annuities.
Joseph Finora is a financial writer, financial marketing professional, and the author of "Media Relations and Creative Marketing for Financial Professionals." He can be reached at jfinora@optonline.net.
