It’s all about lifetime income these days. That’s how Douglas Dubitsky, below right, vice president of product management and development for retirement solutions at Guardian Life Insurance Co. of America, sums up the current annuity landscape. Weary of seeing their savings battered by a fickle market, the public and their advisors are coming to understand the value annuities can bring to a retirement portfolio, namely, income one cannot outlive.
“Even when the markets go back up, people are going to look for that consistent, reliable, guaranteed lifetime income, and at that end of the day, only an insurance company can provide that,” said Dubitsky in an interview.
Consequently, Guardian intends to grow what Dubitsky called its “income business.” Among Guardian’s main annuity products are a variable annuity with a living benefit rider; a single premium immediate annuity; and single premium deferred annuities. Last year, the company did more than $1 billion in variable annuity sales. It has a smaller footprint in the fixed annuity arena, where it did just under $100 million in sales last year. Dubitsky, who is based in New York City, said low interest rates have made fixed annuities less of a priority for Guardian. “But it will be an important product again once we get some interest rate pick up,” he said. The company does not do equity indexed annuities.
As someone who has worked in the annuity business for 15 years, Dubitsky has seen a shift in product concepts as well as how the public perceives annuities.
“The annuity business used to create products and the financial advisor had to fit their client into our products,” Dubitsky said. “Over the past few years, it’s much more about creating a product that has flexibility in it so that the financial advisor and ultimately their client can design the income plan to fit their need.”
Or, as he termed it, “designer income.” For example, in Guardian’s variable annuities, a policyholder can choose the percentage of funds he or she wants in equities or fixed income, going from 80/20 down to 40/60. They can also select from a menu of different holding periods, so policyholders can decide to take the payout when they need it most. There are also cost of living adjustment riders. “When I talk about flexibility, it’s really focused on allowing the product to meet the needs of the person who is buying it,” Dubitsky said.
Because of those flexible options, coupled with the sting of market upheavals still fresh in the minds of consumers, annuities are now being seen in a new light by the general public, Dubitsky said.
“The past few years have been exhausting for people in the marketplace‑exhausting for companies and for consumers opening up their statements every month,” he said. “And the need for guaranteed lifetime income that you cannot outlive is starting to resonate in this country at a level it hasn’t in the past.”
What liquidity really means
Dubitsky conceded the industry has failed to clearly explain to the public what is admittedly a complex product. To help people better understand the benefits of an annuity, the industry now needs to educate consumers on what liquidity really means.
To most, liquidity means going to the bank on any given day and having access to their money. But Dubitsky said that is the wrong way to view liquidity.
“People always believed I need to go to the bank on July 17 and have access to my money. That’s liquidity,” he said. “No, liquidity is having cash flow on July 17, August 17, September 17 in 2012, 2013 and 2014, and every year for the rest of your life. That’s liquidity. That piece has been so misunderstood by advisors, the public and the industry. And that’s a story we really need to tell. Because that’s what provides people the flexibility and freedom to do things in their life.”
An annuity frees up the advisor to do his job as well. Once a client’s basic expenses are covered by an annuity, the advisor can concentrate on maximizing the client’s discretionary assets.
“Nobody is talking about taking all the client’s assets and annuitizing them,” Dubitsky explained. “Look at your client holistically. You cover their basic needs with guaranteed lifetime income…And that allows the advisor to now be an advisor on the rest of the assets.”
Dubitsky acknowledged the annuity industry faces myriad challenges today, mostly stemming from the low interest rate environment.
Guardian manages those risks by having a focused distribution channel through its agency sales force; its broker-dealer, Park Avenue Securities, LLC; and selected independent financial planners. It does not distribute widely through banks and the wirehouses, thus it can avoid making “knee-jerk” reactions based on short-term market volatility, Dubitsky said.
“The fact that we have targeted distribution allows us to be more thoughtful and more strategic in our thinking, because I don’t have the fear of uncontrollable flows coming in,” he said.
Guardian also carefully selects the funds in its annuity products. “In addition to looking at the stability of the fund, its track record, and the consistency of the management team, we have to be able to hedge it,” Dubitsky said. “That’s a huge aspect of risk management and that causes tremendous selection in the fund family. We are also very focused on what our benefits provide and matching the right benefits to the marketplace and keeping a competitive product, but at the same time making sure it’s a risk that’s going to enable Guardian to remain a strong company.”
Another hurdle is simply trying to break apart the misunderstanding of annuities, said Dubitsky. “We used to run from the word annuities. We don’t do that anymore. Annuities are a good thing.”