Addressing annuity misunderstandings and misgivings, Pt. 1

By Ryan Parker

Bankers Annuity Brokerage


When it comes to a vitally important element of their future, Americans are divided. And no, we’re not talking about the upcoming presidential election. We’re talking about something that, when fully understood and carefully considered, can be arguably just as important as politics — how to fund their retirement lifestyles. This is especially true if their golden years stretch well beyond their own anticipated life expectancy.

The news isn’t all bad (hence the division), according to some fascinating new research conducted by the Insured Retirement Institute (IRI) and Cogent Research in a survey of both investors and advisors that focused on the role — and the perceived role — annuities play in retirement planning.

According to the historical survey data, in just a year’s time, the number of investors who agreed that annuities are an essential component of their overall retirement plan has increased substantially. In 2011, 55 percent of annuity owners and 8 percent of those who did not own an annuity indicated that annuities were crucial to a retirement strategy. The same study, when performed this year, found that 73 percent of annuity owners and 17 percent of non-annuity owners felt annuities played a starring role in a secure retirement, up 18 percent and 9 percent, respectively.

While the good news is clear in that more Americans are learning about and purchasing annuities to preserve their retirement lifestyles, the same survey revealed that millions of Americans still aren’t buying into the idea of annuities, and that’s primarily due to simple misunderstandings and misgiving about a product that sometimes can sound too good to be true. The duty to correct these perceptions falls to you, as an agent or advisor.

For example, perhaps the most startling fact uncovered by this research is that a full 49 percent of respondents who didn’t own an annuity indicated they had concerns that annuity providers would be unable to deliver on their guarantees. That’s a powerful concern, to say the least, and a bit troubling, especially when combined with the fact that a mere 5 percent of survey respondents were very knowledgeable about annuity products. This means that ultimately, ignorance and fear are preventing almost half of American investors from exploring one of the best products for generating lifetime income.

Speaking to the pervasive fear that annuity providers won’t be able to back up their obligatory guarantees, Cogent’s managing director, wealth management practice, Antonio Ferreira says, “That is the number one barrier — they wonder whether the benefit would be there when they needed it.”
Clearly, this is a notion of which you must disabuse your clients if you intend to craft the secure retirement plan you feel would truly benefit them, so the real goal then becomes education. Granted, you have your own educational tools, materials and even calculators you always provide, but helpfully, the advisors who responded to the survey also enumerated several ways the annuity carriers could help them to overcome these very real barriers to an annuity sale. Some of their ideas include:
  • Creating do-it-yourself platforms that would let consumers buy annuities directly from the carrier, which would likely enhance transparency
  • Developing more annuity educational materials advisors could pass on to clients and prospects
  • Reevaluating annuity product design, which would include lowering expense or contract mortality fees
  • Unbundling annuities from other products for a more straight-through purchase

In part two of this article series, we’ll focus on even more concrete tips and advice offered not only by advisor respondents, but also from the leadership of both Cogent and IRI. We will also explore tips on how you can enhance sales by repositioning the annuity itself, as well as ideas on how you can continue to fight annuity misunderstandings and misgivings.