Help your clients understand the value of an annuity in simple terms

By Phil Cannella

First Senior Financial Group

If your clients aren't properly educated, they may not really appreciate the value of an annuity. In this article, I will run through a checklist of important things you should tell your client to help them better understand annuities and why these products may be the right choice for them.

On paper, just looking at numbers and statistics, some annuities just aren’t as flashy as other investment products, rendering them an underdog among investment vehicles. So it is important to bring annuities into a different light and explain what values they have that aren’t properly conveyed through charts and numbers.

Market low-risk as a substitute for high-growth potential

When shopping for investment strategies, consumers tend to be overly optimistic about how their money can work for them. Due to this, they often overlook the risk factor when considering which investment strategy works best for them. When risk is overlooked, the value of annuities diminishes for the consumer who is looking at high-growth potential competitors.

Help your client understand the value in avoiding risk. Although it does not have a monetary measurement, avoiding risk can make all the difference for retirees who need to know their money will last them through their golden years. One way to look at it is the simple Tortoise and the Hare concept. Reliable investments with consistent growth over time can triumph over flashy, high-risk investments.

By establishing a value in avoiding risk, annuities become a better understood and more attractive option for your clients.

Low maintenance = low fees

Many annuity products are very low-maintenance products. This means that most of the management and planning is done up front when the vehicle is purchased. This allows your client to get the headache of financial planning over with immediately, relieving them of the constant burden of managing their investments on a daily basis. Often, annuities just require an annual assessment of the client’s investments, leaving most of their retired life free from the anxiety of money management.

It’s important to encourage your client to do their homework and help them understand just how annuities will work for them in retirement. Be sure to mention the subsequent upside of upfront management: less need for ongoing financial advisors. A major turn-on for clients when considering this low-maintenance feature is that they realize how low-maintenance equals low fees. In fact, many annuity products have no ongoing fees whatsoever, which is definitely an outstanding quality that adds value to an annuity.
Added perks to customize your clients' investments

Annuities have a unique and quite attractive feature to them: the ability to shop around for different add-on perks for your investments. Any good financial planner should know the ins and outs of the various optional features that insurance companies offer annuity owners.

As you inform your client of the different options that can shape their investments to better fit their needs, annuities gain value as they become a more tailor-made investment vehicle for each client.

Annuities cater to retirees

Annuities have been recognized as an ideal investment vehicle for retirement planning, and for good reason. Below are some some key points about annuities and retirement to discuss with clients.
  • Annuities offer the unique feature of delivering an income stream for life, guaranteeing your client cannot outlive their money. This is obviously ideal for retirees who fear they may face a day where they can no longer live off of their life’s savings.

  • The protection from market risk is ideal for retirees, who cannot afford to gamble with the money they hope will carry them through retirement.

  • There are annuity features, like mortality credits, that recognize age and optimize the investment accordingly. Be sure to review all of the different annuity features and look for a connection on how they may be designed to better serve a retired investor.

If your client understands that these investment vehicles are especially beneficial for retirement investing, they will find more value in learning about these investment vehicles.

As a professional in the industry, you have a strong understanding of the value in these unique investment vehicles. An educated planner knows that these investment options offer a lot of value that is not easily reflected on paper. Knowing this, it is your duty to enlighten consumers so they can better understand annuities, which are often misrepresented by competing industries.