Investors increasingly open to annuity solutions
By Ryan Parker
Bankers Annuity Brokerage
After existing in some degree of obscurity for decades, annuities are finally making their way to the head of the class. The more education advisors offer, the better protected individuals will ultimately be, not to mention the tremendous opportunity for practice growth afforded to forward-looking advisors.
As the population ages on the heels of what's already been named the Great Recession, it's only natural for advisors — and especially those with clients nearing or in retirement — to begin discussing a more powerful element of stability and safety in order to better manage their clients' financial futures.
Now is also the time to ensure clients are properly diversified, as advancing age and years of a tumultuous market and an unstable economy continue to converge. In short, the circumstances are ripe for annuities, and smart advisors know it. In fact, some investment advisors are returning to their annuity roots to ensure their clients' futures are protected, and even President Obama has promoted annuities as part of a retirement strategy.
But what's more important is that not only are more consumers recognizing the need for the qualities listed above, they're also making sizable leaps when it comes to annuity ownership and the product's role in a solid retirement strategy.
These facts are borne out in the results of recent research performed by the Insured Retirement Institute (IRI) and Cogent Research. Their survey of both investors and advisors reveals that since 2011, among the investors polled, 73 percent of annuity owners and 17 percent of those who don't own an annuity agree that annuities are an essential component of their overall retirement plan. These figures are up substantially when compared to investors' opinions on the subject just a year ago, at which point 55 percent of annuity investors and a mere 8 percent of non-annuity owners felt annuities were crucial to a well-rounded retirement.
“While we doubled the awareness of the annuity value proposition with non-annuity owners, there remains room to improve,” said Cathy Weatherford, president and CEO of the Insured Retirement Institute. “Despite the growing awareness and acceptance of annuity products among non-owners, only five percent identified themselves as being very or extremely knowledgeable about our products. This provides a tangible opportunity for the industry to grow its market share in a meaningful way.”
So, what's behind this surge in both understanding and ownership? According to the study, in addition to guaranteed income, advisor recommendation and tax deferral — reasons traditionally at the top of the list for buying an annuity — the risk of inflation is of growing concern. To wit, in last year's survey, protection against inflation was cited by a scant 1 percent of respondents as a motivator to make an annuity purchase, while the results of 2012's survey show that 6 percent of investors now see annuities as a hedge against inflation.
Another vital concern that encourages investors to look into purchasing an annuity, as identified by 63 percent of investors who own annuities, is rampant stock market volatility — a problem annuities are particularly adept at mitigating. “The current economic and market volatility has resulted in more conservative investors who are increasingly searching for investment vehicles, like annuities, that can provide market growth, guaranteed income benefits and some level of principal protection,” maintains managing director of Cogent Research, Anthony Ferreira. “The results indicate that while more investors and advisors are open to using annuities in a balanced portfolio, the industry must work harder to address lingering concerns regarding investor perceptions, firm stability and overall commitment to providing future benefits.”
But what about the advisors surveyed in the study? According to the data collected, 70 percent of advisors currently recommending annuities indicate that their clients have actually asked to buy an annuity, illustrating the rapid increase in both awareness and interest in the product. Furthermore, 84 percent of annuity producers report having more discussions about retirement income today than they did five years ago.
Whether this new attitude can be attributed to industry and individual advisor efforts to educate Americans or even to the government's seal of approval of the product, the point is that after existing in some degree of obscurity for decades, annuities are finally making their way to the head of the class. The more education advisors offer, the better protected individuals will ultimately be, not to mention the tremendous opportunity for practice growth afforded to forward-looking advisors.