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Don’t call it a comeback because they didn’t go anywhere, but annuities are commanding renewed attention among advisors and clients alike.
As advisors know, annuities are products that offer guaranteed lifetime income for clients. Alone that’s appealing, but amid rising interest rates, annuities’ payouts are as high today as they’ve been in years, representing another potential perk for clients.
In addition to lifetime income, annuities can offer guaranteed interest rates as well tax-deferred growth – the former being pertinent at a time when more Federal Reserve rate hikes appear unlikely. As for tax- deferred growth, that has benefits to a broad swath of clients.
Translation: Annuities have perks, but they’re not applicable to all clients. Add to that, for the clients to which annuities are pertinent, there’s substantial demystification and education needed. That’s where advisors come in.
Busting Superficial Annuity Myths
Like any other product that’s purchased by consumers, clients are apt to have some pre-conceived notions about annuities, some of which are superficial in nature. Fortunately, superficial notions are often easy to dispel, including those regarding price. Put simply, many clients assume that annuities are too expensive when in reality, that’s not the case.
“You (the advisor) can help clients understand various annuity options and the fees associated with each one, including the level of downside protection and income guarantee they get in exchange for these additional fees,” notes Nationwide. “Discussing the fees associated with annuities shouldn’t scare your clients away—you can assure them that while there are many types of annuities, you can help find a product that’s right for them.”
Another misconception about annuities is that these products are reserved for older, affluent folks. Some of that has to do with how annuities are marketed. Commercials and related marketing materials position annuities as reserved for older, wealthy clients. However, these products are relevant to a far broader swath of clients and advisors should articulate as much to interested clients.
“The Alliance for Lifetime Income found over a quarter (26%) of consumers ages 45 to 54 are interested in purchasing an annuity as part of retirement plan income. Variable annuities (VAs) can help clients reach different goals depending on their age. For clients in their 40s and 50s, a VA can help with accumulation, and for those just about to or entering retirement, annuities can be used for income,” adds Nationwide.
Two More Annuities Myths to Dispel
Some clients believe that as is the case with stocks or bonds, there are good and bad times to purchase annuities. That’s not true. If that was accurate, much of the shine of this asset class would be eliminated.
“Annuity solutions can be tailored to unique goals and circumstances, meaning that high earners or clients with a high net worth, who can max out qualified plans, may want to take advantage of contributions through Investment only variable annuities,” concludes Nationwide. “Fixed indexed annuities can help guarantee that investor clients will not lose any of their investment or credited earnings due to the performance of underlying indexes, offering more flexibility when navigating challenging markets. VAs allow consumers to invest in sub-accounts, like those in a 401k.”
Another annuity myth for advisors to quash is the notion that once a particular annuity is purchased, that’s what the client is stuck with for the long haul. In reality, many annuities have no-cost withdrawal provisions up to a certain percentage per year. Others allow for no-penalty withdrawals based on need, such as hospital stays or assisted living facility expenses.
Point is, advisors have a lot to discuss with clients when it comes to annuities and much of it is informative and positive.
Related: How Advisors Can Help Clients Mistakes During Downturns