Why do annuities get such a bad rap?
You work hard to help your clients build their retirement roadmap. Understanding their goals and delivering solutions to reach them is what you do. So, when clients ask you for ways to build a nest egg without exposure to market volatility, or ways to generate income while in retirement – do you offer "annuities" as an option?
If not, why?
"Annuities can sometimes be confusing and are often judged by past history misconceptions."
Annuities can offer tremendous retirement benefits to clients looking for a way to bring balance and predictability to their retirement strategy. But annuities can sometimes be confusing, are often judged by misconceptions and if not properly explained – can sometimes be a turn-off for a client.
Your client's objections to annuities may be due to some misunderstanding about how annuities work. Here are a few of the common client objections to annuities and ways to address them.
Objection #1: Annuities are too complicated.
Not all annuities are complicated. Fixed annuities can offer a simple way to grow your clients’ money with a fixed term and fixed interest rate that is, although not FDIC insured like banking products, comparable and competitive with bank-issued CDs. Fixed index annuities (FIAs), can offer the potential for more growth than a fixed annuity, but with protection from market-based losses.
Annuities can get more complex when optional benefits are selected – but may be worth the effort to understand them. Some annuities feature benefits that can help your clients build a source of lifetime income, create a legacy for loved ones or protect them against unexpected health needs – such as long-term care.
Objection #2: There are too many fees associated with annuities.
Costs for annuities vary, depending on the type of product and optional benefits your client needs. Variable annuities may have higher costs due to administrative and fund expenses (just like managed accounts overseen by a financial professional). While fixed annuities may have no fees, some of the optional benefits of annuities come with fees.
Objection #3: I don’t want to tie up my money.
Annuities should only be a “portion” of your client’s retirement strategy, and should utilize funds that your client doesn’t need immediate access to. However, keep in mind that some annuities may only be used for a short term, such as a 3- or 5-year fixed annuity. (Similar to committing to a bank CD.) But keep in mind, even some longer-term annuities often offer early withdrawals up to a certain percentage, or for medical emergencies, without penalties.
Objection #4: Annuities aren’t FDIC insured, like my bank-issued CDs or other deposit accounts.
This is true. But neither are investments in mutual funds, stock or bonds. Annuities are backed by the insurance companies that issue them and are regulated by State Departments of Insurance. Variable annuities are additionally regulated by the SEC and FINRA as they are securities. As their financial professional, it’s important that you recommend products from a company you trust.
Objection #5: I’m too old or too young for annuities.
Older clients may benefit from a short-term fixed annuity that offers competitive rates, protection from market-based losses, long-term care benefits, death benefits or can provide a source of guaranteed lifetime income. Younger clients can benefit from the longer-term, accumulation opportunities of annuities, such as a variable or a fixed index annuity – while also building a source of guaranteed lifetime income.
Overcome client objections
Don’t let your clients’ misconceptions or misunderstandings deter you from introducing annuities, if the recommendation is suitable and in the client's best interest, as a part of their retirement strategy. Whether they are looking for another source of protected lifetime income or a wealth building strategy - annuities can help you build a plan up to, and through, retirement.