Research from LIMRA shows that annuity investors choose products based on their goals
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No matter how they’re constructed or what features they have, annuity products address three major needs of investors: accumulate, preserve the principal investment, and receive predictable income in retirement. And according to one study from LIMRA, financial professionals who sell annuities should pay attention to those needs.
“The annuity industry is full of a confusing array of acronyms and technical jargon,” said Todd Giesing, director of annuity research at the LIMRA Secure Retirement Institute, in a column for InsuranceNewsNet Magazine. “However, by looking at buyer profiles, it is clear that buyers are attracted to the key underlying value proposition of an annuity, despite its name.”
Referring to the LIMRA Secure Retirement Institute’s 2017 Annuity Buyers Metrics study, Giesing said that “[w]hen more than one annuity type offers the same core investment objectives, the annuity types attract buyers from the same age groups in almost the same proportions.”
As an example, he cited three different annuity products: a variable annuity (VA) with guaranteed lifetime withdrawal or income benefit (GLBs); an indexed annuity with a guaranteed lifetime withdrawal benefit (GLWB); and a deferred income annuity (DIA). All three have the same core value of guaranteed lifetime income for later use, with differences mostly from their risk-return flexibility trade-off in income or return on investments.
“Nearly 60% of buyers are from two age groups — age 56 to 65 — near or at retirement,” Giesing said. The proportions of buyers from different age groups also did not vary for fixed-rate deferred annuities and indexed annuities without a GLWB, which both offer protected growth as their core value.
Giesing clarified that the different annuity types addressing the same investment objective differ from one another in terms of mechanics, the degree of passive or active management they require, risks assumed by the buyer or insurer, fees, and other factors. But prospective annuity investors mostly recognise differences in risk-return-flexibility trade-offs. Therefore, advisors are better of using plain language to explain annuities, focus on their clients’ retirement goals, and think about how annuities can address concerns their clients have.
“Annuities can address investors’ different investment goals,” he said. “However, annuities, as a retirement solution, must address the investors’ specific goals. Once the advisors know what their clients’ retirement and investment objectives are, it is easy to find the right annuity and fit it in the client’s portfolio.”
