While the benefits of annuities as guaranteed income products have long been touted by insurance companies, they’ve faced significant challenges from advisors who refuse to take them up – but that could change.
In the Annuities, Past, Present and Future panel conducted during the recently held Morningstar digital annual conference, three experts weighed in on the different shifts that have made the guaranteed income products more attractive to advisors than before, reported ThinkAdvisor.
David Lau, founder of DPL Financial Partners, said the fact that annuities were commission-driven presented a conflict of interest for fee-based advisors, whose technology also didn’t accommodate annuities.
But Lau said several macro trends are working to change advisors’ thinking, including a broad shift toward financial planning driven by the commoditization of asset management; the elongating life expectancies of clients; and the rise of commission-free insurance products, to name a few.
Matt Carey, co-founder and CEO of Blueprint Income, which has a digital platform that offers annuities, cited research showing a 26% drop in fixed-income annuity sales between Q1 2019 and Q2 2019. But over the same period, his firm saw 336% growth. He suggested that the broader decline in sales can be attributed to not just low interest rates, but also a “supply shock” that led to a dearth of those products “because distribution is so antiquated.”
While many might assume digital platforms for annuities would be too difficult for older consumers to navigate, Carey said the average age of 62 among his customer base casts doubt on that theory.
Kelly Hueler, founder of Hueler Income Solutions, echoed Carey’s view. She said that over the past 24 months, interest in annuities has grown among her clients, which include plan sponsors within the defined-contribution space. However, she said, “the challenge is the infrastructure and ability to pair investment options with a smooth transition to low-cost simple guaranteed income.”
To help ease advisors into the annuities space, Lau said technology can be leveraged to let them compare products. And while he said the vast majority of advisors ask whether they would get paid, he reasoned that annuity products and sales can be incorporated as part of advisors’ fee or AUM structure.
For his part, Carey highlighted the role of education in selling annuities. While he acknowledged that they can be a hard sell for many investors who don’t need them, he pointed to data showing six in 10 investors are demanding these products.
“Today's products] aren’t your grandfather’s annuities; they are different,” Carey said. “And it’s irresponsible to not understand the nuances between products if you’re in the retirement space or you have clients over 60 years old.”