If you want to convince someone of the need for an annuity, position it as part of a strategy instead of merely presenting it as a product.
That was one takeaway for advisors after the fifth annual Guaranteed Lifetime Income Survey showed a gap between what consumers think of annuities and what advisors are telling them about retirement income solutions. The survey was conducted by Greenwald & Associates and CANNEX.
The big difference between the 2019 survey and those of prior years was that 2019 marked the first year in which the researchers studied advisors in addition to consumers. Prior surveys focused on consumers only.
The study showed strong consumer interest in guaranteed lifetime income, with more than two-thirds saying they saw a high value in having such income on top of Social Security. Despite the value consumers place on having retirement income they can’t outlive, some of them still balk when the word “annuity” is mentioned. The study found 35% of consumers would be less interested in a product offering guaranteed income if it were labeled as an annuity than they would if offered an unnamed product that offered the same benefit.
So what can advisors do to keep annuities from being the “A Word?”
Communication is the key to breaking down confusion over annuities, as is educating consumers on the product’s value proposition, said Tamiko Toland, head of annuity research at CANNEX.
“I think one of the confusing aspects of these products is that they actually provide a set of different values based on what the client is looking for. Sometimes they’re sold more as a bond alternative. Sometimes they’re sold purely for income,” she said. “I think focusing on the value proposition as opposed to the term ‘annuity’ is really the key because people like what annuities do. But they get scared off and told in the media or by peers that annuities are bad.”
Study director Doug Kincaid of Greenwald & Associates recommended framing annuities as a strategy.
“When we talk about guaranteed lifetime income as a concept, there is a lot of appreciation for that,” Kincaid said. “When we talk about it as a product — especially as an annuity — you start to see consumers’ interest in it chip away as people get more skittish about their interest in that.”
Kincaid said the researchers walked the consumers they surveyed through what he called “a floor plan” of figuring out their expenses in retirement, figuring out how much of those expenses Social Security will cover, and then buying a product to provide income to cover the gap and investing the rest of their money as they want and having the ability to use it for discretionary spending.
“What we saw is a large amount of interest from the consumers we surveyed — 71% said that seemed to be a good strategy for them,” he said.
“When you’re shown exactly what an annuity does and it gives you this guarantee throughout retirement, all of a sudden consumers are really on board with annuities and interested in what annuities can do for them.”
The study showed a perception gap between advisors and clients when it comes to discussing lifetime income strategies. Advisors said they discuss income strategies with an average of 79% of their clients age 55 and older, but only 55% of those clients report having discussed income strategies with their advisor.
Advisors also consistently underestimate client interest in guaranteed lifetime income products, the study showed, with advisors saying anywhere from 10% to 39% of their clients are interested in annuities with guaranteed income. But between 43% and 56% of clients said they are either highly interested in annuities or already own them.
That interest gap is especially pronounced among wealthier clients and clients who are several years from retirement. And although advisors think that interest in annuities with guaranteed lifetime income increases with client asset levels, the opposite appears to be true.
Clients with assets between $100,000 and $499,000 had the highest interest in annuities. Half (50%) of clients with assets of $100,000 to $249,000 were interested in guaranteed lifetime income, closely followed by 49% of those with $250,000 to $499,000 in assets.
“Advisors are envisioning that higher-asset clients are most interested in these products, where we see that it’s lower-asset clients who are reporting the most interest,” Kincaid said. “Obviously, the caveat to that is that if you have a lower asset level, you may be actually more reluctant to put some of that money into one of these products. But I think it downplays the fact that these people may feel they are closer to the edge of needing that guaranteed income to protect them, so their interest level is that much higher.”
In addition to the perception gap, the survey showed that advisors and consumers are at odds in their opinions of why consumers don’t own annuities.
Advisors appear to far exaggerate the impact of financial expert warnings against annuities on client receptivity; 95% of advisors say consumers don’t own annuities because financial experts have warned against them, while only 50% of consumers said that’s the case.
However, the survey also found that about half of consumers said they heard positive things about annuities from financial advisors while about 38% of consumers said advisors gave them negative information about annuities.
“So it’s not that we’re seeing this overwhelming negative narrative about annuities,” Kincaid said. “In fact, we’re finding that if consumers have heard something about annuities, it’s more likely to be something positive.”
Top 10 Findings
- Consumers value guaranteed income in addition to Social Security.
- Best reason to buy guaranteed lifetime income? Consumers say: protection against running out of money.
- “Annuity” is still a dirty word, but strategy framing helps.
- Mixed messages from advisors and consumers on retirement income conversations.
- Advisors and consumers agree fees and liquidity are top barriers, but consumers are surprisingly less affected by financial expert warnings than advisors think.
- Consumers are more interested in annuities with guaranteed lifetime income than advisors realize.
- Positive beliefs about guaranteed lifetime income products outweigh negatives for consumers, but negatives remain persistent.
- Advisors have greater conviction in their beliefs about guaranteed lifetime income products — both positive and negative — than consumers do.
- Guaranteed income gives owners peace of mind.
- Most advisors expect the highest costs in retirement to come early, but consumers aren’t so sure.