28 November 2020

Still Hate Annuities? You Shouldn’t

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What I hear is: “The fees are too high. They’re complicated. There’s no transparency. There’s an insurance company involved. The back office is a nightmare. Don’t you need a separate license?”

But just like our world has changed, so have annuities. They have evolved at warp speed to meet marketplace demands for competitive pricing and ease of use, and they have a clear role with measurable value when incorporated into a household portfolio.

Annuity Leaders Are Adding To Advisors’ Tech Stack 

As major tech providers integrate annuities into their platforms and work with insurance companies to simplify the process, the lingering reputation of annuities as a product sold on commission and based on features and benefits is dying quickly.

Two of the top sellers of annuities, Allianz and Jackson National, are at the forefront of a sea change. Both were among the first to integrate their offerings with tech-enabled platforms. Each has developed a robust toolbox of newly designed products coordinating financial planning, risk management, tax optimization and income generation tools to support advisors with their current tech stack and help them manage household portfolios. These insurers have partnered with the likes of eMoney, MoneyGuidePro, LifeYield, Morningstar, Riskalyze and others.

Such tech partnerships are vital for bringing transparency to annuities. Both Allianz and Jackson National have created dedicated teams to support a consultative approach where wholesalers are equipped with training and tools to help advisors determine how to improve household portfolio outcomes and capture more assets.

Annuity Pricing Matches Managed Money 

One of the biggest changes in the thinking driving modern annuity products is that they’re now built to fill specific needs, not as products pushed for the sake of sales. Leading annuities are now priced to match managed money. In the right circumstances, they are a vital tool in the toolbox to create a better household-level investment portfolio for optimized accumulation and income.

Their greatest strengths—their tax advantages, principal protection and defensive nature in volatile markets—let advisors adjust the levers to achieve improved financial outcomes for clients: to lower their costs, manage risk, minimize taxes and maximize Social Security benefits and retirement income.

Annuities Address Risk And Tax 

Insurance companies faced an existential threat from the Department of Labor’s fiduciary standard and best interest rules a few years ago. After that, they got busy making annuities cost competitive and easier to use, both in terms of managing risk and taxes and in the back office experience. Fintech partnerships have played a major role in creating a more transparent view of how annuities improve after-tax returns and maximize Social Security benefits.

Finally, annuity companies have worked with tech providers to create comprehensive platforms where an insurance license may not be required. These digital platforms are built for ease of use, offering a wide array of product and pricing options and an increasingly seamless back office.

Investment/Annuity Platforms Now Designed For A Better Experience 

Among the leaders in this new world are platform providers like the Envestnet Insurance Exchange, powered by FIDx, that make annuities an integrated part of portfolio management. Other annuity and insurance platform and support providers include SS&C, DPL Financial, RetireOne, True Choice and Financial Independence Group. Many of the top annuity companies such as Jackson National, Allianz, Prudential, Transamerica, Pacific Life, Global Atlantic, Brighthouse, Nationwide, AIG and many more are participating on these platforms.

Insurance companies see fintech providers as ideal partners to highlight the role annuities can play in creating better client outcomes. What’s more, these partnerships can boost the efficiency and growth of advisor firms that take advantage of them.

We’ve seen MoneyGuidePro, eMoney, Riskalyze, LifeYield, Morningstar and others create tools that clearly highlight the appropriate annuity allocation to an individual portfolio while maximizing accumulation and drawdown across multiple accounts and investment products. These tools also show advisors and clients the optimal timing to take Social Security benefits while coordinating other income sources for tax efficiency. Advisors using these tools report increased asset consolidation when investors easily recognize the value of improved financial outcomes for household portfolios that are quantified in dollars and cents.

Annuities have evolved far beyond their roots. They are now priced, designed and tech-enabled to meet specific needs as part of a household portfolio solution. They have been modernized to offer both improved financial outcomes for investors and a more efficient and profitable practice for advisors.

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