Financial advisors have long had a love-hate relationship
with annuities. Some advisors love them and use them regularly with clients,
while others hate them and cringe when they are suggested.
The irony of these extremes is that one side fuels the
other. Some advisors sell annuities to anyone. This approach paired with high
commissions has left a bad taste in the mouth of other advisors, giving them
the reassurance that annuities are no good.
The reality is annuities, in general, can be an excellent
tool for clients looking for tax deferral, principal protection or lifetime
income. They can provide unique benefits that can’t be replicated by other
financial products. However, some annuities pay high commissions with long
surrender charges and they may be sold by people that don’t put clients’ best
interests first.
Luckily, the industry has continued to evolve and we have
seen the emergence of fee-only annuities. Fee-only annuities might be what an
industry of advisors who have avoided these products have been waiting for, as
they provide positives for clients, advisors, and an industry in need of a
makeover.
Fee-only Annuity Benefits for the Client
I’ve yet to meet a client that isn’t concerned about taxes,
losing money or retirement income. Annuities can provide benefits that address
each of those concerns, however, they may never be recommended because of an
advisor’s personal feelings toward them. In some cases, clients may share the
same negative views of annuities.
Fee-only annuities may help break down these negative
perspectives so that more clients can enjoy the benefits, including:
Fee-only annuities do not pay a commission
They typically have shorter to no surrender charge schedules
The internal costs are typically lower
With a fee-only annuity, the client can still grow their
money tax-deferred, have access to great money managers (in fee-only variable
annuities) and have access to death benefit and lifetime income riders. This
combination of removing negative aspects while keeping the positives will
definitely grab the attention of the consumer.
Fee-only Annuity Benefits for the Advisor
The introduction of fee-only annuities can have a
significant impact on financial advisors as well.
If you follow our company, you are aware of The
Comprehensive Advisor. This is our belief that the days of providing clients
fragmented advice from a planner, broker, insurance representative, etc. are
over. People want comprehensive financial life advice, and we believe the
financial advisor is uniquely positioned to be the person to provide it.
Fee-only annuities help advisors who were opposed to commission
products add these unique solutions to their client experience and become more
comprehensive in the process. They can also serve advisors as a great asset
gathering tool.
For example, one of our current clients manages $2 billion
assets under management. We helped them understand their existing client base
might own a cumulative $50 million+ of existing annuities. That is new AUM that
was never sought after. Now they have a viable and thoughtful solution to
provide their clients.
Fee-only Annuity Benefits for the Industry
I started this article by describing the “love-hate” with
the annuity industry. Will fee-only annuities help change that narrative? There
are several significant, converging events that may help.
For clients, the retirement boom is going strong as more and
more boomers retire every year. Throw in the gift of longevity, as more people
are living longer. You also have historically low interest rates that will
either stay low and reduce income options, or rise and hurt bond yields.
For advisors, there has been a growing migration of advisors
from the traditional brokerage houses to RIA firms. Plus, the fiduciary mindset
is becoming a differentiator for advisors and advisors are embracing the
comprehensive approach we outline in TheComprehensive Advisor.
We believe all these events make the perfect situation for
fee-only annuities. There is a growing need from clients in several areas of
their portfolio and life, paired with a growing number of advisors open to
offering fee-only annuities as a possible solution.
What Next?
It’s time to think differently. Like anything, those who
change and evolve will thrive. Challenging yourself and how you think will help
you take advantage of the market opportunity for people seeking good financial advice.
We suggest financial advisors be comprehensive, thoughtful and embrace the
change hitting the industry.
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