Despite a tarnished reputation, annuities make sense for some clients.
Even so, advisors on a panel at the Insured Retirement Institutes annual Vision conference in Chicago on Tuesday highlighted some of the biggest challenges they face in using annuities for clients.
One of the major hurdles is the increasing complexity of annuity products. Not only can they be difficult for advisors to understand, but explaining the ins and outs to clients represents an even bigger challenge.
Part of the problem is that there are so many types of annuities and attached rider options that can be customized for each person that its impossible to give clients a sense of what they will experience owning a given product, says Gus Stathopolous a Chicago-based Morgan Stanley advisor. It's such a customized experience, the onus really does fall on the advisor, he says. The financial advisor has to feel comfortable enough to explain them to clients.
BAD WORD
Some advisors dont even like to use the word "annuity" in conversations with clients, even when the product is suitable for them, panelists say.
Lisa Schomer, a Chicago-based LPL advisor, says, If our clients don't understand it, we may not be as apt to make the recommendation and they may not want it. Ultimately her clients trust her judgment, Schomer says, but they are sometimes put off when trying to understand the complicated details of annuity products and shell just as soon leave the word out.
Instead she talks to clients about ways to meet their budget needs so that the rest of the money is their play money. If I say the word annuity, it's dead in the water," she says -- "but when I talk about budget, [the client] is OK with it.
TRUST ISSUES
Another problem: Some planners simply don't trust the companies providing annuity products. Even if there is an inflation-hedge product tied to Treasuries, for instance, Schomer says she may not trust that the product will work as stated.
When asked what advisors would look for from annuity providers, panelists say that while there is no silver bullet, the most crucial thing is that companies actually pay out the benefits and riders to their clients when the time comes.
We're all in this together -- and there might be a time when these riders really have to pay out, says Paul Fousek, a LaGrange, Ill.-based principal with Horizon Wealth Management. We're all on the hook, and the last thing I want is the insurance company not paying out or making it really difficult for my client.
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