Advisers misjudge client interest in annuities: Survey

Clients are more interested in annuities than advisers might realize, according to a survey published Tuesday.

About one in seven advisers, or 14%, said their average client is very interested in products with guaranteed lifetime income, although more than 40% of investors said they are either very interested or already own such products, according to the research by Greenwald & Associates and Cannex.

Among advisers who do recommend annuities with guaranteed lifetime income, 40% said clients must have a minimum amount of assets. Three quarters of that group said they only do so for clients with more than $250,000 in assets, with 28% having the minimum at $500,000 and 11% putting it at $1 million in assets, the report noted. Based on responses from investors, affluence correlated with interest in annuities, the authors wrote.

Additionally, 58% of advisers surveyed said they only recommend annuities to clients of certain ages, with only 7% of that group saying they do so for people younger than 50. Thirty-one percent said the minimum age they require is 50, 44% said it is between 55 and 59 and 17% said it is over 60, according to the survey.

The report is based on responses from 1,000 investors age 55 to 75 and 302 advisers surveyed between Feb. 13 and 21. The advisers in the survey had to have at least 50% of their business with clients 55 or older.

During the first quarter, total deferred annuity sales were down by 1% over the first quarter of 2019, according to data from Wink.

However, demand shifted for certain types of products, with sales ramping up quickly for buffered annuities, according to a report from Limra’s Secure Retirement Institute.

“When we asked the advisers about their feelings about the appeal of [guaranteed lifetime income] products during low interest-rate environments … I expected more price sensitively around lower rates — but for some [advisers], it actually increases the appeal,” said Tamiko Toland, head of annuity research at Cannex. “That says a lot about what we can expect in the future.”


Despite the interest that investors said they have in guaranteed lifetime income products, they desire something called an “annuity” was much lower, the report found. The insurance industry has known for years that the word has not played well with consumers, and it generally has emphasized “lifetime income” in marketing materials.

While 36% of people surveyed said they were highly interested in unnamed products that provide guaranteed monthly income, if they did not already own such products, a smaller proportion, 25%, said they were just as interested in the same products labeled as annuities, according to the report.

“There is this stigma attached to the label,” said Dough Kincaid, assistant vice president at Greenwald & Associates. “When you’re talking about the abstract construct of guaranteed income, a lot of people like that idea. As soon as you start to label it in terms of something that might have complicated dynamics to it, they are more skittish.”

Advisers understand that, the survey found. Both investors and advisers said that annuity fees and costs were the most difficult area for consumers to understand, at 89% and 79%, respectively. Other difficulties were in understanding the types of annuities available and the tax implications of owing them.

Only about half of people who purchase such products said their adviser did a good job of explaining how much they should invest, Kincaid said.

But the negative perception could change, thanks to the SECURE Act, some advisers said. That recently passed law has provisions to expand the use of annuities within workplace retirement plans.

More than a third of advisers said that the SECURE Act is likely to make clients more receptive to annuities, according to the survey.

“The fact you can have an expansion of the annuities within that space can reverberate in the retail space as well,” Toland said. “To some extent, it legitimizes them.”


A separate finding from the report is that few people expected a downturn this year. Just 6% of advisers said in February that a major downturn was very likely, compared with 11% of consumers.

“It was kind of pure timing, just capturing the lack of foresight of what was coming down the road,” Kincaid said.

Even over the next five years, only about a third of consumers said a major downturn was all but imminent, he noted. The hints at a level of optimism that advisers should consider when planning and making product recommendations, according to the report.

Investors can be more receptive to annuities if they understand how those products work in the context of a long-term financial plan, Toland said.

“There is still some residual perception that an adviser is a person who picks investments,” she said. “Planning for when things go awry is so much more important than knowing when those events will happen … It really underscores the value of what advisers can bring to the table.”

Written by Investors Wallets

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