By Cyril Tuohy
Here’s an irony advisors may want to ponder. Too much freedom and too many choices may be too much of a good thing.
Yes, surveys routinely talk about how people prefer choices, and many times they do. With too much choice, though, comes complexity and often a certain paralysis. With paralysis comes doubt and issues of trust.
Do consumers really need their annuities to be variable? And if so, do they need their annuities to be pegged to an index? Do consumers really need or want their annuity to defer income?
In the end, many retail investors are looking for simplicity from their annuities — in the form of $500 a month, $1,000 a month, maybe even $1,500 a month to supplement other income while in retirement, but annuities are complicated.
Even financial advisors will admit to that.
Despite recent record sales numbers for fixed and variable annuities, there remains a lot of confusion about what annuities are, what they do and why people need them, even after 255 years in existence.
The first annuities were offered in the U.S. in 1759 to church pastors in Pennsylvania, according to Stan Haithcock, an annuity expert who goes by the moniker Stan the Annuity Man.
But if annuities have been around longer than the U.S. has been independent , why are annuities still too complex and difficult for so many people to understand, asks Dr. Barbara Nusbaum, a money coach and psychologist.
Nusbaum, who has worked with financial services firms, advisors and large insurance and long-term care carriers, says that complexity becomes problematic because it confuses investors about a product and turns them off.
“Especially since 2008, there’s a greater trust question,” Nusbaum told InsuranceNewsNet. “When things get complicated, the issue of trust comes in because they don’t understand what they might be getting into.”
Consumers are overwhelmed. Between shuttling children to after-school programs, job responsibilities, caring for parents, the last thing they want or are able to deal with are turgid annuity contracts, and the more a product is difficult to understand the less the industry is helping itself.
“Money is very emotional and hard to talk about,” she said. “It’s easier for people to talk about sex than money.”
Much of the complexity of annuities foisted on consumers is unnecessary, and many of the features added to annuities are often there to serve the industry first, and the consumer second, industry critics say.
Annuity contracts, in fact, are designed for advisors, not for consumers, since annuities are sold through advisors. Even advisors complain about the difficulty of deciphering the fine print in an annuity contract.
There again, the trust issue rears its head. The greater the complexity of an annuity, the more reason an investor has to stay away.
Nusbaum said the trust issue is “a core concern across the board.”
Young investors, she said, are old enough to know what happened in 2008. “They want to know that they (advisors) have their best interest at heart and they are savvy enough to know that's not always the case.”
A series of man-on-the-street interviews conducted on behalf of Genworth Financial’s Resources and Engagement Study, reveals how simple the needs of many people really are, and how important the trust factor looms.
In response to the question “What do you look for in a financial advisor?” answers varied but stuck to a theme of finding the right fit.
“I think trust is a really big factor,” said one interviewee. “Somebody who is in my inner circle is important to me.”
“You got to think about my needs, what I’m trying to accomplish,” said another.
The answers offer clues as to how basic, simple and grounded many consumers want advisors to be at the end of the day.
What about all the talk about alternative investments, fine-tuning stock and bond portfolios, savvy tax strategies, rising interest rates as the Federal Reserve dials back its bond-buying program, and layering an annuity program for retirement?
Not one interviewee mentioned any of that in the 14:16 minute take.
“It’s a good idea to look for a financial professional who starts by asking questions and really listens,” said Suly Salazar-Layton, Genworth Financial’s director of Practice Management.
Better for advisors to ask questions first and then recommend products to fit the needs, said Salazar-Layton, who helps financial professional develop client relationships.
“Once the consumer’s priorities are clearly understood, together they can identify appropriate solutions to address their key financial goals,” she said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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