Advisors are key to a positive annuity purchase experience

With annuity demand expected to shatter records again this year, financial professionals should be prepared to discuss annuity options with their clients, especially since a  recent survey from Nationwide shows that financial professionals play an important role in helping investors feel confident and have a positive annuity purchase.

What is fueling annuity growth?

The survey noted that investor interest in having downside protection, and a guaranteed retirement income, is driving soaring annuity sales – a trend further fueled by the largest surge of Americans turning 65 this year. According to LIMRA, total U.S. annuity sales in the second quarter of 2024 were $108.5 billion, which is a 25% increase from the same period in 2023. And 82% of Nationwide survey respondents said that their financial professional’s opinion made them feel more positive about their decision to buy an annuity. This was followed by the performance of the annuity itself (76%), market performance (70%) and interest rate changes (67%).

Additionally, investors are turning to annuities for a more secure future in retirement. About two-thirds of investors (67%) said their top motivation for purchasing their annuity was to fund their retirement, and 41% said they did so to generate a “personal pension” that could provide a reliable income stream, in many cases, for life.

Financial professionals and a positive annuity experience

In addition to the performance of the market and the product, investors feel more confident about their purchase when they understand the complexities of annuity solutions, especially when that education comes from their financial professional. Although more than 90% of investors said they were confident that their annuity purchase was the right decision, they said having annuity knowledge made them feel even more confident (54%), compared to those who felt less knowledgeable (36%).

Investors’ understanding of the annuity they purchased also varied, depending on which product they bought. Investors who own registered index-linked annuities have the highest product comprehension (94%) of all annuity buyers, followed by those who own a fixed annuity (85%), a fixed indexed annuity (78%) and a variable annuity (70%).

“Annuity education materials and product knowledge can be provided by financial professionals as a means to engage customers,” said Rona Guymon, senior vice president  of Nationwide Annuity Distribution. “There is no real substitute for a trusted and qualified financial professional who can help clients anticipate and plan for future challenges and tailor portfolios for specific needs.”

Other sources of information

Although 84% of investors said financial professionals are their main source of annuity information, 48% are also turning to websites, blogs and online articles to learn more, the survey noted. However, investors report they struggle to find high-quality and neutral online information about annuities, in addition to finding the product confusing when researching on their own. More than two-thirds (69%) of investors said annuity information available online tends to be very basic and lacking detail, and 65% said annuities are harder to research online than other investment topics.

“To help investors feel more confident about their annuity purchase, financial professionals have an opportunity to tailor the product knowledge they offer their clients based on their unique needs, financial acumen and the type of annuity they own or are considering,” Guymon said.

Enhancing the annuity buying experience

With advisors playing such a key role in helping investors feel confident in their annuity purchase, what can they do to enhance their clients’ purchasing process? Jack Elder, senior vice president of advanced markets at CBS Brokerage, noted that according to the survey, 82% of annuity owners were influenced by their financial advisor. Advisors are responsible for providing their clients with advice that is in their best interest, Elder added.

When considering annuities, the most important thing to remember is to view them as a complement to the portfolio, not a replacement. An annuity is supposed to be considered a safe haven in a portfolio. “From a return perspective,” Elder said,” if you are looking for stable, predictable returns, an annuity can be a nice complement that allows you to have aggressive allocations elsewhere. Advisors who take the time to understand the product and model it to show the client its overall impact on their retirement paycheck or ‘net to heirs’ help build on that strong sense of confidence.”

The survey also mentioned that 67% of respondents considered interest rate changes when deciding to buy annuities. This makes complete sense because buying annuities when rates are high can improve the rate of return, Elder explained. “Advisors looking to navigate the annuity market with their clients should keep a close eye on rate cuts from the Federal Reserve. If a client is strongly considering annuities, show them the difference in return if they buy now versus later, once rates start dropping,” he said.

The research was conducted online by Nationwide Mutual Insurance Company from February 6-26, 2024, among 300 consumer respondents between ages 50-74. Respondents owned one or more annuities purchased in the past 10 years, evenly split between those who bought in the past five years, and those who bought six to 10 years previously and have not started receiving income from the annuity.

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Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com.