Annuities and fiduciary duty are usually mentioned together in the context of protecting clients in annuity transactions. But an annuity provider is turning that around by saying advisors are failing their fiduciary duty when they do not include annuities in the discussion.
That’s the view of Lance Carlson, head of sales distribution for Great-West Financial. The way Carlson sees it, including annuities in a conversation about securing a client’s financial future can never hurt, but omitting any mention of annuities can come back and haunt advisors many years down the road.
“A client may say it’s not a fit, but you at least have to lay it on the table for me as a client,” Carlson said.
Advisors have everything to gain and nothing to lose with the mention of annuities, but everything to lose and nothing to gain by remaining silent.
As annuity companies expand further into the financial advisor space with fixed and variable annuities, they are finding resistance from advisors who criticize the products as complex, expensive and opaque.
But Carlson said advisors are are not serving their clients by never mentioning annuities than by explaining how an annuity can complement the portfolio. In that context, Carlson says he’s never received any pushback from advisors.
Enduring Support, Recurring Drawbacks
The value of annuities to deliver income that people can’t outlive is well understood, and surveys show enduring support among consumers for annuities, especially as people rely more on their own savings to pay for retirement.
Yet the drawbacks of annuities recur like bad dreams: annuities are perceived to be expensive and opaque.
The past 18 months have been difficult ones for annuities as well, as regulation has made advisors more tentative in their annuity sales approaches.
The regulatory fog – which lifted recently with the demise of the Department of Labor’s fiduciary rule – had encouraged many advisors to sit on their hands and instead steer clients into other strategies, Carlson said.
For example, managed accounts on broker-dealer platforms include stocks and bonds, mutual funds and exchange-traded funds but rarely annuities.
Advisors who sit on the annuity conversation sidelines in hopes that the regulatory air will clear may as well be living on another planet.
“You can always wait until things get clear, which will be never,” he said.
Indeed, even as the DOL rule recedes, Securities and Exchange Commission regulators have begun their struggle with how to define best interest standards.
In Kansas City this week, the Annuity Suitability Working Group of the National Association of Insurance Commissioners plunged into fierce debate over how to proceed with an annuity transactions model law.
Carlson remains perplexed as to why consumers jump at insuring a $2,000 wedding ring, yet ignore “insuring” part of a $500,000 retirement portfolio through an annuity to guarantee some income.
When asked why buyers didn’t bother to insure part of the portfolio, the answer wasn’t because they chose not to, but rather because they didn’t know how to do go about it, “or no one showed me how,” said Carlson.
Traditional objections around annuity costs and differential advisor compensation no longer apply in many cases as commission-based and fee-based annuities are more similar in cost and compensation than at any time in the past.
Annuities come with tax deferral, return of premium death benefit and a living benefit.
Even after the initial annuity purchase, clients can always add a living benefit, which advisors can’t do within a managed account without buying another product outside of the account.
New annuity products come with low cost funds, competitive withdrawal rates and competitive returns so whatever a client ultimately decides, advisors are in a better position than they were before they had the talk.
“This is a conversation you have to have and once you have it you can't say it wasn’t beneficial,” Carlson said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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