The 4 Profiles In The Annuity Sweet Spot

By John Hilton

The COVID-19 pandemic, economic turmoil and market fluctuations are testing the messages that annuity sellers use to market products.

Those factors are also creating opportunities, a panel agreed Wednesday during the Supply Chain Summit hosted by the Insured Retirement Institute.

"There are some clear profiles that the current COVID environment just further reinforces the merit of having both solutions, having an annuity can be a really core piece of that client's portfolio," said Katherine Roy, head of individual retirement at J.P. Morgan Asset Management.

Annuities have to compete with the liquidity that an asset management type of product or service can deliver, Roy noted.

The panel was moderated by Christine Tucker, vice president of marketing for Pacific Life; and included Alison Reed, executive vice president, product solutions, Jackson National; and Greg Jaeck, senior product leader, Insurance and Annuity Products, Edward Jones.

IRI initially planned to host its annual meeting this week in Chicago. In July, the company canceled the get-together and substituted a four-week virtual meeting.

Four Profiles

Roy described four profiles of clients who are in the sweet spot for annuities given the current uncertain times:

The ultra-conservative investor. This person is represented by the "flight to safety" seen in annuity sales following the 2008-09 financial crisis, and being repeated in today's market. In second-quarter sales data, fixed-rate deferred annuity sales jumped 33% from the prior quarter to $13 billion, LIMRA reported.

"The volatility in March, I think, only exacerbated and maybe created more of those than there had been in the past," Roy said. "Those are individuals that just aren't taking the right level of risk to keep up with healthcare costs that are growing at 6% over the course of retirement."

The "mistimer." This is a person perhaps most impacted by the economic disruption that saw unemployment peak at more than 14% in May and remain stubbornly high ever since. Many of those older worked might not rejoin the workforce, Roy explained, but instead start Social Security at an earlier age than they had planned.

"This is bringing home where an annuity can play a really strong role for that particular profile," she added.

Good savers, bad spenders. These are the folks who, "when they go through market volatility like this, the idea of tapping their portfolio or having the confidence to be able to do that with courage is really hard," Roy said. "So they can strain their lifestyle to a significant degree. And that's not necessarily a good outcome either."

The inadequate saver. A recent Transamerica survey found that 75% of retirees are confident they can maintain a comfortable lifestyle through retirement. Yet, only 29% are "very confident" in their ability to do so. Depending on their planning and investment mix, the pandemic is a real jolt to the finances of many retirees and near-retirees.

"Really if they're on the precipice of being able to or not being able to afford the retirement they're looking for, that's obviously where an annuity really plays really, really strongly," Roy said.

What About RIAs?

After regulators began seriously tinkering with expanding the fiduciary standard a decade ago, annuity sellers tried to focus more on getting registered investment advisors to take up their products. Fee-based annuities were introduced along the way.

But despite a lot of lip service on the product potential, annuities remain antithetical to many advisors. The panel members debated how that can change. One key is showing advisors that not every annuity means losing a chunk of assets under management, and the fees that go along with it.

"If you're using a variable annuity with a living benefit guarantee or a fixed indexed annuity with a living benefit guarantee and charging that advisory fee, those are still assets in the overall asset allocation portfolio where you can still bill a fee on those," Reed said.

In many cases, it's the client's mindset that needs to change as well, Roy said.

"Many clients, regardless of channel, have this brain block," Roy said, "where they are sticking to being a preserve capital type of profile, searching for free cash flow, because that's how they've lived their financial lives at this point, and really have a hard time thinking about setting aside an amount of wealth."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.