An advisor isn’t likely to sell you an annuity that they don’t understand, or at least they shouldn’t. Many advisors called out for insurance companies to make sure their annuities are straightforward at the IRI’s annual conference. Darla Mercado’s Investment News article, “Annuities changes puzzle advisors,” talks about what advisors hope to see from annuity products. Not only do advisors need to know the ins and outs of the annuity products, but it’s important that they can explain the way the annuities work to their clients. More specifically, variable annuities’ features and investment options are puzzling some advisors, especially when changes are made during the duration of the annuity contract.
Variable annuities have helped many investors during the financial crisis because of their particular features, but advisors hope that some changes can be made. Clients seek advice from advisors because they trust that the advisors can recommend a product to help their money grow the way they desire. Advisors admit that some variable annuities may be a great fit for certain clients, but their complexity takes them off the table. Even if the advisor can mire through a tricky contract, they can’t always explain it to their client and often worry that they missed something in the contract that could be detrimental to their client’s money. Because of this, a variable annuity that is a good fit for a client might be overlooked.
Changes in investment options are the biggest worry for advisors right now. They are particularly focused on products using hedging strategies to protect insurers from market volatility and how these changes will affect the return that their clients see. New options don’t have a history to prove to advisors or clients that they will offer a decent return and perform how the clients expect them to. But advisors point out that many clients are more concerned now with guaranteed income in retirement, rather than large returns. Even so, advisors want to make sure that they understand the contract options and can explain them to their clients, large return or small. Some advisors are asking for more inflation protection with variable annuities in case there is no return based on market performance. I have a feeling that insurance companies are listening to advisors and will work to make variable annuities transparent and maybe even add on some guaranteed inflation protection.
Written by Rachel Summit