Hey, tell me about annuities

Oct 21, 2012 @ 12:01 am

By Darla Mercado

Clients are asking about annuities — and they're doing it without any prompting from their financial advisers.

In a recent survey, annuities were the most-asked-about products, supplanting Roth individual retirement accounts, which finished second this time. Annuities ranked sixth in a similar survey last year.

Section 529 college savings plans came in third both years, and exchange-traded funds fifth, according to data from Cerulli Associates Inc. Commodities and currency products took fourth place this time, down from second. The research firm worked with the Financial Planning Association, Morningstar Inc. and a handful of other groups to poll 6,500 advisers.

With yields on the 10-year Treasury note hovering at around 1.6% and with equity markets being relatively volatile, annuities have become a costly proposition for insurance companies, causing many to discontinue rich product benefits. But the demand continues to surge, noted Donnie Ethier, a senior analyst at Cerulli.

“It speaks to the Catch-22 of the industry: Guarantees are more difficult to hedge and offer, but these are the only guarantees available,” he said.

The prospect of rising taxes also makes investors think about annuities' tax deferral features. A number of the latest products, designed for fee-based advisers, offer lower costs, tax deferral and investment options, but not the generous living benefits of yesteryear.

Companies that are pitching such products include Sammons Retirement Solutions Inc. and Jefferson National Life Insurance Co.

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