VA changes puzzle advisers

Although variable annuities were helpful to the most nervous clients during the financial crisis, financial advisers admit that insurers still have room for improvement when it comes to this product line.

A panel of advisers from the Chicago area spoke at the Insured Retirement Institute's annual conference last Tuesday. Although these advisers are skilled in the use of annuities, they admitted that keeping up with perpetually changing product features and investment menus has been no easy feat.

“I have a responsibility to make sure [clients] understand it, but it's a trust level. They come to me because they trust me; they trust that five or six years down the road, I'll build the bucket of money that they need,” said Lisa Schomer, an adviser with LPL Financial LLC.

Products that are too difficult to understand may get short shrift, even if they are a good fit for the client.

“If the clients don't understand it, we may be more apt to not present it, even if it's a complete fit,” Ms. Schomer said. “They may not want it because they don't understand it, and we may be reluctant to say down the road that the product has changed.”

How advisers have been able to stay on top of those updates varies.

ANNUITY COORDINATOR

Gus Stathapoulos, a vice president at Morgan Stanley Wealth Management, said that he used to have an annuity coordinator at his branch — an adviser who was dedicated to providing feedback and answering advisers' questions on products.

“I think having that point person in the branch with that experience can give [advisers] some insight,” Mr. Stathapoulos said.

Of all the changes to annuity products, advisers are most concerned about changing investment options, especially those involving hedging strategies to mitigate volatility.

Not only do advisers want to understand how these work, but they worry about now those investment options will affect clients' return.

“Those types of strategies are very difficult for us to understand and explain to a client,” said Paul Fousek, an adviser at Horizon Wealth Management LLC.

The big fear is that those clients will “underperform so much in the next two to three years that they're not making any money,” he said. “We don't know how these things work; they don't have a track record.”

Advisers noted that though clients are placing more emphasis on getting a reliable income stream in retirement rather than getting outsize gains from their annuities, insurers ought to consider establishing inflation hedges to protect retirees' income stream.

“The products are geared toward [account] step-ups if markets do well. Everything is tied to the account value stepping up, and if you don't get that, you don't get a raise,” Mr. Stathapoulos said.

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