Advisers, clients not on same page about guaranteed income: Survey

Advisers are seeing more value than ever in the guaranteed lifetime income provided by annuities, but their clients may not feel the same way, according to a report Wednesday from Cannex.

Last year’s market plunge and quick recovery appear to have changed the way people feel about the value of guaranteed lifetime income, the firm found. That is based on the differences in two surveys — one conducted just before the pandemic and another in August. In February 2020, 71% of people said they regarded guaranteed lifetime income as highly valuable, but that figure had dropped to 63% by August.

Meanwhile, financial professionals said the appeal of the products increased: In August, 62% said the value was high in the context of the interest-rate environment, up from 42% who said so last February, according to Cannex. In the context of the stock market, 66% of advisers in August said they favored the products, up slightly from 65% in February.

PEOPLE STILL FEEL UNCERTAIN

That a narrower majority of people said that they found guaranteed lifetime income valuable was surprising, but that doesn’t necessarily mean that people aren’t interested in annuities with those features, said Tamiko Toland, director of retirement markets at Cannex USA.

“We don’t believe that that drop is actually a signal that people value guaranteed lifetime income less,” Toland said. “We think it has more to do with the question itself and other factors, including the market volatility piece.”

The market’s fast recovery appears to have tempered people’s views on volatility, and therefore their thoughts at that moment in time about the safety that guaranteed annuities can provide.

“Financial professionals don’t share that view,” Toland said. “They know not all market events will have such a quick recovery.”

The differences between the two surveys sound a warning that advisers’ messages to clients about market volatility might not be as effective as they would hope. When asked how they felt economically, 46% of people said they were less secure during the pandemic, the surveys found.

“People are still feeling uncertain. There are a lot of things to be uncertain about,” Toland said.

Total U.S. annuity sales were down in 2020, largely due to a dip toward the first part of the year. But demand ramped up during the fourth quarter, rising 2% over the same period in 2019, according to data from Limra’s Secure Retirement Institute. The increase in sales was led by registered index-linked annuities and traditional fixed annuities.

ANNUITIES IN THE CONTEXT OF A WIDER FINANCIAL PLAN

Despite the drop in the percentage of people who said they find the idea of guaranteed lifetime income highly valuable, advisers said they’ve seen more client interest during the pandemic.

A quarter of advisers said they’ve had more clients ask about the products, and about half of financial professionals said clients became more receptive to them, according to Cannex. Historically, advisers have underestimated how interested clients would be in guaranteed income, the firm’s prior surveys found.

“Advisers should be talking to their clients about it,” Toland said. “The barriers to the receptiveness of annuities really don’t reside with consumers.”

Because annuities vary so widely in basic design and available features, a conversation with clients shouldn’t start with products, she said. Later, the discussion can get to specific products and how they fit within a plan. Some clients, for example, are not interested in how annuities can help them avoid the effects of market volatility, but they may be keen on products designed for accumulation.

“It’s a very large tent. So let’s not focus on the big things or even annuitization … which is not typically what people purchase it for,” she said. “If a financial professional is doing their job, their clients trust them to provide an overarching narrative for their planning.”