Now that annuities are becoming accepted as part of an overall retirement income program, fee-only planners are wondering whether they should sell the products themselves or refer sales to outside agents.
"There's more pressure brought to bear" to offer annuities, said P.J. DiNuzzo, president and chief investment officer of DiNuzzo Investment Advisors Inc. of Beaver, Pa. The fee-only firm, which manages $250 million, farms out the sales of all insurance products to agents but may offer annuities in-house within the next three to five years.
"The strategy that's moving closer to the top of our screen is allocating monthly cash flow expenses to an immediate annuity," Mr. DiNuzzo observed. "It's becoming more prevalent in our average conversation."
In the past, the sale of annuities was anathema to the fee-only practice. However, now that retirees are seeking some kind of guaranteed income, the argument is not so much about whether fee-only planners should provide annuities but more how to do it.
Less expensive products have been a force for change. For example, Hueler Cos. Inc., a research and data firm, and the National Association of Personal Financial Advisors in Arlington Heights, Ill., worked together to provide institutionally priced immediate annuities through the Income Solutions platform.
The direct sale of an annuity to a client through the platform, as opposed to one through a referral to an agent, permits the fee-only adviser to ensure that the annuity is best for the customer and free of commissions, said Kelli Hueler, president of the Minneapolis-based company.
"Look at the impact that the fees have on income," she added. "If you have a client who's going to incorporate annuities, why would you want to refer if the referral is two to three times as expensive?"
Some advisers observed that eliminating the referral process encourages them to shop around for better deals for clients.
Prior to using Income Solutions, Paul S. Baumbach, a managing partner at Mallard Advisors LLC in Newark, Del., compared offerings from Western and Southern Financial Group of Cincinnati and
The Vanguard Group Inc. of Malvern, Pa., in search of good deals. Mallard manages $100 million in assets.
"[Annuities] are not a cornerstone of the practice," said Mr. Baumbach, who has one client in a single-premium immediate annuity and two others in the process. "If it's right for the clients, it's right for the business. Whether they refer more people to me because of it, the karma works."
However, advisers who farm out their annuity sales to agents insist that they work closely to ensure a proper sale in the client's favor: The agent can recommend a few products according to the client's needs, and the adviser will go with the cheapest option, said D. Randolph Waesche, president and chief executive of Resource Management Inc. in Metairie, La.
"We refer them out, but it doesn't mean it's not coming under the auspices of monitoring and advising," he said. "We identify the product needs and communicate them to the agent." This makes the registered representative more of a vendor, rather than a traditional agent, Mr. Waesche said.
His firm manages about $600 million and was established in 1975. It was also one of the first fee-only firms.
Advisers' unwillingness to sell annuities also may be a result of their lack of product savvy, said Tom Orecchio, NAPFA's chairman and principal of Greenbaum & Orecchio Inc. in Old Tappan, N.J., which manages $475 million.
"Some [annuity sales] will be referral based until there's a greater comfort with low-load or no-load annuity products," he said. "There are more products coming out that are low cost and allow us to work directly through the customer, which removes the sales process from annuity placement."
Nevertheless, for some advisers, annuities still carry a stigma.
"There has been a lot of press recently on the benefits of annuities providing a lifetime income stream, and I'm not buying into that," said Mr. Waesche, citing irrevocability and low returns resulting from the current interest-rate environment as the major reasons behind his skepticism.
Annuity costs remain problematic for Rob Williams, portfolio manager at Baltimore-Washington Financial Advisors Inc. Although the Columbia, Md.-based practice is "looking" at incorporating annuities, it will wait for more improvements first.
"Commission rates were always an issue, and the new products are dealing with that effectively," said Mr. Williams, who has been in practice for 16 years. "I haven't seen what the rates are on the new ones, but they could get better."
Large, traditional annuity pro-viders acknowledge that the fee-only-adviser community is a growing, albeit tiny, segment of the market, but one they want to reach.
MetLife Inc. of New York, for example, is seeking to serve the market but noted that even low-cost products can become more expensive when options are added.
"We have features for inflation protection, but there's a charge for the security and peace of mind," said Jody Strakosh, national director of institutional income annuities at
MetLife.
"This is a threshold amount of business that's worth going after," said Rick Singmaster, executive vice president and director of national sales at
Prudential Financial Inc. of Newark, N.J. The company provides low-cost no-load variable annuities to fee-only advisers through broker-dealer platforms.
Advisers who have been reluctant to sell annuities are finding that clients are helping to change their minds.
"I've been surprised how dramatically things change as clients get older," said Mr. DiNuzzo. "This is becoming more mission critical, and there's an anxiety level when you're not doing it in-house."
Darla Mercado can be reached at [email protected].
