Consumers leery of annuities, study finds

Not only are investors greatly confused about annuities, but they are also greatly biased against them, according to a new study from LIMRA International. The Windsor, Conn.-based marketing and research group this week released new data from its consumer focus groups. That research was performed in August, looking at consumers in Cincinnati and Raleigh, N.C., between ages 50 and 75 with an annual household income of at least $50,000. Video clips from the focus groups were shown at LIMRA’s annual conference in Hollywood, Fla., which ended yesterday. The biggest concerns among the participants included negative feelings about the commissions that agents and brokers received for selling annuities and the fees for withdrawals from annuity accounts. Those consumers also pointed to mutual funds as a preferred vehicle, citing the ability to build capital, have a professionally managed account and receive preferential tax treatment. One focus group participant said that she bought a mutual fund for “safety” in the sense that it was safer to have a portfolio with exposure to many companies as opposed to owning a single stock. However, many of the positive features of a mutual fund are true of variable annuities, said Matt Drinkwater, associate managing director of retirement research at LIMRA. “Mutual funds are managed professionally, but depending on the variable annuity, you could also have a professionally managed subaccount,” he said. “You can also change funds within a fund family for a mutual fund, but you can do the same with annuities.” Another participant of the focus group said that “annuities are awful” and that she thought that “everyone should stay away from annuities.” But she also had a negative experience in which she was sold an annuity even though she said she didn’t want it. “I think this person had a bad experience, but it’s interesting that this had more to do with the sales process and her relationship with the adviser than the product itself,” Mr. Drinkwater said.