After seeing their retirement savings devastated by the financial crisis, Americans may be more open to annuities as a way to ensure an income stream and protect against market downturns, according to an insurance industry leader.
“The value proposition [of guaranteed income] has never been easier to explain; it's no longer theoretical,” John R. Strangfeld, chairman and chief executive of
Prudential Financial Inc., said in a speech today at the annual conference of the Insured Retirement Institute in Chicago.
“Americans are looking for certainty — the type of certainty we're providing,” Mr. Strangfeld said. “This is not only a business opportunity. This is an opportunity to make a difference in their lives.”
Risk-averse investors have parked $10 trillion in cash and another $15 trillion in low-yield fixed-income products, according to Mr. Strangfeld.
“Our focus should be on reaching consumers who have never considered annuities before,” Mr. Strangfeld said.
But it will be a challenge to get consumers to embrace annuities, which have suffered from a perception of being too expensive, complex and vulnerable to abusive selling practices.
“We need to simplify our story,” Mr. Strangfeld said. “These products are too complicated.”
That may be why the growth of annuities has sputtered over the last decade while other financial products like mutual funds and 401(k)-type plans have taken off.
Prudential and other companies are trying to increase market penetration by focusing on investment advisers. The number of fee-based advisors who counsel their clients to add annuities to their portfolios “is almost non-existent,” said James A. Shepherdson, IRI chairman and president of retirement savings at Axa Equitable Life Insurance Co.
Prudential has conducted “road shows” for 22,000 fee-based advisers since the beginning of the year, according to Bruce Ferris, executive vice president of sales and distribution. In addition, the company has conducted numerous conference calls and hosted other events.
“There are many advisers who don't know the benefits” of annuities,” Mr. Strangfeld said. “We need to change that awareness level.”
But advisers have the same resistance to annuities as their clients.
“The advisers are a reflection of their clients, and their clients are still living in fear,” Mr. Ferris said. “Our mantra is to be the strategic adviser to the advisers.”
The industry needs to adjust its approach to promoting annuities, Mr. Shepherdson said. They can't just be bolted onto a managed-account platform. The idea of a lifetime income stream has to be integrated across a platform.
“They have to be part of the process because it's a process sale, not a product sale,” Mr. Shepherdson said.
Overcoming annuity fear will be an ongoing challenge. “Products need to be both good for consumers and good for shareholders,” Mr. Strangfeld said. “Our commitment to doing what is in their best interest is the key to earning the right to grow. Trust is a big issue. Trust in financial services in general is at a low point.”
