Financial planners, clients drawn to safety of variable annuities
April 3, 2012 by Bob Graham
By Bob Graham
Posted: April 2, 2012
Almost half of financial planning professionals say they bring up variable annuities in “every conversation” with their clients, according to a new survey.
In the wake of the global financial crisis of 2008, increased attention is being paid to variable annuities because clients want “guaranteed investments,” according to the survey by AllianceBernstein and the Insured Retirement Institute (IRI).
The research found that 42% bring up VAs in “every conversation” with clients and see them as an important part of financial planning solutions.
Half of financial advisors, those with Series 6 or Series 7 licenses and an insurance license, said they are recommending variable annuities more because their clients want “guaranteed investments,”
Responding to their lack of confidence in the markets in the wake of the global crisis of 2008, exactly 57% of respondents said they increased their use of variable annuities because the “designs have become more attractive,” the survey found.
“The fact that fewer people today feel confident that they will be able to meet their financial needs in retirement is driving a robust market for lifetime income solutions,” said Insured Retirement Institute (IRI) President and CEO Cathy Weatherford. “Our survey found that more and more financial advisors are turning to VAs as a sound portfolio solution because they provide guaranteed income and can help clients attain financial security in retirement.”
The 2008 financial crisis has changed a lot of minds about insured retirement solutions, namely variable annuities. Amid the upheaval, many strategies were less effective in limiting losses than expected-or made things worse. As advisors looked for a way to avoid a repeat of this experience, they focused more closely on the design of the variable annuity, with its explicit guarantee of retirement income, according to the IRI.
“Clients clearly have a strong appetite for the benefits of variable annuities, and it is important that the industry better communicate how they can become a key portfolio ingredient,” said Michael Hart, managing director of insurance services at AllianceBernstein, in a statement. “We found that the more educated advisors are, the more likely they are to use variable annuities in client portfolios, and not surprisingly, the happier the client.”
Survey respondents were put in three categories: sellers, who sold more than 10 contracts per year; dabblers, who sold between 1 and 10 contracts annually; and non-sellers.
Among the findings:
- Exactly 73% of dabblers and 79% of sellers said they never want their clients to have a year like 2008 again and will therefore continue to recommend variable annuities.
- For 49% of dabblers and 60% of sellers, recommendations for variable annuities have increased since the credit crisis.
- Roughly 45% have a combined fee- and commission-based compensation structure, most of which is commission-based.
- More than 70% of sellers have more than a decade of experience in selling variable annuities, compared with roughly half of non-sellers and dabblers.
- The average allocation for new clients is 29% variable annuities, 14% mutual funds, 14% IRAs, 8% life insurance, 6% unified managed accounts/mutual fund wrap accounts and 29% other.
- About one quarter of sellers had assets under management in excess of $100 million.
- Nearly a third of sellers had annual revenues (fees plus gross commission) in excess of $500,000.
- Sellers have double the number of high-net-worth clients (with investable assets between $1 million and $29 million) of dabblers and one-third more than non-sellers.
- More than 70% of dabblers and sellers say that a colleague or wholesaler influenced them to begin recommending variable annuities.
