The benefits of annuities for clients and advisors

Until recently, advisors found themselves limited when it came to annuities, without great options to support interested clients or those seeking help with annuities they already held. Recent developments in the annuities space, including the introduction of fee-based products, have allowed advisors to leverage annuities to expand portfolio options and improve client outcomes for both new and existing annuity owners.

In addition, the emergence of outsourced insurance desks (OID), like Flourish Annuities,^∫ has lowered barriers for advisors without insurance licensing by maintaining all required insurance licensing, bringing product expertise, and providing access to a curated marketplace of solutions. In combination with cutting-edge technology that streamlines the process of buying and managing annuities, these advances open the door for RIAs to connect clients with best-fit products and grow their firm’s AUM with annuities.

In this article, we will explore the general benefits that annuities present for both advisors and clients before covering specific annuity products in the next article in this series.

While many advisors shunned annuities historically, advancements in the industry are shifting minds and attitudes. Today, advisors are noticing how annuities can carve a straightforward path to organic growth, regardless of their firm’s current relationship with the product category.

1. Potential to grow AUM

With more than $1T in annuities sold over the past three years alone,¹ there is a significant chance that many of your clients already own an annuity, which may be completely outside your line of sight.

These hidden annuities may have unfavorable terms or otherwise be a mismatch for your clients’ goals. By partnering with an OID, you have the opportunity to uncover and assess potential opportunities to optimize these existing annuities for your clients.

If you review an annuity contract with an OID and discover it to be out of alignment with the client’s current financial needs and goals, exploring whether a replacement (1035 exchange) is a good fit creates an an opportunity to bring an annuity into your practice and drive organic growth by expanding share of wallet.

The same principle applies for advisors breaking away from an old broker-dealer. OIDs empower you to bring your full book of business with you — including annuities.

A wider range of secure annuity options creates another path to organic growth, by allowing advisors to convert funds that might otherwise be stored as held-away cash into an annuity under your management — all while helping improve client outcomes.

Take, as an example, a retirement-aged client who holds an inordinate amount of cash on the sidelines because they have been hesitant to put that money to work in the markets. They might be a good fit for a registered index-linked annuity (RILA), which provides returns that are linked to an index like the S&P 500 combined with a level of downside protection.†† Knowing they are insulated from some market losses can encourage this client to move their cash into a solution that works harder for them, all while increasing your AUM.

Finally, offering annuities is another way to differentiate your RIA. Investors value firms that provide personalized advice and have expertise in financial planning and investments.² By providing clients access to a wide array of annuity products through a tech-enabled platform, you become the forward-thinking firm that’s always looking for new ways to best serve your clients — regardless of the product wrapper. This innovative, client-centric mindset can make you the RIA of choice among investors seeking a new provider.

2. Greater management and control

Fiduciary advisors used to rely on outsourcing to third-party brokers to offer annuities to clients, creating potential conflicts while cutting advisors out of the process. With an OID partner, you can provide clients with direct access to annuities, which allows you to maintain full control over the client relationship and ensure that the annuity aligns with the client’s overall financial plan. And by working with a technology-driven OID, it becomes easy to integrate the annuity into your overall portfolio management and financial planning process, increasing efficiency and empowering you to provide holistic financial advice.

In addition, some annuities, including FIAs, RILAs, and IOVAs, allow you to change investment options and make strategic decisions that impact performance, just as you can with other asset classes. By taking steps like locking performance or adjusting the buffer or cap on certain annuities, you can make adjustments that suit your client’s financial goals and address shifts in market conditions.

3. Helps manage and exceed client expectations

Instead of having to send clients to a third-party commissioned sales representative, being able to offer clients access to a variety of annuity options, and advise on those within the context of their financial plan, allows you to ensure a great experience. Additionally, it positions your firm as the point of contact for all questions they have regarding their portfolio, with the Flourish Annuities OID available to support with any detailed information or questions. With nearly half of all investors saying they want to partner with an advisor who understands their entire financial picture,³ your position as the central expert on their finances is a vital selling point. When you can see all of your client’s assets, you’re able to provide well-informed portfolio recommendations and exceed client expectations.

The features of specific annuities also can help you exceed client expectations during times of volatility. Annuities with guaranteed returns, a level of downside protection, or even lifetime income provide new options to help increase client confidence, which means fewer panicked calls to your office.

The benefits of annuities extend in both directions. For clients seeking greater security in their retirement years, today’s annuities offer more flexibility and benefits than ever before. They can help to assuage fears and increase retirement confidence by providing options for growth with assurances, guaranteed lifetime payments, and new options for tax-advantaged growth.

1. Downside protection

As risk-averse clients enter their retirement years, annuities can create a point of stability in their portfolio that helps them cope with any market volatility. Instead of holding funds in cash or fixed income positions, these clients may be open to exploring annuities, which can offer potential upside.

As an example, multi-year guaranteed annuities (MYGAs) provide complete principal protection and will not decrease in value in response to interest rates or market fluctuations.†† This annuity, while considered conservative, can provide both a sense of security and attractive returns, encouraging clients to move from an even more conservative position, likely earning next to nothing.

Alternatively, registered index-linked annuities (RILAs) provide market exposure with a cap on returns; in exchange, clients receive some downside protection. Some clients might find that a RILA offers them the best of both worlds: potential for growth that tracks the market with reduced risk of principal loss. Advisors have ample opportunity to strategically utilize these products with clients, from mitigating sequence of return risk around retirement to helping clients take on an appropriate amount of risk in their portfolio — often shifting funds from fixed income or cash into a RILA. Armed with a comprehensive view of the client’s financial life, the advisor can provide more informed financial advice.

2. Longevity risk

In the United States, the average retirement age is 62,⁴ while the average life expectancy is 77.5.⁵ In those intervening years, many investors fear that they may outlive their retirement savings.

Advisors can help clients address that risk, for example, with an annuity that provides monthly income, such as a MYGA with a guaranteed lifetime withdrawal benefit (GLWB). In contrast with a Single Premium Immediate Annuity (SPIA), MYGAs with GLWBs are designed to provide income for life while still allowing the client to maintain access to the contract value should circumstances change.††

Traditional income annuities can offer clients a sense of relief knowing they have a safety net in retirement. However, the biggest objection for many is the loss of control and access to the funds, even in the case of an emergency. A MYGA with a GLWB rider can provide that relief of guaranteed lifetime income while also ensuring access to the funds if the need arises.

3. Tax-deferred growth

Minimizing tax implications for your clients is a vital part of the work you do and an essential component of retirement planning. Annuities can offer your clients another avenue to tax-deferred growth within their portfolios.^{^^}

This strategy can be particularly useful for high-income clients who have exhausted all other avenues in the tax-deferred space, or for clients who are presently in a high tax bracket, but expect to be in a lower one in retirement.

Once your client purchases their annuity, all earnings within it accumulate tax-free. As your client begins to draw from the annuity, those withdrawals are taxed as ordinary income, rather than capital gains.

4. Estate-planning potential

Finally, annuities can be used as a tool in your client’s estate planning and help provide for their loved ones. First and foremost, annuity contracts allow your clients to name their beneficiaries so that death benefit proceeds go directly to the beneficiaries and avoid probate.

Alternatively, clients may opt to add a trust as a beneficiary on their annuity. In this instance, the annuity proceeds are paid out to the trust and distributed according to the grantor’s wishes.^^ You can work with your client’s estate attorneys to ensure the optimal beneficiary structure is selected.

Additionally, annuities offer multiple options to distribute the proceeds to the annuitant. A joint and survivor annuity, for example, pays the original annuitant and a designated second annuitant for the remainder of their life. This ensures that, even after your client is gone, the person they select as the second annuitant will continue to receive funds.

Your clients come to your firm with a variety of financial goals, limitations, and fears. Annuities empower you to diversify beyond the traditional stock and bond portfolio, giving you the opportunity to expand the potential of client portfolios and explore new options to connect each client with a solution that fits their unique needs. In the end, this can create a host of benefits for you and your clients alike.

In the next article in The Annuities Opportunity series, we explore specific annuity products and use cases in greater detail. What annuities can you access via an OID, and how can they help you address common client scenarios?

The Annuities Opportunity:
The benefits of annuities for clients and advisors

The Annuities Opportunity: