No two clients are alike. When helping each individual client design a retirement strategy, it’s personal. If you decide that an annuity could be a strong recommendation for their portfolio, picking the specific product is a nuanced decision. Just like clients—no two annuities are the same.
Each type of annuity, and each specific annuity contract, comes with its own set of features and benefits. To choose an appropriate annuity for a client’s retirement portfolio, you need to have a thorough understanding of the client’s life circumstances and goals. At the same time, you need to evaluate products and determine which ones could provide a strong combination of valuable features and benefits. The recommendation that matches a client’s needs with a specific product is why they have turned to you for guidance.
When evaluating which annuity to recommend to your clients, here are a few questions to ask.
What’s Most Important To Your Client?
A client’s most important priorities should drive what type of annuity you’re recommending. The different types of annuities and the riders and options available can maximize value for the client in varied ways. So, before you start looking at just fixed index annuities or registered index linked annuities, go back to what’s most important to the client. Are they looking for accumulation with less risk? Is maximizing income in retirement a top concern? Or are they looking for ways to optimize their taxes? Understanding your client’s priorities will guide this recommendation.
What Are The Tradeoffs?
All financial moves have tradeoffs. With the clients’ priorities at the forefront, you will want to consider the rate of return, liquidity, and volatility for varying products.
The tradeoff for higher rates of return is typically more risk. Keeping money liquid – in cash – generally comes with a tradeoff of a smaller return. But, putting money into a less liquid product can offer a higher potential return. And then there’s the range of volatility with which a client may be comfortable.
Evaluating the tradeoffs and which ones will satisfy your clients needs will drive not just which annuity but what portion of a client’s assets should be in annuities.
What Distinct Features Could Benefit Your Client?
Annuity contracts contain more differentiating features than rates and caps. To start, the duration or surrender charge can be important considerations. You will also want to look into withdrawal options and death benefit riders. Before a client puts their money into a product, they will want to understand what would happen to money in the contract if they want to take withdrawals or the contract holder dies.
There are also many features that can affect your client’s experience with a product. For example, some annuities offer the option for an increasing income payment that can address the rising cost of living in retirement. At a modest 2% rate of inflation, prices could double in around 35 years. Recently, we saw inflation peak at more than 9% in June of 2022, according to the U.S. Bureau of Labor Statistics. In that kind of inflationary environment, having strategies to address inflation is particularly valuable so it does not erode purchasing power. Some annuities offer the ability to lock in market gains. While the market has performed well recently, the ability to lock in gains and protect against the risk of market volatility can be appealing. If your client is going to use a multi-year strategy, the ability to lock-in gains can be particularly valuable.
These differentiating features often offer greater potential benefits in exchange for the fee.
Can The Issuing Company Deliver On Their Promises?
The promises made within an annuity contract are often decades away. You want to make sure that the provider selected can deliver on those promises. The financial strength of a carrier matters. Examine the carrier’s solvency and financial strength before recommending their products.
As you help clients design personalized retirement strategies, you want to make tailored recommendations. This means evaluating products for each individual client and not having standard suggestions. Some of the differences can be subtle. Although, the benefits of a well-suited product for your client can be significant. It takes work. But that’s why clients turn to their financial professional for help.
Eric Thomes is chief distribution officer of Allianz Life Insurance Company of North America.