Annuities

A Better Annuity Strategy than “Set It and Forget It”


Annuities

Many of us have believed in asset allocation strategies –  that is, shifting money management to a third-party and talking to our clients about the long-term. Their money is put inside variable or fixed annuities, and you and your clients just let it sit. It’s a “set-it-and-forget-it” mentality, and in less-turbulent times, it was a popular strategy.  But the global pandemic that we are still living with has shifted a lot of needs. 

Many people have lost jobs and are retiring earlier. Even more importantly, because of the volatility we are living with, there’s an increased interest in protected income. Today in America, there are $416 billion held in fixed and indexed annuities issued by insurance carriers. Not all of those are liquid, certainly, but according to a Gallup poll, 81% of those that bought a fixed annuity said they did so because they did not want to be a burden to their family.

All of this leads to a couple of opportunities:

  1. Most fixed annuities have been on the books for a long time. They do not have income riders — but the need to have protected income is an important part of their portfolio. If you have not looked at an Income Alpha strategy for these clients, I would encourage you to do so. A certain amount of protected income can actually leverage the portfolio to a greater probability of retirement success, a claim we have the numbers to back up. And, going back to the reason people buy annuities, it’s because they don’t want to become a burden to their families. Protected income is the best way of ensuring this doesn’t happen. It’s important to talk to your clients about using the asset appropriately.
  2. Under the Pension Protection Act, you can shift that tax-deferred asset with a 1035 exchange. If you use that asset for two of the six ADLs, then not only is your cost basis your gain, but also the explosion of market value of an LTC event are all received tax-free. So, you have shifted tax-deferred to tax-free. When you think about the increase in tax rates that are likely to happen over the next three to five years, I believe that your clients will be very receptive.

In total, there are more than $1.3 trillion of total annuities sitting on insurance carriers’ books right now. Think about that for a minute. Are your clients’ annuities performing like you thought that they would? Have those benefits been maxed out over the 10-year period available with an income rider? Can you increase income a little by looking at alternatives? Would a different vehicle preserve their assets better?

Add value to your clients by making a full evaluation of their annuity products. Our Annuity Audit service, backed by Morningstar Intelligence, is available to help. I encourage you to reach out to our team to learn more. We’ll work up a complete analysis and provide you with clear information to share with your client. Together, you can make an intelligent decision as to whether their current product is performing well or if there are changes to be made. And if there are, reach out to our retirement income consultants at (800) 589-3000 for more information.

 

Transformational Tactic

There are opportunities to increase your business by evaluating current annuities. You’ll improve your clients’ portfolios without reducing assets under management.

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Annuity Awareness


Annuities

June is Annuity Awareness Month. While it’s tempting to focus on a particular product, I like to focus on client needs. There is a growing gap between retirement savings and potential income during retirement. In reviewing clients' finances, we frequently find that they fall anywhere from 15% to as much as 50% short in their chances of having income for their entire lifetime. That is scary for the industry – but it’s even scarier for the clients we serve.

 

I normally try to write at a high level about the industry, the changing role of financial advisors and the realities of today’s retirement landscape. I try to avoid talking about our team and our specific successes, but if you’ll indulge me for a moment, let me give a bit of a humble-brag on our team, our solutions and how we can help your clients retire securely.

 

Ash Brokerage knows annuities are important, which is why we continually invest in our retirement division. We offer a full platform for retirement income planning:

 

Tools

Our JourneyGuide software allows you to co-plan with your client and show them the effects of any decisions they make. It’s a great way for advisors to gain clients’ trust and show the overall value in retirement income planning. The added benefit is that you can be more efficient in your practice. We offer tools to help illustrate the value of FIAs over fixed interest products, and we can show how the insertion of an FIA can increase portfolio metrics.

 

Business Solutions

We have developed a broad small-business platform around retirement issues. Moving pension plans from plan sponsors to carriers reduces the costs to small business, making them more profitable and more desirable for succession planning. And, the transaction secures the income for those loyal workers. We assist businesses and their attorneys with plaintiff cases and workers’ compensation payouts in an efficient and effective manner. Recently, we have reinvested and added non-qualified business structures to our arsenal of business services. These structures allow the seller to defer income to meet their needs and control taxes along the way.

 

Education

Knowledge is more important than ever before. Our team of wholesalers is now 20 strong, with collectively 500 years of experience in the field. Our internal desk will expand throughout 2019 to complement our growth. We also host regional meetings such as Retirement Income University, Go-Giver: The Five Laws of Stratospheric Success, and StoryBrand: Clarify Your Message.

 

Client Workshops

Gaining new clients is always important in building a successful business. Our turnkey seminar partnership with White Glove Workshops allows you to expand your client base with quality content and economical packaging for your target market. If you already run a successful seminar marketing strategy and just need content, we have over 15 slide decks with FINRA letters for your firm to review and use.

 

We have never been more bullish on retirement income education and the use of annuities. With the largest retirement demographic ever, and a gradual reduction in savings rates over the last two decades, financial planners have a challenge: create more income for longer periods of time with less assets than ever before. If we don’t reinvest in our businesses, our clients will lose – and not just lose us.

 

Winning Strategies: Join me in reinvesting in the retirement income industry and helping clients retire more securely.

 

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

retirement annuity annuities

The Annuity Industry’s Next Possession


Annuities

While serving as a student manager for the men’s basketball team at Indiana University, I learned a lot from Coach Bob Knight. Many of those lessons can be applied to the financial industry, and I’ve written about a few before. Today, as we’re on the cusp of what could be a game-changer for our industry, I wanted to share another.

 

Missing the Long Shot

Once, during a practice, a star player took an open three-point shot and missed. Like most long shots, it resulted in a long rebound and a fast break for the opponents. That’s embarrassing enough, but, to make matters worse, the player (like many college athletes) stopped and hung his head. His delayed reaction gave his opponents an advantage on the fast break, resulting in a layup.

Coach Knight immediately stopped practice. “What just happened?” he asked. Well first of all, the shot was missed for a variety of reasons. But, that was in the past – there was nothing the play could have done to change the shot after it left his hands. He could have reacted to the rebound, however.

You see, after a missed shot, the shooter actually has an advantage – more than anyone else on the court, he has the best feel for where the rebound is heading. If he’s paying attention, he can get in position to stop the ensuing fast break. Unfortunately, if he chooses to dwell on his missed shot, even for a second, it can result in an easy bucket for the other team. And we know one bucket can win or lose a game.

 

Getting Back on Defense

Today, our industry is in the same position as a player who misses a long shot. Over the last several years, we have successfully fought several pieces of legislation that would have affected the annuity industry. However, with the pending U.S. Department of Labor (DOL) ruling, it appears more likely than not that we will be required to maintain a fiduciary standard for every qualified client.

Sure, there will be litigation and other efforts to change the DOL’s proposed ruling, but it’s a long shot (pun intended). Regardless, it’s clear we will need to change in the annuity industry.

That’s OK. We can’t hang our heads for a split second, allowing litigators to attack our individual businesses under the fiduciary rule. Instead, we have to get back on defense and get ready for the next possession. 

Defense means changing how we DOCUMENT business, not how we DO business. I’ve heard many financial planners planning to discontinue the use of certain financial vehicles because of the commission structure. But if a product or service is in the best interest of a client, we should be obligated implement the recommendation, regardless of our compensation structure.

 

Setting Up the Offense

We simply have to explain how the product works and how we get paid. Our clients want us to succeed as much as we do They will understand the need for compensation if they understand how the product benefits them and their financial situation. Once we document and explain, we can move toward implementation – which means we’re back on offense. 

 

Bottom Line:

Don’t hang your head and let regulation and changes to the industry affect how you do business. Get to the next possession so you can continue to help your clients.

 

Learn More

Annuities and Sports: What I learned from Coach Knight: http://www.ashbrokerage.com/blog/annuities/annuities-and-sports-what-i-learned-from-coach-knight/

 

About the Author

Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets.

 

annuities coach knight

Importance of a Guarantee


Annuities

How important is guaranteed income? Ask any retiree or near-retiree, or read most any survey about concerns in retirement, and the most common fear is running out of money. Financial planners must consider what assets are available and what tools they have available to create and generate guaranteed, lifetime income.

Today, one tool often used in financial plans is an annuity with an income rider. An income rider guarantees an income payment for the life of the insured, and can even be set up to guarantee income payments for the insured’s spouse. Clients may even have the option for increasing income payments under some annuity contracts. 

Here’s how it works: The average payout factor at age 70 is 5 percent. If your income base amount is $200,000, then the resulting payout is $10,000. In most cases, this would be the amount the insured would be guaranteed on an annual basis for their lifetime.

With an increasing income payment option, when there is any interest credited to the annuity, the insurance company increases the last annual payment amount by the interest earned, expressed as a percentage. Say your annual income payment was $10,000; however in the last contract year, you earned 4 percent in interest. The insurance company would then increase your lifetime annual income payment to $10,400. Choosing this option would help you keep pace with inflation, and potentially help you offset higher health care and other costs. 

The Bottom Line: Guaranteed lifetime income is important to many of your clients. Show them options with annuities and income riders. 

 

guarantee income annuities retirement

How income riders provide guarantees and flexibility


Annuities

Today’s income riders available with fixed indexed annuities (FIAs) have evolved tremendously over the past several years, based upon what clients want, as well as what they need. Ten years ago, clients had to turn to variable annuities if they wanted a compelling income rider, but insurance companies have heard clients’ demands and have stepped up to deliver. 

Clients want guarantees, flexibility, liquidity and control. Not every income rider or annuity has all four components, but you can customize an annuity plan based on your client’s personal priorities.

Let’s discuss guarantees, flexibility, liquidity and control. FIAs always have a guarantee on the downside, and now a rider may be added to guarantee that a client will never run out of income. These are not annuitized riders, they are guaranteed minimum withdraw benefits. Yes, if the contract value does go to zero, there is no cash value left, but the income continues until death of the client(s). 

This approach also gives the client much more flexibility in how they receive the income and take the withdrawals. The withdrawals may be stopped and started, and in some cases, the deferral will go back into the contract or be held in a separate “bucket” for future use. This may be useful from a tax liability standpoint if a client is close to moving into a higher bracket. 

Because the withdrawals are not annuitized and the client can turn them on or off, this also gives them control. It enables them to maintain contract value for a longer period of time if the value does start to decline and they do not wish to take all of the income available. The degree of control varies between carriers – some allow the income to start immediately while some require at least a year of waiting and also restrict the client as to when they can turn on the rider (anniversary date only or daily rollup). 

All insurance companies reward clients who wait by offering rollups and/or age-based withdrawal factors. Find out when and how the client plans to use the rider, and we will find the best fit. 

Most annuities have more-than-adequate liquidity provisions as well. With FIAs, it is generally 10 percent – this is either 10 percent of the premium or contract value. If it is the contract value, the client usually must wait a year. Some carriers even allow withdrawals without triggering the income rider.

The best recommendation I can make is to ask your client what they feel is most important. When do they want to start taking income? How much flexibility do they want with those withdrawals? 

The Bottom Line: Know your clients and their hot buttons – drill down and find the best match for them. It may even make sense to split your client’s funds between two carriers, based on what they are trying to achieve. 

 

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