Insurers need to work harder at educating advisors on how their products work if they want to boost sales, according to a quantitative study of four groups of seven to 10 advisors by Matthew Drinkwater, associate managing director specializing in retirement research at LIMRA in Windsor, Conn.
Insurers trying to persuade registered investment advisors to pick up the pace may be barking up the wrong tree. None of Drinkwater’s group of independent advisors were interested in hearing anything about the product, as they feel such retirement income vehicles undermine their cache as experts.
“RIAs don’t feel they need to use annuities,” he says. “They’re concerned about taxation because annuity income is taxed at ordinary income rate. Municipal bond ladders made more sense to these advisors.”
Among those advisors who currently sell annuities, though, the message was clear: They want more support from wholesalers and better printed materials from insurers to help explain annuities to their clients.
“They talked about living-benefit riders, which can get very complicated,” Drinkwater says. He notes that the advisors weren’t necessarily asking for simplified annuities, just better educational materials, especially on newer annuity products, such as guaranteed wraps on managed accounts.
Drinkwater’s research didn’t formally cover what proportion of advisors’ books were made up of annuity sales, but he notes that annuities are a natural fit at banks, because bank customers are already familiar with the concept of guarantees thanks to FDIC insurance on deposits.
However, interest in retirement income as a topic continues to grow, the researcher says. Annuities remain a minor player in the overall practices of most advisors—the advisor most comfortable with annuities in the focus groups said that only about 40% of his book was in annuities—but insurers could turn that around if they boost their wholesaler ranks—even RIAs have some clients for whom an annuity is the most suitable solution, and even though independents are a harder sell, it’s worth the effort, Drinkwater says.
One solution he suggests is that of the pharmaceutical industry, which, when it ran into difficulty getting doctors to prescribe new drugs, started advertising directly to consumers. Now, commercials for new medications are commonplace and patients will ask their doctors about drugs they wouldn’t have been aware of otherwise.
Drinkwater says AXA’s 800lb gorilla commercial is an early example of how direct marketing to advisors’ clients can have the same effect—one RIA reported in his group that a client had asked him about annuities after seeing the ad on TV.
Competition is likely to remain high between providers, though. All advisors who sold annuities, especially those who had been in the business for a long time, said they only use a handful of annuity products, which they whittle down to those represented by wholesalers they have the best relationship with and the insurers they feel they can best trust.