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Mystery Shopping for Annuities


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The Retirement Income Journal’s article “Unsolved Mystery” by Kerry Pechter reveals interesting findings regarding financial advisors and annuities.  Consultant and researcher Matt Greenwald ran a two part experiment.  The first part of the study involved Greenwald interviewing 11 academic economists.  He asked them if they thought that typical retirees should invest in annuities.  Every one of the economists said that annuities were an important retirement vehicle and that they would recommend them, although they all had different opinions regarding the circumstances for individual investors.  Since the academic economists believe that annuities are a beneficial retirement product, Greenwald conducted the second part of his experiment to see why there aren’t more widely purchased.

He sent 8 mystery shoppers near-retirement to financial advisors seeking advice regarding the best use of their money for retirement.  Each of the mystery shoppers had between $600,000 and $3 million in assets and went to reputable advisors at large financial firms such as Morgan Stanley and Wachovia.  Interestingly, none of the advisors recommended annuities to their potential clients.  All of them recommended similar plans investing in stock or bond mutual funds and drawing down a percentage of their account throughout retirement.

Greenwald’s experiment poses the question:  why aren’t advisors recommending annuities to their clients when academic economists believe across the board that they are important retirement products?  A study of approximately 1/4 of the registered active advisors was conducted this year by Brightwork Partners LLC and confirms what Greenwald’s study showed.  Only half of the advisors recommended period-certain income annuities to their clients.  They seem to believe that annuities are an expensive solution to the issue of retirement although when compared with other products, they tend to net more monthly income over longer periods of time.  Both studies suggest that advisors may not be recommending annuities as frequently as they could because they are not compensated as well as with other products.  Be sure to ask your advisor if an annuity is right for you in case they don’t bring it up in your retirement planning.

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