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Finding the Right Annuity Product to fit Your Financial Puzzle

In “The right fit: Choosing the appropriate annuity,” Paul Hechinger of On Wall Street discusses the need for complete clarity in the annuity industry. He says that it’s important for advisors to fully understand their clients’ needs, how annuities work and each annuity products’ terms and compensation model. Advisors cannot recommend an annuity in good faith until they are clear on these topics. The author says that advisors should only recommend an annuity to their client if they would make the same recommendation to their parent or sibling, helping the industry run ethically and with clarity.

It’s important to look at annuities for their contractual guarantees, i.e. what they can do for you, according to Stan “The Annuity Man” Haithcock. Each annuity is a contract and will guarantee you lifetime income or market growth. Haithcock says to avoid products that promise you can get both of those benefits contractually. Some annuities guarantee a lifetime income stream with the potential of market growth, but they cannot guarantee both. Haithcock is a big proponent of not promising more with annuities than they can actually deliver. He urges advisors not to give clients unrealistic expectations and to sell annuities for the guarantees that they do offer.

He also stresses the importance of shopping around to different annuity providers to find the best contractual guarantees. This forces advisors to go beyond one insurance company and look for the best numbers rather the name they always use. The Department of Labor’s new fiduciary rule in essence requires advisors to shop around for their clients because you cannot deem a choice in the client’s best interest if you have not shopped around for multiple contracts with multiple insurers. Having contractual guarantees to compare from multiple companies allows consumers to make an informed decision with their advisor’s help. It’s just as important to shop around and compare different income riders that come with variable annuity products and indexed annuities.

The DOL ruling is forcing advisors to take a closer look at their practices and how they recommend products. More complex annuities and annuity compensation often turns advisors away from the products altogether. Annuities are important pieces of the retirement planning puzzle; advisors and clients just need to be informed about their benefits and contractual guarantees. One financial expert said that he sees an inverse relationship between advisor compensation and the quality of the product that clients receive. This is the type of situation that the DOL is trying to remedy in the annuity industry. It’s important for clients to receive the highest value from their annuity product, without worrying that they are being sold something just for their advisor’s benefit. Advisors must ensure that the annuity products they are selling are in the best interest of their client and are being sold for the contractual guarantees they offer.

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