Many advisors don’t have the tools to handle annuities easily, says the Insured Retirement Institute (IRI). But that’s about to change.
IRI, a Washington, D.C.-based industry group, is working with dozens of annuity providers and distributors to offer new resources designed to clear away roadblocks that inhibit advisors from including annuities in their standard financial planning models.
“The models require each [insurance] carrier to help model their own products,” said Katherine Dease, IRI’s chief technology and innovation officer. That means financial planners must “already know they want to include an annuity in a client’s financial plan, [and] know a decent amount about annuities, to get the model right,” she said. “There really isn’t an easy button that works generically to put annuities as an asset class [into consideration] in the plan. There are no industry-wide models that the non-annuity financial planner can use to see how an annuity could help their consumers achieve their goals.”
She said that roughly 80% to 85% of advisors use some form of financial planning software today, but only 18% utilize annuities as part of their planning. This leads to clients being underserved, she contended, because if the financial professional is not familiar with annuities, the consumer is not presented with even the option of incorporating them.
Annuities can provide lifetime income and asset protection, she said, often making them key to a reliable financial plan that provides clients with peace of mind.
“The goal is to have a solution that creates a holistic approach to financial planning,” she further explained, “highlighting the importance of incorporating annuities alongside traditional investment strategies.”
Income guarantees, mixed with recent market volatility and higher interest rates, have helped spur unprecedented annuity demand. According to data tracker Limra, annuity sales in 2022 hit a record $310.6 billion. They are on track to beat that this year, with some $187 billion in annuity sales in the first half of 2023.
Still, many financial professionals don’t even consider annuities in their clients’ holistic plans. A portion of the work IRI aims to accomplish is adding an educational component to help financial professionals see annuities as options that can help consumers meet their specific needs, whether that is income, accumulation, protection, or tax deferral, she said.
No one disputes that annuities can be complex—and the more new products enter the market, the more confusing they can seem. That in part it is why IRI wants to clarify the process, with the education component and standard industry defaults that can be used by non-annuity financial professionals to see how an annuity might help their clients.
“We need to establish some uniformity for modeling the different types of annuities based on the client needs,” said Dease. “Additionally, we are looking at the data needed for ongoing portfolio management. We need to understand what data solution-providers need represented in their charts to show the value [of annuities] in the portfolio.”
Over the next six months, IRI and its industry partners will establish guidelines to “address significant friction points that add complexity and time to financial professionals’ ability to transact and manage annuities,” the IRI website promised.
That’s just the first step of an ongoing effort to drive adoption of industry-changing practices and procedures. “We’re now poised to do more to modernize the annuity experience,” said Dease.
Editor's Note: This has been substantially altered since it first appeared, and is part of a longer story to follow.