Financial advisors have an obligation to educate their clients about the ins and outs of annuities they own or want to purchase, according to portfolio managers at Ashfield Capital Partners, a financial services firm in San Francisco with $1.2 billion in AUM.

Portfolio managers Adrian Fadrhonc and Lyman Howard said people buying and holding annuities often do not know what they are purchasing or already own.

“Even the people selling them sometimes do not understand them,” said Howard.

Some emerging trends are acting to make fixed-indexed annuities and variable annuities more popular or at least more noticed, the two said. Defined-benefit pension plans are less common, bond interest rates are extremely low, markets may be nearing the end of a positive cycle and more baby boomers are retiring. The demise of defined-benefit pension plans is forcing the market to come up with alternatives, Fadrhonc noted.

“I think annuities are getting more press now because they are serving as a substitute for those people who want to be more conservative but do not want bonds,” Lyman said.

Ashfield Capital recently took on a client who had two annuities. The firm determined what she had purchased and decided to keep an annuity with a lifetime income rider and sold the other, despite the surrender fees.

“We determined she would be better off in the long run to sell the one without the rider,” Howard said. “She was locking her money up at a 4% return when she could get better returns elsewhere. We find when we on-board clients we spend time unpacking what they have in annuities so that we understand it first and then check to see if what they have fits them.”

“The problem is annuities are dense,” Fadrhone said. “We distill it down to a handful of points, educate the client and then make understandable recommendations.”

More people are going to be exposed to annuities and have the opportunity to buy them as a result of the SECURE Act that allows annuities in employer-sponsored retirement plans. But that does not mean more education will be available to help purchasers, Fadrhonc and Howard said.