Why would I give my clients’ money to another advisor? What would be my value?”

That was the common response in the early years when financial advisors were asked about managed accounts. Today, that product is a workhorse for our business. Financial advisors have amassed more than $11 trillion of client assets in this product, an idea once so abhorrent that when I suggested using them I was told I could lose my job because branch office managers were convinced the product would mean the collapse of their revenue.

Now let’s take another product that gets so little respect you could call it the Rodney Dangerfield of financial advice: the annuity. You can tell it gets no respect when you look at its share of retirement assets. That’s eerily similar to the treatment once given the first managed accounts. Annuity skeptics continue to abound even as the product evolves. The new reality of these vehicles is that they are designed to protect client assets more efficiently than a regular portfolio of investments.

Consider the following arguments and ask yourself if they sound familiar:

“Managed accounts are too expensive.” The first managed accounts sported annual fees of 3% per year, which seemed high to portfolio managers offering their institutional clients the same service for much less. Three percent didn’t sound so high to stockbrokers when you compared it to the commissions on their stock trades or to the 8.5% front-end loads on some mutual funds, the 4% load on a bond or something similar for a unit trust.

The reality is that competition brings down costs—to the benefit of the consumer—and managed accounts now average closer to 1% per year. The 8.5% sales loads are gone, and the commissions are zero at Fidelity. Likewise, annuities are not all priced the same way, and advisors who remember the once heavier costs on variable annuities are usually surprised by the current figures.

“Selling managed accounts will cut my income.” Advisors who were used to commissions thought that turning assets over to a managed account would mean their income would be slashed. They are wary of annuities for the same reason: They think purchasing annuities on most platforms means reducing the amount in assets they manage directly.

When it came to managed accounts, more forward-thinking advisors saw the potential for building assets, leveraging the markets for growth of AUM and giving themselves more time to work with clients and to find new business. They traded the short-term hit to their current income for a chance to build for the long term.

For similar reasons they can benefit by adding protected income strategies. These recommendations are often viewed by clients as an additional service—which means it’s something that can help you capture assets that would otherwise be held by others. So it’s important that you look at a protection strategy as something that can increase your overall share of a client’s wallet.

“Managed accounts are too complicated.” When managed accounts first arrived, the complaints from advisors rained in on their company headquarters, as they howled about the need for multipage investment policy questionnaires, client signatures and the additional registration required for them as investment advisor agents. The multiple asset classes, they argued, were too confusing to clients, as were all the subadvisors’ names.

They often asked things like, “Why can’t I just get the client’s OK on the phone?” “Why do I need an additional license like the Series 65 or 66?” “Why can’t we use just the managers beating the market?”

What they were likely afraid of was the new level of professionalism being asked of them, since the trend would require them to act more like advisors and less like stockbrokers. The managed account is not a product, said one of the industry’s pioneers, Len Reinhart. Instead, he said, it’s a service. It looked like the investing approach taken by consulting units such as his old one at Smith Barney that served corporate pension funds and endowments. Clients now had not just a personal advisor, but also a consultant selecting managers and tracking performance, as well as full-time investment teams managing their money.

Advisors who manage investments alone miss the opportunity to help clients with expenses and liabilities—and thus address their net wealth. In such cases, a client might be feeling confident about a $1 million nest egg but might not consider their potential longevity and the prospect of funding a retirement that stretches three decades or longer. The reality is that few retirement-age clients have enough in assets to fund their longer lives, including the highly variable costs of healthcare and life care. The new theme is that clients will need to learn how to use limited resources over many years, which demands a new kind of professionalism from their advisors, whose aim is to protect the clients, not the returns. The definition of a “financial advisor” is changing once again and means something besides “investment advisor.”

“No one is asking for a managed account.” This is my personal favorite among the responses of certain advisors, whose perennial foe seems to be any entrepreneur introducing anything new. Other classic responses in a similar vein include, “People riding horses never asked for cars,” or, “People won’t ever need to hear music from or take pictures with a portable telephone.”

In reality, new products rise in profile when consumers start to demand them, and this is always threatening to complacent industries. Stockbrokers in particular never had to answer the question “How am I doing?” in the past. But the industry changed; clients became responsible for their own vehicles, including retirement products like IRAs and 401(k)s. As they did, they started to worry about returns, and then looked for better, more reliable, more transparent solutions than what brokerages offered them. If these clients needed help with this work, independent investment managers and trust companies were only too happy to provide custodial services and performance reports.

“Annuities” have matured to meet consumer demand, too. More than 100 products in a couple dozen categories have filled the annual Barron’s guide to the best annuities. Annuities offer income streams that can be extended to cover someone’s entire lifetime. They can begin at a specific age to match a client’s liabilities, they can include features to offset inflation, and they can incorporate death benefits and name specific heirs.

The unusual power of consumer demand is that consumers may not be able to name what they want—yet they can sure name what it does. Savvy marketers interpret these signals, and then the great innovators build the solutions. The best advisors need not rely on complicated illustrations or labor over lengthy applications when discussing annuities; they can simply talk to the clients about what it is they want to accomplish. Since this involves the client’s self-preservation, this will likely be an emotional topic, and the solution will be an emotional one. Peace of mind is not an intellectual compromise for an advisor.

Emotional arguments likely won’t appeal to the doubters among mostly left-brained, analytical advisors. But clients and their families are very much emotional beings and become more so as retirement looms.

That problem becomes worse as they realize that their own longevity might spoil their plans to enjoy the “go-go” years of retirement. In 2024, more Americans will turn 65 than ever before. (At the Alliance for Lifetime Income, we call this phenomenon “Peak 65.”) The median age of America’s 70 million baby boomers is currently 68. They have more in financial resources than they’ll likely have in a few years. That’s the trend we’re not ready for—and the one that will test the loyalty of clients now hearing about their chances in Monte Carlo simulations.

Advisors thinking of moving into annuities should start small. Very few of the managed account converts went in 100% at the start. Most focused on discrete uses, especially for retirement accounts. Their clients needed to be open to a different approach.

Annuities pose similar opportunities and adoption challenges. When you dive in, you should start by complementing investment portfolios. Instead of a retiree using money from their required minimum distributions, they could keep it invested and working in the markets while using income from an annuity contract. The added value these products offer is to more efficiently solve for specific risks or objectives than can be accomplished by investing.

Change For The Better
No one likes change. New ideas and processes can be clunky, especially in the first years they’re being used. But according to one of the nation’s largest wealth management firms, Morgan Stanley, advisors who are leading this adoption curve are earning as much as four times the net new assets and 100% more revenue growth than those who aren’t. That’s a return on investment even a stockbroker would recommend.

Steve Gresham, senior education advisor to the Alliance for Lifetime Income is also managing principal of NextChapter, a financial industry leadership community dedicated to improving retirement outcomes for everyone. He formerly led the retail client strategy for Fidelity Investments as executive vice president and is the author of five books about wealth management and retirement planning. See more at protectedincome.org.