“It’s really difficult to put into words how awful this year has been,” Blanchett said. “We’ve got inflation up 6% or 7%, we’ve got balanced portfolios down 20%. Real returns are negative 25%. Bitcoin, bless its heart, is down even more. Of all the times that people need help, this is an example of it.”
That help, for some clients, could come in the form of an annuity, but the biases against annuities among fiduciary advisors and their clients have been very strong and hard to bend, the panelists said, noting that the greatest objections most advisors and clients have against annuities are that they’re expensive and complex, insurance companies “can’t be trusted” and advisors can do a better job with income investing.
For example, Stone said she once worked through a long simulation with a client where an income stream would remain in place for him and his wife—and then for his wife when he died—and saw a lot of excitement … until she told him the strategy relied on an annuity.
“He said, ‘I’m not giving my money to an insurance company,’” Stone recalled.
That’s typical of the anti-annuity argument. Yet a lot of objections stem from aspects of annuities that have changed over time, the panelists said.
“Annuities are not controversial for people who study retirement for a living. They are controversial generally because of compensation, because of commissions,” Lau said. “So we’ve launched a commission-free insurance platform to eliminate the conflict of interest.”
Whenever RIAs have avoided annuities outright, they haven’t kept up to date on what the modern versions of the product can offer, he said.
“Most RIAs have no idea how an annuity works, or what all the types of annuities are,” he said. “And a lot of advisors think they can handle the assets better. No, they probably can’t.”
That’s because annuities, which are insurance products, rely on risk pooling, he said.
“At the core of it is an insurance company managing a fixed-income balance sheet. They’re managing a massive fixed-income portfolio,” he said. “And insurance companies are among the best in the world at managing and building fixed-income portfolios.”
It’s for that reason that annuities can still pay out a fixed amount even if the bonds underlying them have dropped in value.
“Insurance companies don’t market-time,” Blanchett added. “There are some crappy products out there. Truth. But there are terrible mutual funds out there, too. There’s this notion that advisors aren’t going to use all of these products to help a client because a few are bad. Some advisors have hundreds of clients and they haven’t recommended a single annuity.”