Much has changed in this industry since I started in the business 40 years ago. I’ve seen my fair share of market ups and downs, and though many would like us to think it’s the end of the world, we know better. I’ve seen our business shift and evolve with the environment; I’ve seen suites of products and services follow suit, becoming more robust and complex, regulated and protected.
Particularly in the world of annuities, some say the variable annuity (VA) is a brand new asset class in a sea of stock, bonds and mutual funds. In my personal opinion, I believe an annuity is a wonderful product and ideal for many individuals and their particular circumstances.
The demand for these products has increased with the new income, withdrawal and death benefit features that offer more guarantees. With the increase in popularity, and perhaps a bit of confusion on the mechanics of the product and features, annuities have come under closer public scrutiny, eliciting looks of skepticism by many individuals, including some of my fellow financial professionals.
But if asked today whether or not all the product and regulatory changes that have come about during my time in the business — including the new SEC Rule 151A — have changed the whole enterprise of selling annuities, I would reply with a resounding “No.” Why? It’s simple: The fundamentals of selling annuities — the reason why you and I are both in this business today — haven’t changed much at all. They boil down to three key philosophies so critical in our business today:
• Problem solving while being sensitive to client needs and circumstances at the same time.
• Suitability of the product solution.
• Service after the sale.
Problem solvingBack in 1992, most of the individuals I spoke to wanted security, a good rate of return on their investment, some liquidity and flexibility and a way to save on taxes. Guess what? Today, my clients, and most likely yours, want the very same things, although the issue of security and guarantees may be even more important. So my suggestion to clients in 2009 isn’t much different from 1992: You should consider an annuity in your retirement portfolio.
Just a few weeks into the new year, a prospect walked into my office looking for more information about “these variable annuities.” He said he wasn’t interested in “pie in the sky” projections or fancy illustrations that projected returns in high single or double digits. He did not care about historical performances. The prospect simply wanted me to “go back to the basics” — talk to him about what a variable annuity can do, what riders might suit his particular situation, how it can work as a part of his portfolio and most of all, what guarantees he might get from purchasing such a product. He was looking to solve a problem and sought out assistance through a financial professional to help him find a solution.
That prospect story illustrates a point — your clients shouldn’t be concerned about our highly regulated environment. Instead, they should be most concerned about how, we as trusted financial professionals, can help them manage and mitigate risks through the use of various financial tools and products. If the process of client evaluation for suitability is done properly, annuities in one form or another may be ideal for your clients and business.
With recent news highlighting the impact of the market’s downturn on retirement income portfolios, it just may be that many financial professionals are still missing the mark when it comes to understanding their client’s overall retirement picture. Now more than ever, whether it is a small or large portion of the plan, an annuity should be considered as a part of a client’s retirement income portfolio. Annuities offer a range of withdrawal and guaranteed income solutions that cannot be found in other retirement income vehicles.
SuitabilityMany of your clients are probably seeking guarantees, in addition to safety, for their investments and future retirement income. It is important to keep in mind your clients’ personal concerns and financial wherewithal particularly when it comes to selling annuities.
Annuities are insurance products. Generally, they are long-term investments subject to early surrender penalties and withdrawal charges. It is important that we do our due diligence and make sure the client also has liquid assets in their portfolio that can be used in case of an emergency.
Suitability is a word that anyone who sells annuities is quite familiar with. It is essential that the registered representative have excellent product knowledge in order to determine suitability. It boils down to a very simple concept in my opinion: Always keep in mind the client’s best interests, and do not confuse that with some immediate commission gain you might make. Know what you are selling, as well as the profile and needs of your client. Your client’s best interest is in your best interest.
ServiceA relationship with a client doesn’t end at the sale, although in my 40-plus years in this business, I’ve heard many stories where it has. Our new regulatory environment does not, and should not, change the way we service our clients after the sale. If you have been doing this from day one, you should have no problem running a successful, ethical practice.
Be aware of the regulations and abide by them. It is extremely important that you have regular meetings with your clients to review their understanding of existing contracts and to see if there have been any changes in your client’s goals and desires from your previous meetings.
The new regulations remind us of this responsibility, but it has always been there. Our business is as emotional as it is logical. It involves building trust between you and your clients, forming a relationship of equals. This shouldn’t end just because you’ve sold them an annuity contract or two.
Your clients, especially in today’s economy, are looking to you to help them weigh those difficult and complicated financial choices associated with their retirement, and they will still need your advice long after
the sale.
Closing thoughtOur industry will continue to evolve as all things in life do. Regardless of what is going on in the regulatory environment, you have an obligation to do what is best for your client’s financial well-being.
Remember, the regulations that seem to severely limit your operation at times are really there to assist you and to protect both you and your client. Education, professional development and perseverance should be all second nature to financial professionals. Regulatory changes can remind you to concentrate on suitability for your clients, which, in turn, can help you better solve your clients’ problems.
Those regulatory changes, however, should never affect our commitment to, first and foremost, the clients who look to us for financial guidance.
Victor Juengel of Juengel & Associates Inc. in Helena, Ark., is a life and qualifying member of the MDRT for 37 consecutive years, and has achieved both Court of the Table and Top of the Table designations.Variable annuities are offered by prospectus only, which is available from your registered representative. You should carefully consider the product’s features, risks, charges and expenses, and the investment objectives, risks and policies of the underlying portfolios, as well other information about the underlying funding choices. This and other information is available in the prospectus, which you should read carefully before investing. Product availability and features may vary by state.The amounts allocated to the variable investment options of your account balance are subject to market fluctuations so that, when withdrawn or annuitized it may be worth more or less than its original value. All product guarantees are based on the claims-paying ability of the issuing insurance company.Securities products offered by Walnut Street Securities, Inc., (member FINRA/SIPC), 13045 Tesson Ferry Road, St. Louis, MO 63128