When the financial markets started to shake back in fall 2008, a lot of money left the stock market and fancy financial instruments. Logic might dictate that that money would find safer, calmer waters, but as anyone who follows money and its ebb and flow knows, logic doesn’t always prevail.
A lot of carriers will tell you that they are now focusing more directly on some of their basic products, like guaranteed life products and annuities, because their marketers predict that their potential customers will be looking to follow the same “safe money” logic. But time will tell whether that’s the smartest strategy.
In an effort to determine whether this logic is actually holding true in the market, I decided to go to some of the nation’s top annuity producers and ask them how their business has been, how it’s shaping up for the months ahead, and where they see it heading. For this roundtable discussion, we talked to the following group of annuity sales specialists: Bobb A. Meckenstock, MBA, CLU; Steven A. Plewes, CLU, ChFC; and Marc A. Silverman, CLU, ChFC.
1. Charles K. Hirsch, CLU: How were your annuity sales results in 2009 and what are your expectations for 2010?
Bobb A. Meckenstock, MBA, CLU: Historically, my annuity sales have been heavily concentrated in variable annuities, ever since I formed my own broker-dealer (Main Street Securities) in 1999. With the market meltdown, variable annuity (VA) sales decreased across the industry as a result of several factors, one of which was the contraction of the credit markets and ensuing “fear” this caused in the minds of consumers. Money was not repositioned from the traditional places, such as low-yielding money funds and certificates of deposit. I normally do about $1 million of monthly annuity premium and my numbers were down about 20% overall.
I’m an optimist regarding annuity sales for this year. With the trillions of dollars on the sidelines, we as professionals need to market the inherent benefits of annuities to the investing public to give them a reason to buy one. It doesn’t matter to me whether it is a traditional fixed annuity, equity indexed annuity, or variable annuity product because the advantages of tax deferral exist for all non-qualified accounts. In qualified situations, the annuity is an asset class that should be considered because of the variety of options that can be added to the plan. If a prospect needs guaranteed income with predictability, then this is a solution that needs to be discussed. All three kinds of annuities will provide sustainable and predictable income in all kinds of financial markets.
Steven A. Plewes, CLU, ChFC: I had a great year with annuities in 2009. In fact, annuity sales were primarily responsible for my making Court of The Table with the Million Dollar Round Table (MDRT) last year. I used fixed and variable annuities as well as single premium immediate annuities (SPIAs). These products seemed to be what my clients were looking for in terms of guarantees and income — two very powerful concepts against the backdrop of all the uncertainty in the stock markets.
I expect 2010 to be an even better year for annuity sales for me as I continue to learn new and more creative ways to use annuities and as consumers’ awareness and acceptance grows.
Marc A. Silverman, CLU, ChFC: My annuity sales results in 2009 were very, very good because of the guarantees that we were able to utilize within annuities. Had we not utilized guarantees, I don’t know how well we would have done. The fact that the annuities held up well and that there were two articles published in The Wall Street Journal talking favorably about annuities certainly did not hurt at all. My expectations for 2010 are actually better than 2009 because I think people were so nervous with the financial markets that they really want to have a guarantee rather than not.
2. Hirsch: Where do you see the biggest opportunities in annuity sales in the months ahead, and what are you doing to position yourself to take advantage of those opportunities?
Plewes: There are many companies in my geographic area that have let go of or laid off their workers who have Section 401(k) and other retirement plan money. I see a tremendous opportunity for rollovers to Individual Retirement Accounts (IRAs). Additionally, people are still very concerned about the economy and stock market volatility. We are reviewing clients’ portfolios now with an eye on using annuities to put guarantees in place while still preserving upside potential. We do this in conjunction with planning for income distribution in the future. To take advantage of the opportunities I see, I have established a special Web site that deals with IRA rollovers, income planning, and retirement planning to position myself as a leader and specialist in the area.
Silverman: The greatest opportunity rests with people who are not all that wealthy and are really afraid of what the last market downturn did. The super wealthy — as I classify them — with investments of $1 million or more — really don’t have as much interest in annuities as the people who don’t have a lot of money. Please remember that there are more sparrows than there are eagles in this world, and the annuity market is well-suited to the sparrows.
Meckenstock: I think the biggest opportunities are still with people who are 55 and older seeking a “safe haven” for their money that will provide “guaranteed and predictable” streams of income in retirement. I’ll still accomplish this by showing my clients all three kinds of annuities: traditional fixed rate, variable, and the newest version of an equity index annuity called BPA. Consumers want safety and growth. The guaranteed income and living benefits that variable annuities provide will still capture the lion’s share of my clients’ money, because they want it all, that is, they want growth and income and the ability to leave an inheritance to their heirs.
3. Hirsch: On the flip side, where are the biggest threats?
Silverman: The biggest threats to the annuity business clearly lie in the regulatory environment. As long as we make sure we have everything well-documented, we will not have problems with the regulatory environment, but this clearly is the biggest threat.
Meckenstock: Two things come to mind, and they are both from the government. The first is “over regulation of our industry” from the regulators and the second is “higher inflation” from the reckless spending habits of our government. Let’s look at our regulators. They do not understand that the needs of today’s seniors and the “Boomer Generation” will not be met by mutual funds, stocks or bonds. These old-line staples still have too much volatility and not enough certainty in providing a sustainable and predictable income stream in retirement. In my tenure as chief executive officer of a broker-dealer, I can assure you that there is a strong bias toward these Wall Street brokerage products at the expense of what Main Street wants and buys. In fact, Wall Street is trying to catch up as their product developers are experimenting with “guaranteed” mutual funds and adding “living benefits” to these products, because consumers want them and because “they” couldn’t destroy the VA market.
Plewes: Continued low interest rates, weakness in the economy, and potentially harmful regulatory reform could all negatively impact products, sales practices, and the sales environment overall.
4. Hirsch: What is the best annuity sales idea that you’ve implemented recently?
Meckenstock: For qualified money, I just learned of a great strategy inherent in the BPA product I mentioned earlier. Say that, at age 70, one starts his or her required minimum distribution (RMD) and continues with it through life expectancy. The BPA provides a 6% payout for life, which will be greater than the RMD until one is in his or her early 80s. As money comes out, growth continues. Also, the death benefit in the product appreciates net of withdrawals. The result is two-fold. First, there is income for life, and second, the beneficiaries will receive an amount equal to or greater than the original principal at age 70 when this strategy is implemented.
Plewes: I’ve started using a segmented income planning strategy for my clients, which accommodates SPIAs, deferred annuities, variable and equity indexed annuities, as well as managed money accounts, to help my clients and prospects maximize their income with inflation adjustment. The concept has been around for many years, but I’ve just recently begun using it as I believe that the combination of stock market declines, uncertainty over jobs and the economy, and tens of millions of baby boomers trying to regroup regarding retirement has created an environment of opportunity larger than I’ve seen in more than a decade.
Silverman: The best sales idea I’ve implemented with respect to annuities is asking people when their next certificate of deposit (CD) comes due, and plugging this in to my database system. Then, when their CD comes due, I simply call them two weeks prior and mention that I have a great tool they may want to consider to invest their money in a tax-favored environment with guarantees against market loss. I ask whether they’d like to meet to discuss it, and have found this to be a great way to potentially move a CD to a tax-favored annuity.
5. Hirsch: Any final thoughts?
Plewes: We have a whole generation of employees and retirees that never had, and never will have, a pension plan like their parents had. These people want the security and predictability of regular pension income, but they also want to take more risks and know that they actually need to take risk to prevent outliving their money. Annuities, in all their many forms, are exactly the right products, if sold properly, to give these people the guarantees and income they so strongly desire.
Silverman: The annuity marketplace is one of the best marketplaces to really help people achieve their financial goals. As an advisor, you must be committed to learning everything you possibly can about all the different annuities and the guarantees that are afforded by each company. When you put the time in to learn all that you can, I believe you will have much success in the market.
Meckenstock: We know people are living longer and hopefully healthier lives. This will put a strain on their meager savings as my generation can see “90 as the new 70.” What that means is that more money has to be accumulated now in multiple and diverse accounts to provide the necessary levels of income to provide a dignified retirement. Income in retirement is not an entitlement. It is a benefit one has for making wise choices with one’s money today and not spending one’s self into oblivion and hoping for a government bailout. As you probably know, the average American saves less than 4% of their gross pay in a good year. The new reality is that 15% of gross income should be saved (in personal and employer plans) in addition to whatever Social Security program might be available in the future.
With my clients, I leave them with this simple “rule of thumb” to remind them of their personal obligations: “Save 15% of what you make, give away 10% of what you make to your church, synagogue or charities, and live on the remaining 75%. Do that, and you will be financially and spiritually successful in life.”
Charles K. Hirsch, CLU, is president of Hirsch Communications Consulting, LLC, in Florissant, Mo. His company provides consulting services to life and health insurance companies and marketing firms. Before launching his Hirsch Communications Consulting, Hirsch spent nearly 27 years in business-to-business media. He served on the editorial staff of Life Insurance Selling for 18 years, becoming editor in 1993 and publisher in 1999. He is also a former vice president of Summit Business Media, parent company of Life Insurance Selling.
Bobb A. Meckenstock, MBA, CLU, is president of Main Street Securities, LLC, and The Meckenstock Group in Hays, Kan. He is a 30-year life and qualifying member of the Million Dollar Round Table and a 29-year life and qualifying member of the Top of the Table. Bobb was chairman of the Top of the Table in 1991. He and his late brother David formed Main Street Securities in 1999 as a producer-friendly broker-dealer. They built the firm to 70 representatives managing $1 billion for clients. In December 2009, the firm was acquired by National Planning Corporation (NPC) of Santa Monica, Calif. As president of Main Street Securities, Bobb uses his expertise in estate, financial planning, and money management to recruit other like-minded independent advisors to this new branch office with NPC.
Steven A. Plewes, CLU, ChFC, is a 22-year Million Dollar Round Table member with one Top of the Table and four Court of the Table honors. He is the principal of Advisors Financial Group in Gaithersburg, Md., where his primary focus is fee-based asset management for individuals, pension plans, trust accounts, structured settlements and rollovers. He currently serves as Chairman of the Client Relations Committee of MDRT.
Marc A. Silverman, CLU, ChFC, is a 22-year Million Dollar Round Table member with 12 Top of the Table honors. He also served as chairman of the 2003 Top of the Table. Marc is the president and CEO of Silverman Financial in Miami, an independent financial services firm he founded in 1989, which specializes in working with people preparing for retirement or who have already retired.