Having trouble convincing your clients that annuities have a place in their retirement plans? Annuities have caught a lot of flak from the consumer press, and while they may not be for everyone, some of your clients could be passing up valuable opportunities out of fear. The Journal of Financial Planning, the official publication of the Financial Planning Association, analyzed some of the most prevalent misconceptions regarding annuities. Here are five falsehoods that could be behind your clients' reluctance to look at annuities.
- Every annuity is a variable annuity. Overcoming this type of misinformation may be difficult, as clients have been inundated with the horrors of investing in annuities. As the Journal writes, "the risk properties of the variable annuity are incorrectly referenced on behalf of all types of annuities, undermining consumer knowledge and confidence in non-security-based investments such as fixed and immediate annuities."
- Your insurance agent isn't qualified to offer financial planning. Another myth that could be detrimental to your practice. Some investment managers will diminish the value of annuities, the Journal writes, because insurance representatives don't need a securities license to provide investment advice — yet. Rule 151A could change all that. A securities license is only needed, however, when selling speculative investments where the potential for loss exists. The Journal encourages continuous training and professional courses year-round to combat this myth.
- Annuities are all about penalties and surrender charges. While it's true that annuities can come with stiff surrender charges, making them unfit for some clients, they are designed to provide long-term security. Remind clients who are afraid of unreasonable penalties of the benefits of higher interest rates, guaranteed security and tax-deferred accumulation.
- Never invest your IRA money in an annuity. As the Journal points out, the exception to this rule is when "safety is paramount and loss to principal is not an option, and the annuity offers a higher rate of return than other forms of investment."
- Only deal with big names you are familiar with. Ever hear of Lehman Brothers? AIG? A big name doesn't guarantee a big return. "Restrictive affiliations and objective advice do not normally go hand-in-hand," the Journal writes, as it may represent a conflict of interest.
