David Williams knows the frustration of trying to connect skeptical clients with an annuity that can give them precisely the retirement security they seek.
It led him to develop his own sales program, a presentation that includes his “Triple S System,” which refers to Succession, Self and Significance. It helps clients focus on the important information.
“I give them facts,” said Williams, who owns F.D. Williams and Associates of Long Lake, Minn., a retirement life-planning business aimed at business owners. “Like, if you and your wife were 65 years old, are you aware that there’s a 50 percent chance that one of you is going to live to be 92? A 25 percent chance to 97? And just over a 10 percent chance to 104?
“That’s a long time for your resources to last, and that’s a long time for you to think about giving your life meaning and purpose, if you never thought about it.”
Williams has plenty of experience in retirement planning. In 1978, he founded Schwarz Williams, a Minneapolis company that handles insurance, investments, benefits and retirement planning.
But he has limited experience selling annuities. Williams’ approach echoes what Jack Marrion has preached for decades: Patience and real-life straight talk will help clients connect with what annuities are and what they can do.
An annuity expert and CEO of the consulting firm Advantage Compendium, Marrion distilled a lifetime of sales and research experience into the book Change Buyer Behavior And Sell More Annuities.
Marrion is a big believer in creative sales techniques to solve what he calls “the annuity puzzle.”
“People say that they want a lifetime income, but when you bring up annuities, you often get a negative response,” he said. “They want income they won’t outlive, and they’re concerned about hurting that income through market volatility.”
‘That’s Not Real’
The way to start changing attitudes is by convincing clients they have a good chance of living a very long time.
There are several ways to convey a more accurate picture about longevity, Marrion said. For example, ask the client to look backward to 1991 and what they remember from that time.
Soon, you’ll have the opportunity to remind the client that 2041 is as far from now as 2016 was in 1991. And it will make the distant future seem not so distant, Marrion said.
“Things that are in the future are seen as more abstract and less likely to happen and there’s less need to take action on them,” he explained. “The attitude is: That’s not real. I don’t feel that is ever going to happen because it’s so far away, and since it is so far away, I don’t have to do anything about it today.’”
Most people don’t give a thought to 2041, Marrion said, but they surely remember 1991 like it was yesterday. Tapping into that memory can mean the difference between matching a client with an effective annuity and seeing them pass on the product altogether.
“Psychological distance” is just one of the many perceptions that must change if financial advisors are to successfully solve the annuity puzzle. And it is truly a mystifying puzzle, Marrion said.
Consider that 93 percent of respondents to a 2011 AARP survey said it was “very” or “somewhat” important in retirement to obtain a dependable monthly income.
Advisors need a specific strategy to drive home the bottom-line value of an annuity, Marrion said. After all, clients really want an annuity — they just don’t know it.
They already get one very popular annuity in Social Security, so a supplemental annuity would seem to be a no-brainer. Yet 96 percent of people do not own one.
Marrion recently delivered a webinar presentation to National Association for Fixed Annuities members on selling to solve the annuity puzzle. “Reframe the psychological distance” is one of his five sales tips. The other tips are:
Show the guaranteed income. Show clients the “real money” value in specific dollar terms, stressing the guarantee.
Make it part of the whole. Accentuate the crucial role annuities play in a balanced, responsible retirement portfolio. For example, a retiree might plan to use 50 percent of their nest egg for living expenses and 25 percent as a bequest to heirs. The final 25 percent can buy income for life in the form of an annuity.
Paint the next wall. Adopt this effective strategy for a client who has secured three-quarters of their retirement income. That client is highly motivated to finish the job, which can be accomplished with the right annuity.
Pivot around regret. Show the client the lowest monthly income first, which includes full return of principal. Then show additional options that increase the monthly income as more risk is assumed. That makes the annuity look more attractive to the client.
Perceptions > Reality
The difficulty confronting annuity sellers is a combination of the mores of human nature, psychological fears of dying and ingrained attitudes toward growing old. Add that to informational bias against annuities, and the molehill becomes a mountain.
But Marrion encourages financial pros to tackle the mountain by making simple human-to-human connections. By making an emotional connection to personal memories, the prospective client begins to see the product in an unbiased light.
For example, Marrion cited his favorite sales mechanism for breaking down the fear of aging.
“Ask the consumer, ‘Do you have any relatives who lived into their 90s?’” The question places the longevity risk front and center, Marrion said, in the form of Aunt Sara, Grandpa Bill and neighbor Ted. And it works.
“They’ll start thinking about all of the old people and now what you say is ‘This annuity will protect you from living too long,’ ” he explained. “And then it starts to make sense.”
Advisor Jerry W. Chapman, who sells annuities for Thornhill Securities Inc. in Austin, is quick to ask the question.
“I will have people say, ‘My mom or dad, or both, or aunts and uncles, they lived to, you know, some time in their 90s,’” Chapman said.
Founded in 1988, Thornhill is an independent broker/dealer and investment advisor offering financial advisory services in more than a dozen states from New York to Florida.
The longevity question is rarely a realistic conversation, Chapman said.
“Most people, when I start talking about aging into the 90s, may intellectually know that that’s possible,” he said, “but I’ve had comments like ‘It’s not going to be me’ or ‘I don’t want to live that long.’ Unfortunately, those aren’t choices that you and I get to make.”
Attitudes about aging and dying are difficult to reverse, Marrion said. That’s why it helps to have a few different strategies. Often, the client is afflicted with what Marrion calls a “confirmation bias,” meaning they are most influenced by factors that confirm their predetermined ideas.
For example, a client may know several relatives and friends who lived into their 90s. But the same person is burdened by thoughts of an early death because an aunt died at 62. Guess which example carries more influence?
Ironically, studies show that people in retirement feel more active and vibrant than they did at earlier ages. In a 2009 Pew Research Center survey, about half of 18- to 29-year-olds said they felt their age, while about quarter said they felt older than their age and another quarter said they felt younger.
However, among adults 65 and older, 60 percent said they felt younger than their age, while 32 percent said they felt exactly their age and only 3 percent said they felt older than their age.
Likewise, the gap in years between actual age and “felt age” widens as people grow older, Pew reported. Nearly half of the survey respondents 50 and older said they felt at least 10 years younger than their actual age. Among people 65 to 74, a third said they felt 10 to 19 years younger than their age, and about 17 percent said they felt at least 20 years younger than their actual age.
The challenge for financial advisors is to match reality to reality — that is, the income guarantees in an annuity with the high likelihood that retirement life will be happy, healthy and long.
It is not an easy task.
“I can give all the actuarial statistics to someone, but it’s hard for them to absorb that information, integrate it all and put themselves in that position,” Chapman said. “The younger they are, the more difficult it is.”
Instead, most people secretly fear they are going to die within a few years. In reality, a 65-year-old person has an 80 percent chance of making it to 77.
The number of U.S. citizens age 90 and older has nearly tripled since 1980, reaching 1.9 million in 2010, according to the Census Bureau. That demographic is expected to increase to more than 7.6 million over the next 40 years.
“But we don’t view it like that,” Marrion said. “We view it as 50-50 because tomorrow we’re either going to be alive or dead. … It’s more of a 50-50 proposition because that’s how we feel.”
Marrion recalled a conversation he had with a 56-year-old family member about a decade away from retirement. The man had $130,000 in an IRA and was “an annuity hater,” Marrion said.
He explained to the man that if you place $130,000 into a fixed annuity, you can withdraw a guaranteed $12,201 a year for life.
“There was dead silence for over a minute, and then he came back and said, ‘$12,201 a year for life? That’s real money,’” Marrion said. “We’re not talking about Wall Street terms, where you might get this or you’re projected to get this.
“No, with the annuity, you are going to get $12,201 a year for every year that you live.”
Chapman tries to steer the conversation toward guaranteed income and build a portfolio with that in mind. He said annuity sales are trending up at Thornhill.
“The one point I do make with people is that chances are, you may well live in retirement as long as you were in your working years,” he said. “And your money has to last you while you’re not working.”
Another important strategy for selling annuities is to stress responsible planning or, as Marrion puts it, “making it part of the whole.” That means stressing the place for guaranteed income within a retirement nest egg.
Annuities play a strong part in helping retirees get to their number, the annual income level target in retirement, Marrion said. Most retirees will have some combination of Social Security, savings, 401(k), a pension and possibly other means. The annuity can help make sure guaranteed income is part of the equation, Marrion said.
Marrion cites a retiree with a $400,000 retirement who buys a $100,000 fixed annuity. In exchange for 25 percent of their nest egg, this client has a $9,000-per-year income for the rest of their life.
Stressing the income also means using words the client understands.
“The consumer does not calculate the internal rate of return on the present value of the future income stream,” Marrion said. “They don’t do that. They say ‘I’m going to get $9,000 on my $100,000. Wow, what a great income.’ ”
Painting That Wall
An external wholesaler for Allianz Life Financial Services, Bill Streiff is responsible for sales strategy for Allianz’s team of agents. He is on the road “35 to 36 weeks a year,” meeting and advising about 300 reps nationally.
About a year ago, Streiff found himself in St. Louis, where he called on Marrion. Streiff called his colleague and friend of about 10 years “the FIA guru” and said he usually picks up a few strong selling tips to take on the road with him.
On this visit, Marrion explained his “painting the wall” theory, which calls on agents to analogize retirement planning to painting the four walls of a room. Once you have three walls done, you’re most likely “highly motivated” to paint that fourth wall, Marrion said.
In retirement planning, the first three walls are usually “painted” with Social Security, a 401(k), pension funds or other means.
“This is a very powerful concept,” Marrion said. “What makes it really work is the pictures … because they can see how close they are to painting the next wall.”
Streiff modified the analogy to building a house.
“When we’re talking to reps and we’re sort of creating ideas for them, this is just one that really resonates with them,” he explained. “What we have to do is paint the rest of that financial picture, and we do that with stocks and bonds and annuities — specifically, fixed annuities.”
Streiff cited a typical client: a husband and wife who want $60,000 a year in retirement. The floor of the “house” begins with $20,000 to $30,000 from Social Security.
In this example, the client has a $600,000 nest egg, and Streiff said a $400,000 Allianz 222 fixed index annuity will fill the second floor of the home and essentially complete the $60,000 need. That leaves $200,000 for the top floor, which serves as an emergency fund or money for additional investing.
“People are afraid of outliving their money,” Streiff said. “That’s the biggest fear in retirement. Not only will they not outlive their money, but they will receive increased payments throughout their lives.”
Not many people have planned to manage money for 20 to 30 years of retirement, he added. That makes it crucial to build a sturdy financial “house” with money the client can’t outlive, Streiff said.
“That story is what resonates most with the reps,” he said. “It works better than anything I’ve ever thought of.”
Pivot Around Regret
The perception of buying income can be strengthened if the client is shown the lowest monthly income first, Marrion said.
Many clients are tepid on annuities because they fear dying and losing the entire lump sum. So a discussion of options will likely include death benefit and period certain terms, both of which bring down the monthly income.
The mistake comes when advisors start with the big number (the total straight annuity payout), then move to period certain terms and conclude with the death benefit returns.
“In that scenario, every time you’re talking to the client, the annuity income story is getting worse and worse and worse,” Marrion said.
He recommended starting conservatively and showing the client how income can grow through various options. “It turns it into a positive,” he said.
Annuities provide so many different options, Marrion said, that it is important to read the client’s concerns and be prepared to discuss them appropriately. That talk usually comes down to risk versus income.
A fixed index annuity with a guaranteed lifetime withdrawal benefit (GLWB) might be the answer for clients with both concerns, Marrion said.
“When you have a GLWB, you’re always at breakeven or above,” he explained. “You’re never in a position where you have to fight to break even, to be a winner. With an annuity with a GLWB, you start out as a winner and life just gets better.”
After all, some clients just don’t want to be “a loser” at the retirement game, Marrion said.
“Sometimes you can’t do away with the bias,” he said. “They do not want the chance of losing their money. That’s why people don’t buy the immediate annuity. They don’t want to be a loser.”
The failure to connect clients with the right financial products can have disastrous results. With so much at stake, it is crucial that retirees maximize the money they have in order to make retirement work.
Chris Everett recalls the time a client referred her 90-year-old mother for some straight-talk retirement planning.
“The daughter was outraged,” said Everett, who owns Everett & Associates Insurance Agency for Life, Disability, Annuities & Long Term Care in Oak Park, Ill. “When I spoke to the mom, she really didn’t know what (investments) she had.”
Turns out, a banker put the woman into a portfolio yielding a 0.6 return over a six-year period. Everett restarted the process and found the woman a Multi-Year Guaranteed Annuity (MYGA) that gives her a 3 percent annual return.
It was the right product for the right client. The woman will probably live another five years at least, Everett said, and an annuity helps insure her against outliving her money.
“I mean, she’s sharp as a tack, and physically doing well,” she added.
Everett has several similar stories of matching clients with annuities that delivered retirement security. There’s the 93-year-old woman, and a 96-year-old man. Then there’s Everett’s mother, 85 and still going strong.
Annuity sales fit for each case, Everett said, but only after a long exchange about the product.
“You have to let them own it; let them buy it,” she said. “I tell them all the time, ‘These are your dollars. If you can understand what your options are — the good, the bad and the ugly — you’ll make a better decision.’”