If you want to prospect for annuity clients, be sure to start with the right approach. You should never start with the end game in mind. Instead, begin with fact-finding and really understanding your client’s needs. If a prospect is interested in an annuity, ensure you can answer the following questions:
1. What are the client’s needs, aspirations and goals?
2. What do they want to accomplish?
3. Are guarantees important to them?
4. Can they handle the expense of those guarantees?
5. Are they aware of the expense of those guarantees?
These questions are important to answer in order to solve specific client goals and objectives. In my practice, we don’t focus on prospecting for annuity clients. Rather, we conduct workshops specifically geared toward pension plans, 401(k)s and Social Security. During these workshops, we do not talk about products at all. The goal is to get prospects into our office to do a one-on-one comprehensive financial review. Then, if they’re interested, we talk about where potentially to invest their money. If an annuity is the right fit for the particular client, we will explain the features of annuities, non-annuities, a short-term holding period and a longer-term holding period. The decision ultimately is left to the client.
Annuities have many benefits when they are used for the right person. One of the top advantages is the guarantees that clients can’t get anywhere else. In my opinion, a variable annuity works well for someone who is 57 to 70 years old because the VA has upside potential and there is no cap on it. The income will not decrease as long as the parameters of the guarantee are adhered to, and clients will have guaranteed growth if they don’t touch the money. The guaranteed number is a fictitious number that the client cannot cash out, but it provides a base for the income that is provided to them forever.
Yet with annuities comes skepticism, and one of the biggest sources of hesitancy stems from the fee structure. Annuities typically are more expensive than other products. An effective analogy to use when discussing the protection an annuity provides versus the cost of the annuity is to have clients think of the guarantee and extra expenses as the “air bag” of their financial plan. Remind clients that when they are in their car they’re going to fasten a seat belt before they drive. Today, all cars have seat belts and air bags. However, that wasn’t always the case. Years ago, you had to pay extra for a car if you wanted it to include an air bag. Most people would prefer to pay a little bit of extra money to have that level of protection in case they were to get into an accident. Similarly, the price for effective annuity products is worth the risk mitigation they provide.
The Financial Industry Regulatory Authority also requires advisors to strongly consider a longer holding period on annuities. If you impose a shorter holding period, additional costs will result. You must disclose everything to your client and sign off that they acknowledge they are spending more for a shorter period if that is what they want. The higher costs are because clients get added flexibility. For example, if a better product comes along, clients can move their funds into that product instead. They aren’t committed for seven years within a specific annuity. There is about a 0.4 percent difference between the longer holding period and the shorter holding period as far as cost is concerned, but you must give clients the option of both and inform them of all the details.
When you are working with clients who are interested in annuities, make sure at the end of every meeting that you dictate back to them the set of notes you took during the meeting. This ensures everyone heard everything correctly and everyone is on the same page. After the meeting, it is crucial to follow up and follow through with your clients. I do tons of follow-up meetings and annual review meetings, and again those notes are copiously dictated to my clients.
As advisors, we must be committed to doing the research into the investment’s suitability for our clients. We must provide clients with the crucial information to help guide them toward the right solution for themselves and their financial legacy.