Financial Advisors Say Guaranteed Income Products Too Complicated—Want More ‘Explainable’ Products for Their Clients

WINDSOR, Conn., May 10, 2010— The majority of financial advisors feel guaranteed income products are too complicated and seek materials and support from wholesalers and companies to help explain the products to their clients, according to a recent study conducted by LIMRA.

“Most advisors said that retirement income planning is taking a more prominent role in their practices,” said Matthew Drinkwater, associate managing director, LIMRA Retirement Research. “The advisors we talked to expressed a desire for simpler, more transparent products that they could understand and explain to their clients. They welcomed education and training to learn more about holistic retirement planning but not for the expressed purpose of obtaining another designation. While they don’t want to be sold to, they were interested in learning how certain products could address the issues facing their clients.”

Fifty-six percent of advisors surveyed in September and October of last year said they expect retirement income planning to increase within the next year. In addition, advisors who participated in focus groups in February of this year say there is greater emphasis on financial planning as more of their clients are nearing or entering retirement. Spurred by the economic downturn, clients fear they will not have enough money to last throughout their lifetime and are requesting retirement income planning.

“All of our clients have experienced two downturns in the past 10 years;
they are frightful that the money they’ve saved is not going to last.”
– Bank Representative

In LIMRA’s focus groups, advisors said that guaranteed income products are a growing area of focus but are currently only used for a minority of retiree and pre-retiree clients. Most clients are seeking “dependability” and “stability” but generally do not request guarantees. In fact, advisors report the word ‘guarantee’ generates skepticism and questions from some clients who don’t believe that companies can realistically promise them.

“They mentioned guarantees in 2008, now they want safety because they
know nothing is guaranteed anymore.”
– Registered Representative

The study revealed that independent financial advisors and bank reps are increasingly using guaranteed income products with their clients, while registered investment advisors (RIAs) say they have few clients using annuities in their portfolios and do not expect that proportion to grow.

With the availability of a wide range of products, most advisors are using a more blended approach to financial planning — combining traditional asset allocation with product solutions to address the needs of their clients. However, there is still reluctance from RIAs to incorporate product solutions to address retirement risks into their practice.

All advisors said they used some sort of planning tool, such as financial planning software, but most felt the tools were inefficient and cumbersome. When asked, the majority of advisors said that most planning tools are manually intensive, provide elaborate reports, which are confusing to their clients, and generally get in the way of their ability to engage with their clients. Advisors seek more flexible planning tools that produce simpler reports for their clients.

The report, Retirement Income Planning: What Really Happens With Advisors, is the result of four focus groups conducted by LIMRA’s Retirement Research Group in February 2010. The focus groups consisted of registered representatives of broker/dealers, bank channel representatives and RIAs in Boston and New York.

About LIMRA

LIMRA is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com.