This is that time of the year when we start to read reports that tell us how well particular products sold in the previous year. It might be interesting to learn whether life sales were up or down in the prior year – they were down, by the way – but what’s much more impactful, in my view, is what top producers are saying about their own business. After all, top producers know the market intimately. And no matter what the “30,000-foot view” tells you about the market as a whole, only those who know it intimately can tell you where the real opportunities lie.
That’s why I asked two of the top annuity producers I know about the state of the annuity business.
Not only are Ryan J. Pinney, CSFP, of Roseville, California, and Marc A. Silverman, MBA, ChFC, Certified Financial Planner ™, of Miami, Florida, two of the best annuity producers in the country, they are also straight shooters. They understand the market’s strengths and weaknesses, opportunities and challenges. And most importantly, they’re willing to share that insights straightforwardly.
I asked Ryan about his firm’s 2013 annuity business. Overall, what kind of a year was it? “Last year was a great year for our annuity business,” Ryan told me. “We were up nearly 25% over the previous year and had especially strong growth and sales in the fourth quarter.”
Ryan explained, “One reason for our success has been early adoption of new carriers and products in the space. Since 2011, for example, more carriers have started offering fixed indexed annuities, which has given us some really strong options to sell. Companies like ING are active in their own marketing, and making sure producers know about their latest offerings. We had several folks from ING and Genworth attend a roadshow we put on in 2013. They went over new products in detail, such as ING’s Interest Rate Benchmark Strategy. When there are new products out there, we’re one of the first to learn about them, sell them, and then help others sell them, too.”
Marc Silverman had a strong 2013 as well, but cited different reasons for his success. “Last year was a great year for our annuity business, because the market place in which we work — a middle-America market — really desires the guarantees that annuities afford. Because we have a large database of Baby Boomers, there is always a percentage of the database who are retiring. We discuss both the annuity and non-annuity options. Most people prefer the annuity — guarantee option. Therefore, we were very successful in acquiring new business in 2013, as I suspect we will in 2014.”
And why does Marc suspect 2014 will continue the positive trend? “As I look ahead to 2014,” he told me, “we have started off with great success again because of the large database of potential clients I mentioned earlier. We continue to market to these people and with great success. We do a lot of workshops specifically targeted to their pension plan and what is important to them. We never discuss investment choices at a workshop. Rather, we talk about what is most important to them, namely, their pension plan, Social Security, and what they will be able to receive during retirement. Once they come in to see us and they are ready to retire, then we will discuss the various ways they can invest their money, including annuities.
“Again, because our market place is a middle-America market place and we are continuously marketing to this market,” Marc emphasized, “we have been quite successful in providing the income guarantees that this market demands and have come to appreciate.”
Ryan also told me that he likes what he sees when looks at how 2014 is unfolding. “I’m optimistic about our annuity business,” he said. “In general, the annuity business is increasing—I just saw a report from Cerulli Associates that said variable annuity sales are expected to increase 57% from 2012 to 2018, to about $22 billion a year. That’s huge. Of course, the products being sold are shifting away from variable annuities, but the growth in fixed and immediate annuities is really making up for it. Fixed annuities grew 17% in 2013 alone, and they’re the highest they’ve been since 2009. Immediate annuities hit record sales last year, up to $8.3 billion.
“Interest rates are staying low,” Ryan continued, “which isn’t a good thing for annuity sales. But we’ve also have a record number of Baby Boomers reaching retirement age. Many of them are suddenly realizing they’re not where they need to be, financially speaking, and they can’t put off the longevity discussion anymore. Since the stock market takes time to generate the kind of income they want, they’re taking a closer look at annuities. It’s easy to run the numbers and show them that an annuity with living benefits is always going to put them further ahead than the traditional risk-averse investment options, such as certificates of deposit or bonds.”
Annuities with living benefits certainly seem to be one of the more interesting developments in the annuity market in recent years. I asked Ryan what, in his view, were some of the other more important recent developments. “There are two really exciting developments I see. One is the innovation in the products themselves. Products that generate competitive guaranteed income without locking in a target date are what consumers want. When we can sit down with a client and tell him or her about a new single-premium deferred fixed annuity that has a 1% guaranteed fixed return and the potential to earn more based on how a market index does, we get their attention.
“There are also several new products we’ve seen that give consumers choice in which markets they want to index. It’s not just the S&P 500 index anymore. There are carriers out there letting consumers choose between several world indices, which gives them choice and flexibility.
“Another exciting development,” Ryan told me, “is the shifting population demographic I mentioned earlier. The number of people reaching retirement age is going to double between 2012 and 2060. We tried to reach these folks decades ago, but they were too far from retirement for the situation to be tangible. Now, they’re about to retire and realizing they’re not where they want to be. That’s an incredible amount of demand, and we can answer that demand with annuity products. Variable annuity sales declined last year, which means people don’t want risk. This tells us the time is right to approach these clients with guaranteed income alternatives, such as a single-premium immediate annuity.”
When I asked Marc the same question, he told me, “I think the continued refinement of the guarantees and how they evolve for a given market is very exciting. Some of the companies will ask our opinion as to what we think will benefit the market. Some of the companies have moved their lifetime income guarantee of 5% at age 70 to 5% at age 65, which is a big change for the positive. Some have done the opposite and made the 5% lifetime guarantee which was available at age 60 to now being available at age 65. The income guarantee under age 65 is generally 4%. The annuities that offer new investment options are a real positive as well.”
I mentioned above that these two are straight shooters, and their perspectives on the challenges in the annuity market are worth pondering. Marc told me, “In my opinion, there are two areas that cause the greatest concern. The first is still the high cost of the annuity. This is seen as a negative by a lot of people. What people need to understand is that markets do decline and people die. The cost is what it is because the benefit is what it is. Nothing is for free. Not a lot of people were complaining about cost when the market was down in 2008. What an annuity provides is peace of mind for people who can’t manage their behavior by otherwise giving the order to sell their investments when the market is down, which is the exact opposite of what they should do.
“The other concern I have is the number of reporters and financial writers who slam annuities when they really do not understand the unique benefits they can provide for the right person.”
Ryan said he sees other challenges. “One concern we have with the annuity business,” Ryan told me, “is the flip side of all the innovative product development we’ve seen—the regulation that accompanies those changes, along with the pressure on insurers to continually increase profits. When you have products changing like they are right now, sometimes the government and independent watchdog organizations need a little time to review all the changes. If they don’t like what they see, they can levy fines, as evidenced by the $20 million fine AXA received for changing an investment strategy on some of their variable annuities. The carriers are trying to maintain their bottom lines and ensure their clients’ accounts all appreciate in value—it’s a hard line to walk. Annuity producers everywhere are wary of headlines that mention ‘fines’ and ‘annuities’ in the same sentence, because that’s something they may have to explain to a client.”
As experienced and successful annuity producers, Ryan and Marc may be at a different career stage than many producers. But they had to start at the beginning, and they have advice for younger producers who are now where they once were. Ryan offers this advice: “Take every opportunity to attend industry events. Meet with carrier reps who can really explain the benefits of these new products. There’s no substitute for face time with the people who designed the products you’re selling.
“When you really invest yourself in the industry,” Ryan suggests, “you’ll make connections and earn invitations to events that do so much more than solitary hours of reading and research will do for you. Whether it’s learning about something like the Pension Protection Act and how it lets non-qualified annuities fund a long-term care policy or finding out how other producers are using social media to reach retirees, there’s a lot you gain at a face-to-face event that you can’t get just by subscribing to newsletters and industry publications. Those are great first steps, but I urge younger producers to get involved on that face-to-face level.”
On the same subject, Marc says, “My advice would be to try to penetrate a market of middle-Americans or prospects who are over the age of 55 and under the age of 75. This seems to be the prime target age for annuities. The middle-America market, as I previously mentioned, really would prefer, for the most part, guarantees to non-guarantees and are willing to pay a little more for the benefits and peace of mind. I would be looking for a large employer in your area that provides a defined-benefit pension plan or some type of a cash balance plan, so that when these Baby Boomers start to leave where they are working, you, the agent, will have a vehicle that they might consider investing in.”
As Marc further considered the state of the annuity market, he told me, “I think it is of particular importance for any producer who is working in the annuity marketplace to really understand how annuities work and the various guarantees that companies offer. There are a lot of flavors when it comes to annuities, be it variable annuities, indexed annuities, fixed annuities, single-premium immediate annuities, etc. A producer must be well-versed in all aspects of annuities.”
Marc continued, “I mentioned guarantees earlier, and one guarantee that I like a lot is provided by Lincoln Life. They have a guarantee called i4LIFE, which really is a wonderful income tax advantage guarantee if you take the time to learn about it. I think the state of the annuity business is strong and I think there will always be a marketplace for this because there always are going to be people who want a guarantee.”
In Ryan’s view, some of the more exciting developments that producers ought to know about are in the areas of distribution and social media. “It’s exciting to see the growth of independent broker-dealers in the annuities space,” he said. “This growth hasn’t diminished the sales of the other broker-dealers; instead, it’s helped us reach even more of our target demographic. Going forward, there’s more room for growth and improvement, especially as Baby Boomers embrace social media. From 2010 to 2014, adult Facebook use has grown from 51% of daily users to 64%. These aren’t teenagers—these are their parents and grandparents. By building awareness on social media, producers will be there when their prospects start looking for advice.
“In fact, we’re working on ways to help producers expand their marketing reach in a way that’s systematized, standardized, and automated. Our DataRaptor system, in beta testing now, is going to help producers find, track, and market to the clients most in need of the security an annuity provides. It’s an exciting time to be in annuities, and I see a bright future for producers in this space.”
Ryan J. Pinney, CSFP, is a six-year MDRT member with six Top of the Table qualifications. A regular contributor to financial publications where he has been featured by Bankrate.com, Yahoo! Finance, and Fox Business News, he is a sought-after expert at using technology to drive insurance business and streamline the application and underwriting processes. He leverages his experience with search engine optimization, social media, and online marketing to assist agents and agencies alike create their online presence and profit from it. Utilizing the same principals and technology his firm provides to agents, his firm sold more than 16,000 policies direct-to-consumer over the internet last year.
Marc A. Silverman, MBA, ChFC, Certified Financial Planner ™, began his financial planning career in 1983 and formed Silverman Financial in 1989. Mr. Silverman is a 29-year MDRT member with 18 Top of the Table and seven Court of the Table qualifications. He is a past chair of the Top of the Table and an Excalibur Knight of the MDRT Foundation. Mr. Silverman earned his Master’s Degree in Business Administration from the University of Miami and is a past president of the University of Miami Alumni Board School of Business. He is a past president and Board member of the Miami chapter of the Society of Financial Service Professionals.
Charles K. Hirsch, CLU, is executive editor of Insurance Forums. He is also the president of Hirsch Communications Consulting, LLC, a communications consulting operation in Florissant, Missouri. For many years, Chuck was the editor and publisher of Life Insurance Selling magazine and wrote the monthly column, What’s Going On in the Life Insurance Business. From 1999 to 2008, he was the publisher of several of the leading industry magazines in the life insurance, property/casualty insurance, and mortgage markets. These days, Chuck’s firm specializes in the development and execution of many kinds of communication strategies, particularly in the financial services business.