Annuity Producers, Get Ready for the Retirement Market

July 25, 2012

By Linda Koco
In a report about the future of the retirement income market, Conning Research and Consulting included a cautionary warning.
The massive assets now held in qualified retirement plans managed by life and annuity insurers are being eyed by competitors, the Hartford researcher said. So insurers need to respond to the competition.

It’s also an opportunity for advisors, adds Heck. He refers in particular to annuity advisors, who can help clients establish and manage the retirement savings and income plans they create using plan assets.

But there’s a catch. The life and annuity assets that Conning identified may not necessarily stay in the insurance coffers unless the industry acts to conserve this business. As Hawkins pointed out, these assets are attracting other competitors, “primarily mutual funds who've also helped investors accumulate retirement assets.”

A new program

Prescient words, those.  Just a few days after the Conning report came out, John Hancock Funds announced it has a new program to help retirement plan advisors demonstrate their value. That is, the fund company will be providing tools—a guidebook, a wholesaler PowerPoint, and a plan sponsor toolkit—to help its advisors strengthen relationships with retirement plan clients.

This is interesting development, in light of Hawkins’ comments. As readers will recall, John Hancock Funds is the Boston-based mutual fund business of John Hancock Financial, which in turn is a business unit of Manulife Financial Corporation of Canada. Hancock has other advisor support programs for insurance professionals, but this particular program is from the investment side of the Hancock house, not the insurance side.

The fund company is clearly moving to support advisor-based TLC to retirement plan clients. In a sense, it is a protective measure, in that lots of TLC will likely help dissuade plan sponsors from developing a case of roving eyes.

But the initiative can also be seen as a competitive move, especially by other advisors who are trying to grab that business for themselves. They would see the TLC effort as a defensive move that functions as a serious offense.


By the way, there will be contenders as the year plays out, for all types of employer-based retirement plans no matter who holds the money now. Thecontenders will include not only retirement benefits plan experts but also advisors who specialize in plan rollovers to IRAs and qualified annuities. Always hovering in the wings, these contenders will likely step up their efforts to win over accounts once the new Department of Labor regulations on disclosure of investment expenses and fees take effect this year.

Their target prospects will be plan sponsors—and participants—who are not happy with numbers they see as a result of the new regulations.
Annuity and life advisors are not without resources for the retirement scramble that is sure to result. This year and last, many insurance companies and third party providers have been rolling out a wide assortment of websites, calculators, educational videos and software, retirement readiness programs, and other supports for retirement plan advisors and clients. So, even if an advisor is not part of the Hancock organization, they will have options for preparing themselves to compete if they care to do so.

The big question is will advisors take advantage of the opportunity to go after the retirement plan and retirement income business that could unfold? And will they take steps to protect the retirement accounts they already have?

Seeing for the first time

Heck  thinks this will happen, thanks to the disclosure regulations regarding 401(k)s. The disclosure will enable a lot of plan sponsors, and plan participants, to see for the first time what their plans are actually costing them, he explains.

Up to now, the costs were “buried in the prospectuses” and the broker-dealer and fund companies in the plans were not eager to talk about them, he continues. “But now, sponsors and participants will see — and if they don’t like what they see, that creates an opportunity for the dually licensed annuity advisor to offer other options.”

One thing annuity advisors can do to compete is to sell the client on the value they provide, Heck says. “They can show why it’s better to go with them than to go with a cheaper plan. It’s like selling the perceived value of driving a Mercedes versus a Chevy. They can show why they are the greatest thing since sliced white bread.”

Alternatively, advisors can work with the plan providers to find ways to come down on costs. That may mean an advisor might have to take a haircut on compensation, he allows, but it’s an option that might come into play. If the advisor is independent, not captive to any provider, the advisor can also shop around for other markets for the plan, he adds. Heck says another approach advisors can use is to offer plan sponsors other strategies, which he calls “safe money strategies.”  An example is “to point out that the plan can start allowing employees to take an in-service hardship distribution of their vested assets. The Internal Revenue Service allows such withdrawals but a lot of plan sponsors don’t know about the option.”

The advantages are, the option is simple to set up and, if employees take the distributions, this will reduce the plan’s account value and thus the fees charged by the plan, Heck says. “Meanwhile, the employee can roll the money into a qualified product—such as a self-directed IRA where the employee can now have control over both risks and expenses, and where the employee can move money to various types of assets.”
There are other approaches that advisors can use as well, he says.

But the point is, advisors do need to act on the opportunity, Heck says. He is practicing what he preaches. Right now, his own firm is setting up an event to meet with clients of a local estate planning attorney to discuss this topic among others.

His message? “I’m bringing them message of safe money planning and how that fits into the fee and expense disclosure that is coming soon.”

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected]

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