By Brian D. Mann
This article was inspired by a client who, after I proposed an annuity with a guaranteed lifetime withdrawal benefit rider to protect his retirement income from investment risk, said, “I’ll just stick with what I’m doing now. I have enough time to ride out my losses in the market.”
It reminded me that Wall Street has an uncanny ability to cause people to like things that they wouldn’t ordinarily like.
Imagine that you were shopping for a car and saw this description in an advertisement:
A real dream car that will impress all of your friends, but in all fairness, it tends to perform very unpredictably, and it may or may not get you to your destination. Massive repairs costing half of its value were needed twice in the last decade.
Would you buy that car? Of course not! Or if you did, it would only be as a second car – a collectible – not as your primary mode of transportation. But that is an accurate description of stock market mutual funds, a staple of many Americans’ retirement savings plans.
In recent years, Wall Street has been revving up its advertising and public relations engine to convince the American public of the merits of exchange traded funds and of investing in commodities as an asset class. But this is just another example of convincing people to embrace something they would ordinarily reject. Consider what BusinessWeek magazine had to say about commodity-based exchange traded funds:
Wall Street had transformed the reputation of commodities from a hyper-volatile investment that can steal your shirt to a booster for battered portfolios, something that rose when stocks fell and hedged against inflation. People who would never think of buying a tanker of crude or a silo of wheat could now put both commodities in their 401(k)’s. Suddenly everybody was a speculator. (from “Amber Waves of Pain, BusinessWeek magazine, July 22, 2010)
Naturally, the article made it clear that customers were putting great sums of money into these funds without understanding the expenses and risks, somehow thinking they were “safe,” only to be disappointed by their performance.
Consumers are slowly but steadily catching on to Wall Street’s act. Statistics from the Investment Company Institute show that since the start of 2008, withdrawals from stock mutual funds have exceeded contributions by $355 billion. However, that’s only a small fraction of the $6 trillion that are invested in such funds.
Perhaps surprisingly, surveys show that younger people are actually more conservative when it comes to investment risk than Baby Boomers and older groups. According to a MFS Investment Management’s annual Investing Sentiment Survey, Gen X and Gen Y investors had on average a lower percentage of their portfolios in equities and a higher percentage of their portfolio in cash.
When asked to explain that phenomenon, Bill Finnegan, director of global retail marketing for MFS Investment Management, said, “A lot of the folks in the survey, especially the Gen X and Gen Y’s in the group, don’t have the 1990’s to look at fondly.”
My interpretation is that they see the unreliability of Wall Street’s products for what it is, and they want something more reliable. Thus, I am optimistic that younger generations will find guaranteed products such as fixed and fixed indexed annuities very appealing.
Consider that with a fixed indexed annuity with a guaranteed lifetime withdrawal benefit rider, your clients can know for a fact – years in advance – how much retirement income their existing retirement savings will provide. They can also know – with certainty – how much additional retirement savings they need to accumulate in order to achieve their desired level of retirement income.
The annuity industry has been growing steadily throughout my career. With younger people more skeptical of Wall Street, I am confident that our industry will continue to grow for years to come.
Brian D. Mann is the Senior Vice President for Annuities and RIA Divisions at Partners Advantage Insurance Services. He is a multi-million dollar personal producer, coach and mentor for insurance professionals. Partners Advantage is a national insurance marketing organization that proudly serves as a one-stop shop to more than 20,000 independent insurance agents, financial planners and broker/dealers.
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