Advisers Say Investors Would Benefit from VA Education

Most investors do not have a clear enough understanding of variable annuities (VAs) to appreciate the guaranteed income they can potentially provide, according to the results of a Sun Life Financial survey. 

The Sun Life poll of nearly 500 advisers asked what most concerns their clients age 50 and over. Most advisers (72%) say these clients are concerned with having enough retirement income.  Forty-two percent said clients are most concerned with accumulating enough money to retire comfortably. Thirty percent said longevity is their clients’ main concern. Only 15% say losing money in the stock market is their clients’ prime concern, and 5% name missing a market rally.

Plans Change 

Most financial advisers (92%) say clients change their retirement income plans after retirement, generally to avoid running out of money or to meet non-discretionary costs. Of those advisers who say clients change their plans, 43% say they do so to avoid outliving their income, and 34% say it’s due to non-discretionary expenditure needs, including unexpected healthcare costs. Twenty-one percent said clients change their plans in order to have more money for discretionary expenditures.

Use of Variable Annuities 

Eighty-three percent of advisers surveyed said that more than half (62%) of clients who could benefit from variable annuities don’t actually own them; only 38% of clients who could benefit from variable annuities actually own them.   

Nearly a third (27%) of advisers said their clients are “not very knowledgeable” or “not knowledgeable at all” about variable annuities. However, 21% said their clients are extremely knowledgeable and 52% said they are somewhat knowledgeable. Investors who buy VAs generally allocate one third (30%) of retirement funds to variable annuities.

Advisers said more of the clients who could benefit from VAs would invest in them if:

  • Variable annuities had lower fees (43%)
  • Clients received more education about variable annuities (38%)
  • Variable annuities were easier to understand (38%)
  • Variable annuities were a more commonly accepted investment (29%)
  • Clients felt extraordinarily confident about the issuing company (28%)
  • Advisers received better education about variable annuities (22%)

Adviser experience matters 

Financial advisers with less than 10 years of experience are about twice as likely as more experienced advisers to think variable annuities involve high risk; 23% versus 13%. Most advisers (76%) are recommending VAs either as often, or more often, as they did before the recession.

VAs are one option in retirement income, however. The survey reiterated previous research that shows how older investors are looking for retirement income solutions (see “Helping Boomers with Retirement Income Ripe for Specialization”).