Your Strategy for Selling Variable Annuities 

For some advisors, their client profile generally consists of well-to-do pre-retiree boomers in their 50s and 60s. These clients are concerned about how to continue building their wealth, how to manage it in retirement, and how to transfer it to their children. Because of these clients’ ages and financial circumstances, it often works best to implement a team approach, harnessing the expertise of CPAs and estate planning attorneys to help clients accumulate and transfer wealth.

In many cases, variable annuities can work best for clients with the net worth and need to accumulate and distribute wealth.

Inform and educate
If you want to find success selling to pre-retiree boomers, you must be willing to inform and educate them.

Most clients:
» Understand that their future depends on either remaining in the workplace or living off the wealth they’ve accumulated throughout their life

» Fear making a severe financial mistake with limited capital and recovery time

» Fear being taken advantage of

Initially, you’ll want to talk with these clients about the general principles of inflation and taxes and the impact of both on their assets. Help them understand that they must have an open mind and may need to change the way they do things.

Next, to ensure that both you and your clients understand basic financial terms, you’ll want to discuss the four general tax characteristics of an investment, based on whether it is taxable, tax-deferred, tax-qualified, or tax-advantaged.

Then, discuss the tax implications of their current insurance and premium dollars as well as any assets held in growth and income vehicles.

Regarding the premiums, are they made with before or after-tax money? Regarding growth investments, are they currently taxable or tax-deferred? And concerning the tax implications of their income or distributions, are they taxable or tax-free?

Always remind your clients that you’re not there to offer them investment or tax advice and that you recommend they discuss these aspects of their specific situation with their investment advisor or tax counselor.

If you’re working with a couple, at this point in the initial interview they’ll usually begin to share with each other their concerns, hopes, and fears. This is a good time to listen. Try to sit back and act as a coach, confirming their thoughts or clarifying a point here and there. In short, your job should be to help them identify their needs and work together to create a means for meeting them.

After your initial conversation about the taxable aspects of various available financial vehicles, you can begin the educational process by reviewing basic investment concepts from a prepared booklet provided by your company or an outside organization so that you’re all on the same page. Topics you may want to cover are:

» Reasons for investment

» Cost of waiting and value of time on accumulating wealth

» Rule of 72, which focuses on how long and at what rate of return it takes for their money to double

» The impact of inflation on investment types

» Seeking diversity by owning many types of assets and rebalancing them

» Balancing risk and reward through allocating assets across classes

» Dollar-cost averaging to buy more when the price is low and less when the price is high

» How tax deferral may result in more ultimate growth than an annually taxed investment over a long period of time

Many financial professionals assume that successful business people are well aware of these basic investment concepts. Don’t make that mistake. Once you begin reviewing these specifics to make sure you and your clients both understand the same things in the same way, your closing ratio and client-building can significantly accelerate.

After reviewing these investment basics, you should complete:
» A fact-finder about their assets and liabilities

» A risk-tolerance questionnaire

» An exploration of their goals in order of priority

Finally, based on your shared understanding, you can assess together whether their assets are properly positioned to accomplish their financial goals based on their life stage and risk tolerance.

Product solutions
As a financial professional, you need to be familiar with the ever-growing number of available product offerings so you can offer your clients the most suitable, consumer-friendly solutions.

When appropriate, recommend that your clients consider acquiring a variable annuity for three reasons:

1. These clients are seeking a tax-deferred growth of their assets. Income taxes on certificates of deposit, mutual funds, stocks, and savings accounts can, over time, slow the growth of your clients’ assets. While a variable annuity can conceivably lose all principal and sub-account management and other fees will reduce the overall rate of return, with tax-deferred growth, the ultimate yield may be larger and more appealing than some other financial vehicles.

This may be especially true if your clients do not use their annuity assets to generate income. Keep in mind, however, that annuity withdrawals are subject to the usual income taxes and that if taken before age 59½, your clients may incur a 10 percent tax penalty.

2. Your clients worry about the effects of inflation. To help fight inflation, many clients need some exposure to the equities market. By putting them into a variable annuity with an asset allocation portfolio that matches their risk tolerance, they can gain this potential with relative reassurance, although they need to be aware that their entire principal is at risk.

3. For long-term security, these clients want to be able to access an income they cannot outlive. One way to do this is with optional guaranteed living withdrawal benefit (GLWB) riders available with today’s variable annuities. For an additional fee, clients can withdraw annuity assets as a supplemental income that they cannot outlive, regardless of the actual annuity policy value. Annuity guarantees are backed by the claims-paying ability of the issuing insurance company.

A family affair
At the close of the interview, you should recommend possible solutions applicable to your client’s situation. You may want to conduct this meeting at your office, where you should have all the necessary reference information, tools, and software needed to complete the transaction.

Whenever appropriate, insist that the individual or couple’s grown children sit in on the meeting if they live within a reasonable distance. This request is usually well-received and appreciated by both the parents and the children.

This is important because parents often find it awkward to discuss with their children what they want to do with their money. Children are usually reluctant to ask their parents about their financial affairs because they don’t want to appear greedy. When you explain to the children, however, what you’re trying to accomplish and why, they may be more apt to understand and feel comfortable about it.

Making the system work for you
In short, try these approaches to working with boomer clients who are nearing retirement:

» Educate them

» If suitable, introduce the variable annuity as a product solution

» Invite family members and advisors

You will find that your practice continues to evolve, and these steps can help your boomer clients reach their goals.

Sherri Rush, LUTCF is a registered representative of InterSecurities Inc. and a managing partner of Pathway Financial and Insurance Services LLC in Napa, CA. She can be reached at srush@pathwayfinancial.net.