Q&A with Kelli Hueler: - Napfa

Industry Leader Interview
Continued from page 14
Annuities can be used effectively
where and when it makes sense to stabilize
income, guard against market volatility,
and/or transfer longevity and other risks.
The key is to pay for only those features
that are needed. Strip out the bells and
whistles that carry significant cost and are
not of value.
This is where the Income Solutions ®
platform can be a very effective tool for
non-commissioned advisors. The quote
tool is easy to use and allows advisors
to quickly customize every annuity
quote. An advisor can select only those
features she wants to consider and can run
multiple scenarios. The quotes are realtime
and are presented in a standardized
grid that facilitates easy comparisons and
presentation to clients. The distribution
cost is lower than other available channels,
is fully disclosed, and is level across
all insurance companies. Every quote
request is submitted to insurers through
an automated competitive-auction format
among multiple insurers. Clients can be
confident that their advisor gave them
access to the best available market price
with the highest available monthly income
for the features they selected.
Question: With the Income Solutions ®
platform, a person can buy a low-cost
annuity. Does that complement—or even
replace—the comprehensive financial plan
that a NAPFA member would produce and
manage?
Hueler: From our perspective,
successful advisors use annuities as only
one component of a comprehensive
financial plan, and they educate clients
about why they are being used. They
understand that annuities do not require
locking up all of a client’s money, or even
a lot of it. The annuities used are low-cost,
super-streamlined products that can be
bought in small increments. They fit in
when a client needs it, whether that’s in
their early 60s or late in life. They empower
advisors by giving them a tool to preserve
clients’ income and protect their wealth.
It’s about building a personal pension.
Some money will be annuitized, some will
be in stocks, some in CDs, and so on. Every
financial advisor needs to know how to
build these pension-like income streams for
their clients. Annuities can offer real value
in terms of risk transfer and secure income.
We even see annuities as a complement
to bond ladders that many advisors use.
The annuities have advantages such as
tax deferral, inflation protection that’s not
available in corporate bonds, and an income
stream that lasts a lifetime.
From our
perspective,
successful
advisors use
annuities
as only one
component
of a comprehensive
financial plan, and they
educate clients about
why they are being used.
Question: When it’s put in those terms, it
seems like a logical extension of what a
comprehensive advisor does. But yet, it
still seems like it might require a change in
mindset for an advisor, or at least a change
in terminology.
Hueler: Yes, it is a logical extension
for some advisors and, hopefully, for more
in the future. We see advisors becoming
“income security specialists,” and annuities
are just part of that equation. We believe
that advisors can charge for their advice
when they are providing income counseling
as one of their services. From my
perspective, that’s exactly what they should
be doing for clients.
The advisors we see who are
successful look at a client’s overall picture,
and they do not view advice as a single
event. They build a ladder of income for a
client’s retirement and educate them about
the process of building income. This might
take 10 years or more, maybe by allocating
some income each year into an annuity for
the retirement income bucket. The point is
that advisors should have a fee model that
compensates them for what, we believe,
is an extremely important service and
may be what actually determines whether
or not clients will have sufficient assets
to maintain their standard of living in
retirement.
Question: Earlier you mentioned the idea
of not locking up all of a client’s money in
an annuity. How much are you suggesting
should be annuitized?
Hueler: Obviously, it’s always
an individual decision, based on many
factors. We have data on annuity purchases
made through Income Solutions ® , and
it contradicts many assumptions that
people have. First, people are not overannuitizing,
despite claims that they will.
They annuitize, on average, about 25
percent of their assets, and they see this as
income replacement for their retirement.
Second, they are purchasing annuities in
the active-retirement phase of their lives,
their 60s and 70s, and not much later, as
is often promoted when plan advisors are
conflicted.
Question: What else have you learned
about people’s tendencies when buying
annuities?
Hueler: Individuals who buy annuities
through us without advisors typically buy
the highest level of nominal income they
can purchase today. That is, they don’t seek
inflation protection. Financial advisors
are much more astute about the impact of
inflation, and they will seek annuities that
protect against it. This is very important.
When we started the Income Solutions ®
platform in 2004, some plan sponsor
clients had very generous pensions for
their retirees. These sponsors often told us
that they believed their participants would
not need much annuitization because the
pensions were so generous. But what we
learned after folks had retired is that they
would buy annuities for additional income,
and they needed inflation protection
because their costs such as healthcare had
gone up more than they expected.
Continued on page 18
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Napfa Advisor October 2012