Insurers, fintech companies and advisory firms should find ways to "unbundle" the fees associated with annuities to counter the “negative market chatter” about the product, a Morgan Stanley executive said this week.
Unbundling the fees would also make it easier for advisors to recommend annuities and for clients to choose them, according to Ben Huneke, head of the investments solutions group of Morgan Stanley’s wealth management unit. Huneke made the remarks on Monday during a webcast entitled "More Effective Retirement Income Solutions,” sponsored by the Money Management Institute.
The retirement income provided by annuities is arguably "attractive," but their bundled fees repel advisors and their clients, who "react negatively" to the complexity and lack of transparency, he said.
Huneke said changing the payment structure of annuities from the current irrevocable large, up-front lump sum payment — which tends to trigger “sticker shock” — would also help make the product more appealing. A staggered payment schedule would make the annuities “less daunting," he said.
Annuities and other retirement income solutions should also come with “easy buttons” when it comes to reasons to select them, Heather Kelly, a senior vice president of advisory and strategic accounts at annuity provider Allianz Life, said in the same webcast.
“Anybody who has been in the industry for quite some time has seen great ideas come to the forefront,” she said, referring to product innovations. But many advisors rejected those as “too clunky” and “too clumsy,” she said.
Getting advisors to understand the advantages of annuities will be a “challenge,” according to Morgan Stanley’s Huneke. Most advisors are used to risk-adjusted investments rather than dealing with the “more complicated and idiosyncratic problem” of turning assets into an income stream, he said.
Annuity sales reached $241.7 billion in 2019, up 3% from 2018, which was the biggest year-over-year increase in sales since 2008, according to Secure Retirement Institute, which is part of the financial services trade industry association Limra.
Market turbulence amid the Covid-19 pandemic has made annuities more appealing to advisors. When asked in July which investment strategies were more interesting to them than before, the top three answers of advisors surveyed by FA-IQ were U.S. equity sectors (cited by 36% of the respondents), broad U.S. equity (23%) and annuities (21%).