Advisors Play Critical Role in Educating Overwhelmed Clients

By Chris Orestis

When it comes to getting information about retirement planning, it is the best of times, it is the worst of times.

At its best, there is information, calculators and products available at the click of a mouse. At its worst, the information overload has created mental gridlock for many clients about what they need to do to plan for their inevitable futures.

Consider these results from a survey of 1,300 investors and 400 financial professionals conducted by Jackson National Life Insurance Co. and the Insured Retirement Institute that are prime evidence of the “failure to plan” crisis in America:

  • 47 percent of consumers over age 65 said Social Security is their most significant source of income;
  • Nearly four in ten consumers aged 25-to-34 years believe Social Security will provide them with sufficient income during retirement; and
  • Nearly one-third of advisors report having three or more clients exhaust their investable assets, most often due to overspending or higher-than-expected medical costs in retirement.

If ever there was a time to educate consumers, it is now, a moment when so many need not just information, but a real plan to pay for their retirement. Consider the implications of the decline of the defined benefit pension plan that covered 28 percent of private workers in 1980 but by 2014 was held by only to two percent. To supplement their Social Security benefits, they are confronted with options from an array of products that include IRAs (Roth and SEP), 401ks, annuities and life insurance.

Chris Orestis, Executive VP

The Jackson National survey showed how misunderstood these products are. For instance, the survey found that less than half of the respondents understood that annuities can provide guaranteed lifetime income. Almost the same amount believed that IRAs come with guarantees and 26 percent thought mutual funds provided guaranteed income.

With so few workers able to access guaranteed income beyond Social Security in retirement, finding ways to create guaranteed income are becoming critical. To confirm that, the survey found that 90 percent of the respondents are interested in guaranteed incomes. Given the state of most of the respondents’ retirement funds, there is a disconnect here with major implications for our industry and the clients we serve.

Annuities and life insurance stand out as products that can fill this need. And, when advisors describe their attributes, consumers express strong interest in them. In the case of annuities, this is a major issue: the survey found that almost half of their clients considered annuities to be too expensive and six in ten had negative perceptions of them as an investment. They only changed their minds when they didn’t know the investment being described was an annuity.

In life insurance, it’s another difficult story. The 2016 Conning Life Settlements, Secondary Annuities, and Structured Settlements report estimated that on an annual basis $185 billion of death benefits owned by seniors will likely lapse or surrender without owners considering their options that can include the secondary market that can give them cash when they need it. We have found many seniors who have been paying life insurance premiums for years, but have no idea how it can be used to pay for their post-retirement needs.

Clearly, there is a need for our industry to educate our clients about the products they are considering and what their end-results will be. Failing to help them understand their options in a retirement that cannot solely depend on Social Security will only result in a lot of angry clients looking for someone to blame.

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