Why annuities have become “much more attractive”
Welcome to Globe Advisor’s new weekly newsletter for professional financial advisors, published every Friday. If someone e-mailed this newsletter to you, or if you are reading it on the web, you can subscribe to Globe Advisorthen sign up for this and other newsletters on our newsletter subscription page.
Demand for annuities and other guaranteed investment products has been on the rise since the start of the year, but it was in the second quarter that the market really took off.
The latest data from the Life Insurance Marketing and Research Association (LIMRA) shows U.S. annuity sales hit new all-time highs in the second quarter ended June 30. in the fourth quarter of 2008, at the height of the global financial crisis.
While the latest data on Canadian annuity sales has yet to be released, Peter Wouters, director of tax, retirement and estate planning services at Empire Life Insurance Co., expects an equally impressive increase. He spoke with Globe Advisor about his outlook for the market.
Are pensions perceived differently today than they were in the past?
If you ask people to describe, generically without naming the product, the features they would like to have in a plan in which they could save money or generate an annuity in retirement, they are describing a segregated fund or a guaranteed withdrawal benefit plan, or an annuity . You tell them what it’s called and they’ll be like, “Oh no, I don’t want it.” There’s a bias in who they are, and it’s not just held by clients but also by advisors because they think they can do better. This mindset is changing.
Over the past two and a half years or so, people have discovered through the pandemic how exposed they are to their health, the health of their parents, and the vulnerability of life and finances. Now, when you have a conversation about “what’s important to me”, all of a sudden, annuities become much more attractive.
Is demand already peaking given that interest rates have risen so rapidly this year?
The big hits are yet to come as the biggest interest rate hikes have occurred in the last month or so. The stats there are for the first five months of the year, but since then you’ve had [significant] increases, and they will take a few months to sink in. Then the word has to get out that maybe it’s a good time to buy a guaranteed investment certificate for part of a portfolio or maybe set aside a block of money to get a immediate pension.
The interest is really growing – we are getting a lot more enquiries. I think some of that will take a bit of time, especially when dealing with estate planners who take a more deliberate approach. I expect sales to start picking up in the second half.
Has the profile of clients interested in annuity products changed recently?
They are no longer just for the elderly. Annuities will be interesting for them, but also for the number of children who have taken care of their parents in recent years.
Now we’re going to put those kinds of plans in place for much younger people. They are not 70 years old, they are 20 or 30 years old. It’s also not a life annuity, it’s usually something over a 10 year period, so the rate will be the same whether it’s a 30 year old or a 60 year old. We just guarantee it for a period of time, and it doesn’t matter how old you are. These discussions become a much more active part of the conversations that advisors and financial planners have and this will result in increased sales.
This interview has been edited and condensed.
-Jameson Berkow, Globe Advisor Reporter
Globe Advisor Must-Read This Week
Is it time to review your investment approach?
It was a difficult year for most investors, with major equity indices falling 20% or more, while fixed income investments also fared poorly. The losses caused many people to reconsider their strategies and asset allocations. While some are becoming defensive during this market downturn, others see it as an opportunity for future gains. Terry Cain examines the different strategies that advisors deploy to balance portfolios.
Do the “money rules” of baby boomers apply to younger generations?
Save 10% of what you earn, invest 70% in stocks and 30% in bonds, and keep six months of expenses in an emergency fund. Rules like these have worked well for many baby boomers, but don’t necessarily apply to younger generations. In fact, with people following so many different paths today, some counselors say the very concept of rules that apply to everyone is irrelevant. Alison MacAlpine explains why the advice given today is very different from the past.
Inflation puts pressure on the ability to pay for life insurance, living benefits
Rising prices and interest rates eat into many households’ budgets, prompting people to measure their spending to cut costs. Yet one line in their list of expenses that should not be reduced is insurance. Nonetheless, this facet of financial plans that addresses major risks ranging from illness to disability and death is likely to come up in discussions with cash-strapped clients. Joel Schlesinger examines insurance premiums and why they deserve a place in budgets.
Are market-linked GICs a good bet to catch the eventual bounce?
As investors search for safety months after the current prolonged market downturn, many are also looking for ways to participate in the potential rebound while protecting their investments. Enter market-linked GICs, which offer the safe haven status of a GIC that so many want in today’s turmoil, but can deliver stock-like gains when stocks eventually break out of their discomfort. Jamie Sturgeon reports on these ratings and explains why advisors need to be selective about their structure, as well as their integration into an overall portfolio.
Investor interest in foreign equities highlights need for diversification amid market rout
Investors growing frustrated with hedge funds after historic losses
The future of stablecoins is the currency of commercial banks
What you and your customers need to know
U.S. Bank Dividend Stock Comparison
US banks reported earnings not too long ago, with some increasing dividends and buying back shares in response to their success in this year’s stress tests by the US Federal Reserve. This was generally welcomed by the market and may have contributed to the July rally. Accordingly, Sean Pugliese and Allan Meyer of Wickham Investment Counsel take a closer look at 17 banks using their safety and value based investment philosophy.
How job postings can indicate when a stock is undervalued
Disturbing news is coming from some highly regarded companies such as Apple Inc., Meta Platforms Inc., Tesla Inc., and Shopify Inc., to name a few. They have all recently reported a slowdown in hiring. That doesn’t bode well for their stock price, according to a recent academic paper. He posits that one way to separate highly valued companies from overvalued companies is to look at the rate of job offers by companies. George Athanassakos of the University of Western Ontario is investigating whether job postings can be used as alternative data to other financial information.
Buy or sell first? Softer housing market provides options for homeowners
Inflation, interest rates and talk of a global recession are rocking the nation’s real estate markets, leaving buyers and sellers wondering: what’s the best course of action in these rapidly changing times? Should they buy first? Or sell? The market is moving towards a more traditional market, with more choice and less competition, according to an expert. Dene Moore discusses whether a more balanced market gives buyers more leeway to weigh their individual financial situation and risk tolerance and then decide what’s right for them.
– Globe Advisor Staff