VA research thought leadership 0507 (2016_01_25 03_57_23 UTC)
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Transcript of VA research thought leadership 0507 (2016_01_25 03_57_23 UTC)
Research Insights
Investments
Changing the Conversation About Variable AnnuitiesBetter Communication Is the Key
Investment Products Offered
• Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed
> We believe the best way to raise Variable Annuity net flows is by engaging financial advisors who aren’t selling Variable Annuities
> Many of these financial advisors need what Variable Annuities offer, but are turned off by the feature-heavy Variable Annuity sales pitch
> Variable Annuity providers can expand the pie of Variable Annuity users by communicating with financial advisors more effectively
For use with insurance company home offices and wholesalers only.Not for inspection by, distribution or quotation to, financial advisors or the general public.
About the Authors
Daniel P. Gangemi
Managing Director, Market Research and Analysis
Mr. Gangemi is responsible for all customer, competitor and industry research in support of
AllianceBernstein’s businesses in retirement services, mutual funds, college savings, separate
accounts and variable accounts. Prior to joining AllianceBernstein in 2004, he was Director of
Market Research at OppenheimerFunds, Manager of Market Research at Prudential Investments,
and an analyst at Donaldson, Lufkin & Jenrette. Mr. Gangemi holds B.A. and M.A. degrees in
English from The City University of New York’s College of Staten Island.
Steve Scanlon
Managing Director, Subadvisory Services
Mr. Scanlon is responsible for AllianceBernstein’s subadvisory services business. Prior to joining
AllianceBernstein in 2003 as a regional manager, he was a wholesaler at Manulife Financial, where
he was the top wholesaler for six consecutive years. Mr. Scanlon is Chairman of the Investment
Management Committee of the National Association for Variable Annuities. He holds a B.A. in
interdisciplinary studies from University of Missouri at Columbia.
1
The Conversation Needs to Change
As one of the leading investment managers in the variable annuity/subadvisory business,
AllianceBernstein has witnessed considerable change over the past few years. A development
that especially concerns us is the very low level of new money going into variable annuities.
To understand this trend further, we surveyed financial advisors in 2006. What we found gave
us new insights into advisors’ views about Variable Annuities and Variable Annuity providers.
The most telling insights came from the 1,000 advisors we surveyed who aren’t currently
selling Variable Annuities at all. The vast majority of these advisors—77%—managed at least
$100 million in assets, making them the kind of “mega advisors” coveted by financial
services providers.
When we asked them why they didn’t do business in Variable Annuities, their bottom-line
message was clear: the conversation needs to change. Variable Annuity providers that want to work
with mega advisors have to do a much better job of communicating. That means avoiding product
features and technical jargon, and using client-friendly language to focus on key benefits like
guaranteed income.
If Variable Annuity providers can successfully change the conversation, everybody wins—the
investor most of all. That’s what it’s all about.
We’d like to share our research with you. The pages that follow will go into greater detail about
what our research revealed and our ideas on how Variable Annuity providers can expand their
base of Variable Annuity-selling advisors.
Daniel P. Gangemi Steve Scanlon
The demand for income should have variable annuity net fl ows soaring, but many advisors are using almost anything but Variable Annuities to generate income for their clients.
2 Changing the Conversation About Variable Annuities
Good news, right? Not necessarily—a closer look reveals
that net flows have barely budged. Variable Annuity
providers need to expand the pie of Variable Annuity users
by attracting new producers.
Little Growth from Net Flows
Overall asset growth in variable annuities has been booming:
total Variable Annuity assets soared to $1.2 trillion in 2006
from $583 billion when stocks bottomed in 2002.*
But very little asset growth has come from net flows—
just 8% of overall Variable Annuity asset growth in 2006,
even lower than 2003’s 10%.* The tremendous growth
seen in the last few years is largely due to exchanges and
the rising tide of market appreciation.
Considering the growing need for income-oriented
investment products, this doesn’t make sense: the
oncoming avalanche of retiring baby boomers may be
a huge, natural source of demand for the benefits offered
by Variable Annuities.
Instead, financial advisors are using other vehicles—
mutual funds, stocks, bonds and separately managed
accounts—to generate income for their clients. It almost
seems like Variable Annuities are the only income-oriented
product they’re not using (see exhibit on next page).
* Source: VARDS, SIMFUND Variable Annuity
Variable Annuity Net Flows Need a Jumpstart
Robust asset growth has been the headline story for the variable annuity industry in recent
years: total assets have more than doubled since 2002.*
Variable Annuity Net Flows Barely Register as Asset Growth Booms
Total Variable Annuity Assets (billions)2002–2006
2002 2003 2004 2005 2006
$583
809932 1,008
1,220
Percentage of Asset Growth Due to New Flows into Variable Annuities (billions)2002–2006
2002–2003 2003–2004 2004–2005 2005–2006
10%8 8
21
Past performance does not guarantee future results.Source: VARDS, SIMFUND Variable Annuity
We think the best way to lift Variable Annuity net fl ows is through fi nancial advisors who aren’t selling
Variable Annuities. It’s a great opportunity.
3
The Challenge: How to Add More Users?
The critical challenge for the Variable Annuity industry is to
expand the ranks of consumers who use Variable Annuities.
And the path to them isn’t through financial advisors who are
already selling Variable Annuities: they understand the product
and how to position it for their clients.
We believe the answer is to target advisors who aren’t
selling Variable Annuities, find out why they aren’t, and
turn these challenges into opportunities. If Variable Annuity
providers could learn more about how to meet the needs
of advisors who avoid Variable Annuities, doors that have
long been closed to Variable Annuities would open.
Ironically, many of these advisors would probably find
that Variable Annuities could neatly meet their clients’
income needs.
Expanding the Pie of Variable Annuity Users
Product usage in the past 12 months
Mutual Funds
Stocks/Bonds
Separately Managed Accounts
529
95%
85
71
52
Product usage in the past 12 months (among non-Variable Annuity producers), asked fi rst-quarter 2006.Source: AllianceBernstein Research, 2006.
Most of the non-Variable Annuity selling advisors we surveyed have clients that seem tailor-made for the benefi ts of Variable Annuities
4 Changing the Conversation About Variable Annuities
A Win-Win Proposition?
We wanted to find out why so many financial advisors don’t
sell Variable Annuities, so we asked 1,000 of them. Of the
advisors we surveyed, 77% were “mega advisors” who
manage at least $100 million in client assets.
One of the things we found could be considered a win-win
proposition: clients who need income and high-producing
advisors who want to provide it to them.
Here are a few simple facts that make this point loud
and clear:
> 95% of advisors who don’t sell Variable Annuities told
us that their practices focus on retirement and income
planning.
> 77% of their clients saved primarily to fi nance
future retirement.
> 88% of their clients were at least 46 years old, including
55% in the retirement sweet spot of 56 to 75.
There’s big potential in numbers like these.
Advisors Who Don’t Sell Variable Annuities Need Them—They Just Don’t Know it Yet
Many high-producing “mega advisors” don’t sell variable annuities, but they’re perfect
candidates to do mega Variable Annuity business: their practices focus on retirement and
income planning, and their clients overwhelmingly need income-oriented products.
Nearly All Non-Variable Annuity Sellers Focus on Retirement and Income Planning…
Percentage of Non-VA Selling Advisors Focused on These Business Practices
…and Nearly All Their Clients Need Income-Oriented ProductsPercentage of Clients with These Primary Savings Goals
Retirement planning
Finance retirement
Live comfortably today
Pay for education
Income planning
95%
77%
21
2
95
Source: AllianceBernstein Research 2006
Although non-Variable Annuity selling advisors fi nd the benefi ts of Variable
Annuities appealing, their interest plummets when they hear the word “insurance.”
5
Words Matter
Non-Variable Annuity selling advisors are very interested
in what Variable Annuities have to offer—just not if
Variable Annuities are described using insurance
terminology. 86% of our survey respondents had some
degree of interest in discussing a product that provided
guaranteed income, and 77% were interested in training
on income planning.
But their interest plummeted when these services were
described with the words “insurance” and “variable
annuity.” When we specifically asked respondents if they
were interested in training on insurance products, only
19% of advisors said they were.
Why is “insurance” treated like a dirty word? The answer
to this question is also the answer to an even bigger
question: why do many financial advisors—notably mega
advisors—choose not to sell Variable Annuities at all?
Good News and Bad News: Advisors React Positively Unless They Hear the Word “Insurance”
Income planning
Very interested Strong interest Moderate interest Not interested
Insurance Products
77%
39%
2621
14
19
Here’s how we asked“Are you interested in training on...”
“How interested would you be in a prodcut that could offer your clients guaranteed income in retirement with the potentiaal for market appreciation after your clients are already retired?”
Source: AllianceBernstein Research 2006
There’s too much emphasis on selling Variable Annuity features and not enough on benefi ts. It’s a big turn-off for advisors.
6 Changing the Conversation About Variable Annuities
Chronic Feature-itis
Variable Annuity wholesalers’ chronic overemphasis on
product features is the root of what non-selling advisors
don’t like about Variable Annuities: all of their other major
objections stem from this “feature-itis.” Advisors are
simply tired of taking a feature-heavy pounding.
What they really want to hear about are the benefits that
Variable Annuities offer, and guaranteed income is the
uncontested winner. The old adage that “benefits sell” still
rings true: benefits are what the customer ultimately buys,
and advisors need to know and explain benefits—not
features—to help clients understand the value a variable
annuity can provide.
Lost in Translation
Language matters when it comes to selling Variable
Annuities: Variable Annuity jargon can be so intimidating
that non-selling advisors don’t even want to try to
understand how Variable Annuities work.
While annuity features like GMWB, GMIB, GMAB, GWBL
and GMDB are common terminology for industry
professionals, most of the advisors we surveyed think of
them as part of some top-secret code.
As with features, the problem with Variable Annuity jargon
is that it gets lost in translation—it’s just too confusing for
most advisors or investors to comprehend.
Why Do So Many Advisors Avoid Variable Annuities?
It’s not an accident that many fi nancial advisors don’t sell variable annuities: for them,
avoiding Variable Annuities is an active choice to use other income vehicles—a choice that
boils down to four factors.
The Big Four: Reasons Why Advisors Don’t Want to Sell Variable Annuities
Percentage of Non-VA Selling Advisors Listing These as Reasons Why They Don’t Sell Variable Annuities
Too much jargon/Hard to
understand
Too feature-heavy/No clear benefit
Fees too high
Wholesaler never asks
what advisor needs
57% 54 50 46
Percentages are based on qualitative responses. Responses were grouped based on similarity of themes covered in qualitative discussions. Many discussions contained multiple reasons for decision not to sell annuities. The purpose of this display is to create a sense of prioritization as it relates to the advisor decision process.Source: AllianceBernstein Research 2006
Advisors might complain less about Variable Annuity fees if they
understood their benefi ts better.
7
Fees Seem Too High
There’s a perception among advisors that Variable
Annuities cost too much. Half of the advisors we surveyed
who don’t sell Variable Annuities specifically complained
that fees were too high.
We see a very clear link between complaints about high
fees and feature-itis: if advisors can’t connect features to
benefits, and their clients can’t see the value in the
features they’re being charged for, it stands to reason that
they’ll complain about high fees.
Who wants to pay for something when they don’t
understand why they need it or how they’ll benefit from it?
What About Our Needs?
Advisors feel strongly that Variable Annuity wholesalers
don’t try to understand their needs and, by extension, the
needs of their clients. It’s the natural result of wholesalers’
persistent emphasis on features.
This is basic human nature. People want their needs to be
acknowledged and taken seriously—particularly when
somebody’s trying to sell them something. Our conclusion:
wholesalers who really try to listen to advisors and give
them what they want will probably build stronger
relationships with advisors—and end up winning the sales
game as well.
Advisors in Their Own Words:
Learn More About Us!2
“ I can remember that we used to see Variable
Annuity wholesalers once in a while. We were
always blown away at how much they knew about
insurance, and how little they knew about us. They
never had the smarts to ask us what mattered to us,
so they just talked about the features of their
annuities and bored us to death…”
2 Highlights added. Source: AllianceBernstein Research 2006.
Improved communication can win the day: listen, learn, and use jargon-free language that clients can understand.
8 Changing the Conversation About Variable Annuities
Our research has helped us map out a game plan for
closing the communication gap with advisors who don’t
sell Variable Annuities. It’s based on three core principles.
Listen and Learn
Variable Annuity wholesalers need to go back to basics
when they deal with advisors—this is a two-way
conversation that requires more listening on their part,
not a sales pitch. Leave the detailed feature descriptions
at the door.
Given the chance, advisors would be happy to open up
and talk about what they need. That’s the opening
wholesalers can use to develop a role as the advisor’s own
trusted advisor—a role that should generate higher net
flows over a longer period.
Keep it Simple
Wholesalers should keep jargon and features out of the
conversation, and let clear benefits in: “guaranteed
income” is so much easier to understand than “GMWB.”
The key is to talk to advisors like they’d talk to their own
clients—the people who actually buy Variable Annuities.
Language that’s jargon-free and people-friendly gives
advisors something they can use in their own client
conversations.
Thoughtful questions, common-sense answers and an
emphasis on benefits are the way to go for advisors and
clients alike.
The Answer: Changing the Conversation
What will it take for variable annuity providers to convert non-sellers into sellers?
It’s a matter of communication: providers have to change the conversation to close the
gap with advisors.
Advisors in Their Own Words:
Where Are the Wholesalers Who’ll Listen?3
“ It is so rare to find a wholesaler that really listens
well, someone who isn’t waiting for me to stop
talking so they can blurt out their rehearsed pitch. I
find it difficult at times to find someone who is
genuinely interested in knowing what needs I have.”
3 Source: AllianceBernstein Research 2006.
Wholesalers can expand the pie of Variable Annuity users by helping more
advisors discover Variable Annuities and do the right thing for their clients.
9
Focus on Guaranteed Income
Guaranteed income is the single most important thing that
advisors need to know about Variable Annuities.
Wholesalers who center their conversations on features end
up leaving out Variable Annuities’ biggest benefit, by far:
guaranteed income is the essence of why advisors should
offer Variable Annuities and clients should consider them.
And don’t underestimate the importance of the word
“guaranteed.” In a financial services marketplace in which
guarantees are rare, it’s a matter of fact for Variable
Annuities.
It’s a Win-Win Proposition
If our core principles for changing the conversation sound
deceptively simple, it’s because they are—but it’s not
always easy to follow them.
So the Variable Annuity industry should try to remember
three key words that our advisor respondents used in
describing their ideal relationship with a wholesaler:
“Listen,” “understand” and “solve.”
Wholesalers who take these words to heart can help
advisors do the right thing for their clients, which is to plan
ahead for the income they’ll need in retirement. In the
process, wholesalers will also expand the pie of Variable
Annuity users. It’s a win-win proposition for everyone.Advisors in Their Own Words:
Emphasize Guaranteed Income4
“ Insurance companies should try to build a product
that is simple and less top-heavy with features.
The guaranteed income is the best part of that
product, but it is the last thing that anyone ever
talked about.”
4 Source: AllianceBernstein Research 2006.
Stagnant Variable Annuity net fl ows are a complex problem with a simple solution—just changing the conversation with advisors can make all the difference.
10 Changing the Conversation About Variable Annuities
Sometimes a complex problem has a simple solution.
In the case of stagnant Variable Annuity net flows, our
research concludes that it’s just a matter of improving
communication.
We urge Variable Annuity providers to have better
conversations with financial advisors by listening a lot
more, asking thoughtful questions, skipping the feature-
heavy jargon and emphasizing guaranteed income.
Advisors have told us it’s what they want—so why not
give it to them?
The potential results speak for themselves: significantly
greater interest in Variable Annuities, a much wider
universe of advisors who want to talk to wholesalers,
and more clients who get the guaranteed income they’re
looking for.
As part of our research, we interviewed many non-Variable
Annuity selling financial advisors to get their thoughts on
Variable Annuities and Variable Annuity providers. A
number of them told us how they’d like wholesalers to
approach them to have better conversations.
We’d like to pass some of these thoughts on to the
Variable Annuity community. Their common thread is that
advisors want real value-added from wholesalers—client-
focused ideas and a strategic perspective.
Better Conversations = Higher Net Flows
For variable annuity providers, our conclusion is clear: better conversations can open
advisors’ closed doors and bring in more new business.
Advisors in Their Own Words:
The Conversations They’d Like to Have
Here’s what advisors had to say, in their own words:5
“ A new wholesaler can catch my attention by saying
something that I just wouldn’t expect to hear from a
wholesaler, something relevant to my clients and to
me…something that I will care about at that time…
an idea that connects with the real needs of my
clients and can position me to seize an opportunity
that I may not have thought of.”
“ I had one wholesaler call me on my birthday. She
offered to come in and help me with putting my
clients into groups that needed to establish a regular
source of income in the next one, three and five years
so I could approach them and begin the discussion
tomorrow. That was unique and very real to me.”
“ When a wholesaler shows that they are looking for a
long-term partnership and can offer time and insight
that another wholesaler can’t offer, well, that’s the
wholesaler that I want to work with. A wholesaler
that shows me they are interested in this business for
years and decades is a wholesaler that will get a lot
of my business over that time.”
5 Source: AllianceBernstein Research 2006.
11
We chose many of the surveyed advisors specifically because
they didn’t sell variable annuities—instead, they primarily
sold mutual funds and separately managed accounts.
Of the 1,000 non-Variable Annuity selling advisors that
completed the survey, 77% managed at least $100 million
in assets.
To flesh out our written survey results, we followed up by
conducting in-depth interviews with 300 non-Variable
Annuity selling respondents. This group included 100
advisors in each of three distribution channels: major
brokerage firms, banks and financial planners. These
interviews generated the quotations used in this report.
Summary of Research Methodology
AllianceBernstein conducted a Web-based research survey of fi nancial advisors in 2006.
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For use with insurance company home offices and wholesalers only.Not for inspection by, distribution or quotation to, financial advisors or the general public.
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