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Investors Rank Protection of Assets Against Market Volatility
As Advisors' Most Critical Role Today
BOSTON, March 17, 2009 - The majority (83%) of investors ages 55-70 who currently work with an independent Registered Investment Advisor (RIA) or other fee-based advisor believe it is more important for an advisor to generate guaranteed income1 for retirees than to seek above-average gains, according to research from Fidelity Investments®. Additionally, nearly all investors (97%) say protecting assets against market volatility is the most critical role advisors can play today.
Given the focus on protection and income security, nearly nine in 10 investors (86%) state they are interested in a product that guarantees monthly income for life, while still allowing stock market exposure with the potential for gains. Yet, industry statistics show the types of investment products that provide such benefits, primarily annuities, are only owned by a small percent of investors today. This limited adoption may be due to low annuity knowledge levels among both investors and advisors, according to Fidelity's research, which was conducted by Washington-based, Mathew Greenwald & Associates.
"Declining pensions, rising health care costs and greater longevity are requiring investors to personally save more for retirement; yet unprecedented market volatility continues to threaten the personal savings individuals have," said Joan Bloom, executive vice president, Fidelity Investments Life Insurance Company. "This makes it even more important for older Americans to work with their advisors to understand, and consider, all of their retirement income options, including annuities."
Recent Market Crisis Reveals Investor Need for Increased Annuity Knowledge
Despite the need for investors to be aware of their retirement income options, Fidelity's survey shows that annuities were the least understood investment product, compared to life insurance, mutual funds, individual stocks and bonds. And, although more than half of investors (57%) claim to be generally knowledgeable about annuities, only one in five (20%) could accurately identify the correct definition of an annuity when tested.
Investor knowledge of specific annuity features is equally concerning. For example, only one-third (35%) of investors claim to be knowledgeable about how annuity guarantees can protect against stock market losses, and just one in three (33%) claims to be knowledgeable about the costs and fees associated with annuities. Even fewer investors (20%) report being knowledgeable about the ability to exchange one annuity for another, although doing so can present cost savings opportunities for many annuity-holders. The research also found that investors who do not currently own an annuity say the largest barrier to ownership is their lack of knowledge (41%). The second most commonly reported reason for not owning one is that an advisor never recommended it (35%).
Lower Cost, More Transparent Annuity Options May Help Address Misconceptions
When Fidelity surveyed RIAs in April of 2008, they asked about the largest barriers to offering annuities. RIAs identified investor costs as the main reason they do not offer variable annuities to their clients (45%), followed by their perception of the products' lack of fit with client needs (18%) and product tax implications (18%). Eight percent also reported not selling annuities because they were outside of their area of expertise, or they lacked the necessary licensing to sell them.
"Many of today's annuities are offered at significantly lower prices and are designed to be less complex for investors to understand than many of their predecessors," said Bloom. "In addition, RIAs do not have to be insurance-licensed if a licensed Fidelity Advisor Relationship Manager handles the annuity sale and the associated paperwork for them."
Bloom said considering that many of these enhancements are new and that advisors have not historically sold annuities, the survey findings are not surprising. In fact, given investor interest in protection products, she said, the research may reveal a significant opportunity for those advisors who are willing to take the time to learn more about annuity product options, expand their client offerings, and include annuities as another viable option that clients can consider when looking for guaranteed income sources as part of their retirement investment portfolio.
Advisor interest in annuities may be growing, with those who have sold at least one annuity over the past 36 months reporting that they see greater value in them today. When asked, 96 percent of this group agrees that "the type of annuities being introduced in today's market are much better than annuities available a generation ago." They also report that they expect to use annuities more in their practices in the future (67%).
Seven in 10 advisors overall (70%) also think that retiree income needs are changing in ways that provide a better fit with today's annuities. They report guaranteed lifetime income (33%) and tax-deferred growth (29%) as the two most important reasons for recommending annuities.
Growing Business Opportunities for Advisors
According to the survey, 70 percent of investors rely on their advisors to select investments on their behalf and help them understand the recommendations prior to purchase.
Among those investors who own an annuity, nearly eight in 10 (78%) purchased it through their advisor, with a similar number (79%) making the purchase based on their advisor's recommendation. Advisor recommendation also was cited by more than a third (36%) of investors as the most important factor for their purchase.
These statistics -- combined with the fact that investors say that it is important for an advisor to generate guaranteed income -- demonstrate an opportunity for advisors to incorporate annuities into their business, especially in today's uncertain market conditions, Bloom said.
One specific type of annuity, the income (or immediate) annuity, is appropriate for many RIA clients who are nearing or living in retirement. Available in both fixed and variable options, income annuities allow investors to exchange a lump sum of money for a guaranteed income stream for the rest of their lives. Many retirees use these regular payouts to supplement Social Security payments, a pension, part-time work and other investments. Fidelity provides access to Fixed Income Annuities from a number of preferred providers.
Resources to Help RIAs Meet Investor Demand
While income annuities traditionally have been a smaller part of the overall annuity market, industry sales show an increased demand for them. For example, sales of fixed immediate annuities increased 23 percent year over year between 2007 and 20082. To meet this need, Fidelity created www.fidelityinsuranceagency.com to help RIAs learn more about the diverse suite of annuities and insurance products available today, and how they can successfully incorporate them into their businesses. On the site, they will find a wide variety of information and educational resources, including:
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Access to licensed insurance relationship managers to help identify sales opportunities, qualify clients and handle administrative details.
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A complimentary, customized client Annuity Cost Comparison ReportSM to show clients what they could save by exchanging their current annuity, as well as access to Fidelity's annuity exchange service.
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Continuing education presentations and on-demand instructional resources.
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Product fact sheets and videos.
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Registered Investment Advisors also can contact a Fidelity Investments Life Insurance Company Advisor Relationship Manager at 1-800-910-7899, or their Fidelity representative, for additional information.
About the Research
Data for this research were collected through an online survey of 315 investors aged 55-70 with investable assets of at least $100,000 and who currently work with an independent Registered Investment Advisor (RIA) or other fee-based advisor. All were financial decision-makers for their households. The research was conducted for Fidelity by Mathew Greenwald & Associates in Washington on September 18-23, 2008. In addition, 100 Registered Investment Advisors were surveyed in April and May 2008 to understand how they view and make use of annuities for their clients.
About Fidelity Investments Life Insurance Company (FILI)
Established in 1987, Fidelity Investments Life Insurance Company (FILI), and for New York residents, Empire Fidelity Investments Life Insurance Company®, New York, N.Y., develop and market their own insurance products, in addition to offering access to a number of insurance products from other from well-known carriers3. FILI maintains an AA- (very strong, 2nd highest) rating from S&P and an A+ (superior, 2nd highest) rating from A.M. Best.4
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of over $2.5 trillion, including managed assets of over $1.2 trillion as of January 31, 2009. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to 24 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, the largest mutual fund supermarket and a leading online brokerage firm. For more information about Fidelity Investments, visit Fidelity.com.
1Annuity guarantees are subject to the claims-paying ability of the issuing insurance company.
2 LIMRA, "American Industry Estimates," 4th Quarter, 2008.
3Fidelity Brokerage Services, Member NYSE, SIPC, and/or Fidelity Insurance Agency, Inc., distribute fixed and variable insurance products issued by Fidelity Investment Life Insurance Company, Empire Fidelity Investments Life Insurance Company, New York, NY, and certain third party insurance companies, which are not affiliated with Fidelity Investments.
4S&P rating reflects solid position in the variable annuity market, operating performance, capitalization, liquidity and investment quality, 12/08/07. A.M. Best rating reflects company's financial strength, 04/01/08.
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Fidelity Brokerage Services, Member NYSE, SIPC
Principal value and investment returns of a variable annuity will fluctuate and you may have a gain or loss when money is withdrawn.
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