Fewer than a third of Registered Investment Advisors (28 percent) recommend annuities for older clients. But double that amount of RIAs (68 percent) say they would consider doing so in the post-pandemic economy.
That’s the key takeaway from the 2021 RIA Market Assumptions Survey conducted by DPL Financial Partners, a privately held firm that develops insurance and annuity products.
This newfound interest in annuities by RIAs has two roots.
First, persistently low interest rates have made it difficult to generate yield for people in or near retirement. RIAs believe that situation is unlikely to change in the near future, according to David Lau, founder and chief executive officer of DPL Financial Partner. “Most respondents to the survey were clear-eyed about the prospects for fixed income returns, with four out of five indicating they do not expect yields to exceed 2% in 2021,” he said in an article he wrote in Advisor Perspectives.
Lau argues that annuities are a more efficient method than bond ladders to provide retirement income in such an environment. “In today’s market with interest rates where they are, it is about 41% more expensive to fund retirement income using a bond portfolio than it is using an annuity,” he told Investment News.
Second, Lau and other panelists on a webcast with Investment News say annuities today are better aligned with RIAs’ compensation models than in the past.
“RIAs historically have used mostly investment-only variable annuities with the occasional single-premium immediate annuity mixed in, and that is because annuities until recently haven’t been built to fit into their business model,” Lau said.
