Jacques Theron, Business Development Manager, Just SA
For many investors the financial services industry and its offerings can seem complex and difficult to understand. And they can be forgiven as over the years, regulations have changed, and an increasing number of products and services have been added to the mix. This is why the role of a financial adviser is paramount. Especially at retirement where clients are suddenly expected to make fairly quick decisions about how best to ensure their savings are invested optimally in order to deliver a sustainable income for the rest of their lives.
But even for an adviser, the subtleties of living and life annuity products can be a minefield. And it’s not always easy to compare apples with apples as each provider has its own nuances to their offering.
Life annuities – complex on the inside, simple on the outside
Many advisers and their clients are recognising that guaranteed life annuities can play a significant role in retirement planning.
Sometimes mis-promoted as investments, life annuities are really a form of insurance. As such, they take away uncertainty and provide peace of mind.
Simply put, a guaranteed life annuity provides an income for life, which will never decrease. You don’t have to decide on drawdown rates, worry about the performance of an investment portfolio, or whether you’ll outlive your capital. This is true even if you choose a blended product where the life annuity pays into the living annuity portion instead of into your bank account.
The complexity happens behind the scenes where actuaries run their numbers and processes such as dynamic hedging to ensure your clients’ income is fair and just, according to their personal circumstances. Simplicity requires hard work to achieve, and education to appreciate it.
As finance and investments are not something people are taught, advisers have a role to play in helping their clients to understand them. Below are a few tips on how to make what may seem complex to new clients a little simpler.
Start with the fundamentals
Begin with the fundamentals, then add other blocks of information as you proceed. The fundamentals of a life annuity are that depending on your age, purchase sum, and annuity rates at the time of the quotation, your client will be presented with an option to secure a monthly income which will be paid for their lifetime, or longer. Other blocks of knowledge include how this income will increase each year, or how their income can continue to be paid to loved ones.
Present information in the right order
Having to absorb too much information at one time can be stressful for anyone, and particularly for someone who is battling to understand something. Life annuities are not for everyone, but they can provide a safety net for those who need it. Present small, digestible pieces of information in a sequence to help your client weigh up the pros and cons, and build a complete picture.
Find an analogy or relatable topic
This isn’t always easy, but finding a relatable analogy for a client’s own circumstance can help make a complex idea simpler to grasp. Take for example, the theme of certainty. Nothing is certain except death and taxes…and a life annuity!
Provide strong examples
Examples and simple case studies are another useful communication tool. What is more helpful than a no-obligation quote to see exactly how much income your client is able to secure? Whether it’s a standalone life annuity or an option inside a living annuity, you can tweak and tailor the selection and optional extras according to their financial needs.