If your clients experienced decreases in the value of their portfolios due to the 2008 financial crisis, last year’s significant increases in stock market values likely generated reasons to celebrate:
- Standard & Poor’s 500: a 30% gain, best since 1997.
- Dow Jones industrial average: a 27% gain, best since 1995.
- Nasdaq composite index: a 38% gain, best since 2009.1
In Canada, the positive gain for the S&P/TSX composite index wasn’t as high for the year, but it rose 9.55 per cent.2 Even though your clients may have benefited from these positive results, and losses may no longer be top-of-mind, many are still avoiding riskier investments.
The 2014 Sun Life Canadian Unretirement™ Index, now in its sixth year, reveals 38 per cent of respondents are taking less risk with their investment portfolio now, compared with investing behaviour before 2008. And 56 per cent are taking roughly the same amount of risk – only six per cent are taking on more. These results signal a trend towards a more conservative approach to saving and investing.
Our survey also shows Canadians still want guarantees – in fact, more now than ever – especially when it comes to living off of their hard-earned retirement savings. Ninety-seven per cent of respondents say it’s either very important (70 per cent) or somewhat important (27 per cent) to them that some of their retirement income is guaranteed for the rest of their lives – up 22 per cent from 2008.
A new survey result highlights that most Canadians polled don’t know how a key product works, even though a life annuity provides exactly what they want. Sixty-two per cent said they don’t understand how it works – at all. And 61 per cent said they weren’t sure if they’d consider buying one as a guaranteed retirement income option at any life stage.
Clearly, our industry has some work to do.
The Unretirement Index reveals great opportunity to create financial plans with your clients who don’t have them. Only 22 per cent of Canadians say they have a written financial plan. Among those who do, 30 per cent say it’s because of the financial crisis that they developed their plan. Less than one in three (31 per cent) Canadians work with a financial advisor.
Our TV commercial speaks to the importance of making a plan and recognizes the demand for guaranteed income by telling Canadians that “in retirement, you can get a guaranteed cheque every month for the rest of your life.” However, it’s you, the advisor, who can make this message a reality by introducing the life annuity option as part of the overall solution.
Since most Canadians surveyed admit they don’t understand what life annuities are and the benefits they provide, many of your clients may not be open to purchasing one. Providing clear information and having conversations about guaranteed products could reduce the gap between wanting guaranteed income and adding a guaranteed payment to their retirement income portfolio.
Busting the myths about life annuities
Canadians clearly want guarantees, but some of your clients may have heard financial analysts or acquaintances criticize life annuities. Meet their objections with these explanations:
Myth #1: I can’t withdraw money.
Reality: Generally, life annuities should make up only a portion of the portfolios you help your clients construct. They can and should invest in other vehicles, such as mutual funds, to help address other financial objectives, such as ongoing investment growth and liquidity. Remind clients about the benefits of using a diversified set of products when creating the overall portfolio and retirement income solution. With the life annuity, they’re simply exchanging capital for income that will:
- not be affected by market returns or interest rate changes,
- not require active management or investment decisions, and
- help mitigate inflation risk (if clients purchase an indexed annuity).
Myth #2: Interest rates are too low now, so I won’t receive a good return.
Reality: Waiting for interest rates to rise before investing in a guaranteed income product could leave current investments exposed to market volatility. If clients require a guaranteed level of income now from their investment portfolio, waiting could harm their financial well-being. Clients benefit from more than interest rates when they purchase a life annuity. Because of insurance credits, as individuals pass away and no longer require income payments, their remaining premium stays in the pool to fund future income payments for the survivors.
Myth #3: If I die too early, I lose my original premium.
Reality: A client can select a guaranteed period during which a death benefit is paid to the beneficiary, if the client dies within the guaranteed period. Depending on the circumstances, the insurance company will continue paying income for the balance of the guaranteed period, or will pay the benefit as a single lump sum. Joint life annuities ensure that a spouse continues to receive income on the death of the other spouse.
Myth #4: I might not live long enough to benefit from the payments.
Reality: Canadians are living longer. At age 65, life expectancy is 84 for a male and 87 for a female. Furthermore, at age 65, the chance of the last survivor of a male-female couple living to age 90 is more than one out of two!3 These statistics show why it’s important for your clients to plan into their 90s. No one wants to risk outliving their savings or, even worse, having to depend on loved ones to meet basic living expenses. Because we can’t predict how markets will fare, clients can help cover their basic expenses through retirement with a life annuity.
Resources for providing the guaranteed solution
The following resources can help you promote life annuities during retirement planning and answer clients’ questions about how they can fit into their financial strategy:
- 2014 Sun Life Canadian Unretirement Index – Special Report on the importance of guaranteed retirement income.
- Whiteboard video – helps clients understand how a life annuity pays for expenses in retirement, without having to worry about outliving the payments.
- Prospecting email – suggest clients watch the educational video before they meet with you.
- Advisor guide – explains the product and its features, types of annuities, payment options, taxation, and the sales process.
- Overcoming objections – explains why life annuities are beneficial even in a lower interest rate environment, as well as dealing with other doubts and concerns clients may have.
With these resources and Canadian Unretirement Index insights, it’s easier to start conversations with clients about their basic and lifestyle retirement needs, part of the Money for Life approach to retirement planning. By helping clients understand how life annuities give them the guaranteed retirement income they want, you can provide a foundation for their retirement income plans and build your wealth business.
1 Adam Shell, “Stocks end red-hot 2013 at all-time highs,” USA Today, December 31, 2013.
2 Malcolm Morrison, The Canadian Press, December 31, 2013.
3 Statistics Canada, 2014.
Rocco Taglioni, Senior Vice-President, Head of Distribution, Individual Insurance and Wealth, is responsible for the overall leadership of Sun Life Financial’s distribution organizations across its Retail business in Canada. His role encompasses the leadership of the distribution company, as President Sun Life Financial Distributors Inc., as well as the Insurance and Wealth wholesaling sales organizations. Through the various leadership teams he oversees the development, direction, and execution of the Distribution strategies centered on wealth management, protection, retirement, and estate and financial planning.
Since joining Sun Life in 2004, Rocco has held various executive leadership roles, including Vice-President Business Development, Group Benefits; Head of Individual Wealth Management; Senior-Vice-President, Client Solutions; and most recently Senior Vice-President, Distribution and Marketing, Individual Insurance and Wealth. Throughout his tenure at Sun Life, Rocco has led various business strategies centered on building, transforming, and evolving organizations and teams to drive higher levels of performance and success.
Rocco has 36 years of experience in strategic leadership in the insurance and investment industries. He has served on and is a member of a number of boards. Rocco is currently President and Chair, Sun Life Financial Distributors (Canada) Inc. and is a member of the Sun Life Financial Investment Services (Canada) Inc. board. He is a member of various industry associations, including Advocis, GAMA Canada, the Canadian Pension and Benefits Institute, and the Association of Canadian Pension Management.
Rocco holds a Bachelor of Arts in Economics from York University.