Jonathan Forsgren:

Hello and welcome to this Asset TV Retirement Income Masterclass. We'll be discussing some of the key risks to watch out for when planning for retirement, how investor behavior and bias can lead to costly mistakes, how to avoid these mistakes, and how annuities can help strengthen fixed income allocations in retirement portfolios.

Our expert panelists today are Martha Hart, Vice President and National Sales Manager for the Retirement Division at Protective, and Matt DiGangi, Head of Annuity Distribution at MassMutual. Martha, Matt, thank you for joining us today.

Matt DiGangi:

Thanks for having us.

Martha Hart:

Thanks for having us. Great to be here.

Jonathan Forsgren:

Martha, in addition to the market volatility we're seeing right now, what are some of the additional factors that might be contributing to investor uncertainty at the moment?

Martha Hart:

Well, market volatility is certainly making the headlines, that's for sure. But when I work with advisors and work with clients, I like to try to point out a couple of other pieces of the puzzle that can cause a little bit of uncertainty for clients.

Certainly another headline today is inflation, the silent killer. We're at a 40-year high here. We're seeing some progress with the Fed, but we just don't know exactly where we're going to be landing. And so, clients are certainly trying to navigate how to stretch their dollars.

Another big risk, of course, is longevity risk. It's nice to think that living too long is a possibility, but it also is a risk for how to prepare and plan properly. Thinking about retirement might be 20, 30, 40 years in retirement for clients, and how do they plan for that? They might be living in retirement longer than they lived in their working years. So there's a lot of factors that need to be worked out with their advisors.

I also think probably linked to inflation in some ways is the cost of healthcare. The cost of healthcare is a big risk for clients right now. How do you plan for that in this long retirement? What we're doing at Protective is we try to help mitigate these concerns with annuities that offer income guarantees.

Jonathan Forsgren:

Matt, coming to you, what are some of the key risks you see when planning for retirement?

Matt DiGangi:

So I think building off a couple that Martha mentioned, A is longevity, inflation, of course, healthcare, timing risks, and asset allocation are the five that I think we think about. From a longevity perspective, obviously we've seen that people are living longer. There's more medical advances. People are living longer with ailments and other things.

But we also need to talk about it in a way that connects the left side to the right side of the brain. Just talking about it with statistics, it's more about going from stats to stories, as I like to say. We all know people ... Make it real for them. Do they know somebody who's lived to ... And I have a friend whose father-in-law just passed away at 108. So they know people who've lived a really long time. So I think we need to try and connect it to what they're familiar with.

When I think about inflation, clearly it's been in the headlines. If you look back 10 years ago, people weren't really talking about it. Now it's right in front of us. I like to use an analogy when I'm speaking about inflation with financial professionals and clients. It's like ... We all did it as a kid, but running up and down an escalator, to make it real for them, is if you're not going fast enough, you're going to go backwards, just like your purchasing power. If you're just keeping up, you're just standing still, you really need to invest and do things that go faster. Right now the escalator is going faster than normal.

When I think about healthcare, 50% of folks will have a long-term care event in their future, and that is really something that can blow up a portfolio and do some damage. So we really want to think about how do we isolate those healthcare costs or protect the portfolio from those pieces.

The fourth one I mentioned earlier was timing risk. Clients don't know when exactly they're going to retire or what market they're going to retire in. So it really is important to design a portfolio that is going to look at what income they can get regardless of what's happening in the market.

Then the fifth one is asset allocation, because folks think, "Well, when I get closer to retirement, I might need to go more conservative," when actually they're living in retirement 30, 35, 40 years, they might need to keep up a more moderate portfolio in order to keep pace with inflation and keep those assets growing. So those are the five risks that we think about.

Martha Hart:

Those are really great analogies, Matt, and what a great way of helping ... I like that connect your left brain to your right brain, because that's exactly what advisors need to be doing to connect the dots for the clients.

Jonathan Forsgren:

Martha, last year Protective collaborated with Dr. Michael Finke on a goals-based planning approach to income planning. Why do you think that should be top of mind for advisors right now?

Martha Hart:

Well, I'll go back to the phrase that Matt just used of connecting the left brain to the right brain. I love the goals-based planning approach that Dr. Finke worked on for us.

Really what it does is it's a process that ultimately helps advisors work with clients to figure out what their inflexible spending is in retirement, your roof over your head, your food, and your clothing. Of course that's inflexible spending.

But for every client, it's different. For some people, golf might be an inflexible piece of the puzzle in retirement, or traveling with family, or whatever it might be. Identify what that inflexible spending is versus the flexible spending, the things that are nice-to-haves, and fund that inflexible spending with a guaranteed income source.

Dr. Finke did a study in 2022, a consumer study, consumer survey, and found really the clients aren't only concerned about if they'll have enough money in retirement. They want to know how much they can safely spend. They spend all of these years saving and saving and saving and saving, and they almost need permission from an advisor to say, "It's okay. You took money out of your paycheck every week, or every other week, or every month, and put it in your 401K plan. You forewent doing things while you were working so that you could enjoy them in retirement."

The advisors can really use this tool to help clients feel like they have permission to go ahead and spend the money that they've worked so hard to save, and just align their retirement goals with what their lifestyle goals are, align the retirement income with what their lifestyle goals are.

Jonathan Forsgren:

Do you have any advice on the timeline for when's appropriate to do this goal-based planning? Because someone a little bit earlier on, as you mentioned, golf, might be passionate about golf and be very able to do it, to participate in the sport. But let's say they develop an unfortunate back issue that prohibits that. So do they do that earlier and then adjust it as they go along in life, or when's the appropriate time to really think about this goal-based planning?

Martha Hart:

Oh, I feel very strongly about making sure that these retirement income conversations are happening when people start to get into their higher earnings years, maybe in their 40s, start thinking about the future. It's tough to make those plans when you're maybe not even married yet. Obviously it's great to start saving early.

But you bring up a great point in that it's important to be able to revisit these plans regularly, because things do change. Your retirement vision of what it might be ... It might one thing today and another thing down the road. And so, it's important to keep updating that plan through the years.

Jonathan Forsgren:

Martha, I'm going to stay with you. How do you see investor behavior playing a role in the success of a retirement plan and how can advisors make sure that clients are avoiding costly mistakes?

Martha Hart:

That is the goal, to avoid costly mistakes. Money, spending money, saving money, whether it's just daily saving and spending or looking at it from a retirement perspective, it's an emotional thing. Market volatility and the other risks that we talked about exacerbate these emotions, cause clients to make knee-jerk reactions based on the headlines or the last report from the market that they saw when they turned on CNBC after work. So we want to minimize the costly mistakes of jumping in and out of the market.

You certainly can use the strategies from the goals-based retirement income planning to help identify, again, what's inflexible and what's flexible. But the certainty that partnering with an insurance company when thinking about how to fund retirement, adding that certainty of a guaranteed income stream to the inflexible spending bucket can really help clients calm their emotions and know that they've got a social security income coming in in retirement and I've got this guaranteed stream of income from my annuity that I know I can outlive. So I don't have to worry so much about some of the market volatility causing me to jump in and out of the market at the wrong time.

Jonathan Forsgren:

Matt and Martha, do you hear from your financial professionals some of the most common costly mistakes that clients are making?

Matt DiGangi:

Sure. I think from my perspective, one of the things that we hear is that when they look at their money, they're trying to do everything with the same pot of money. We talk about it as in every dollar should have a job. So if you have money that you're trying to grow, or money that you're trying to take income from, or money that you're setting aside for healthcare and those things, how do you compartmentalize some of your portfolio so that way you feel like, "Okay. I know that this is allocated here. I do have flexibility in case something comes up or my plan changes."

But having that conversation helps people tie what they're trying to accomplish to what the objective is of that particular bucket of money. That I think is one where we can continue to work with financial professionals to have that conversation.

Jonathan Forsgren:

According to the National Institute of Health, people are living longer. I think it's a well-known pattern that we're seeing. That means their retirement years are being extended. Sometimes those retirement years can account to up to one-third of the total person's lifetime. How do financial professionals help their clients plan for something like 30 years of retirement?

Matt DiGangi:

So first I think there's an opportunity for financial professionals to, through a process, get to know their clients on a deeper level. Two, they can also gather some of the other clients' assets they may or may not be managing. It's another opportunity to really drive customer satisfaction and customer loyalty in engaging in this conversation.

At MassMutual, we talk about a four-box strategy when we talk about income planning. It's really about the process of taking an advisor and a client through this. That is really around how do we think about their income? When we think about taking them through the process, it's around first defining what are your expenses, and then what are your sources of income in your assets?

So we first start off with ... And this is the part where you can really understand what's important to a client, get to know them at a deeper level, is where are they looking to spend their money in retirement? What are their necessary expenses and what are their discretionary expenses?

As Martha mentioned, those terms could mean a lot of different things to a lot of different people. It could be housing, it could be this, but it could be making sure they can spoil the grandkids or traveling or golf or club memberships.

So really having that conversation, there's a lot you can get into a client and build a relationship by having those pieces. Then it's really looking at, okay, I have these necessary expenses I know I'm going to have for a very long time, and then I have my discretionary expenses. Then the second phase is really matching up what are my guaranteed sources of income that are going to cover those necessary expenses? Social security. If they happen to have a pension, do they have annuities in their portfolio already?

Typically what we see working with financial professionals and clients is there's a gap between their necessary total expenses and how much they have in guaranteed lifetime income. This is where we can help close that gap with annuity solutions, whether it's income annuities or whether it's income riders on variable annuities, there's lots of opportunity to have that discussion about closing that gap.

Through that process, that's where you're starting to have the conversation around making your money last, the five risks that I talked about earlier. So it's taking them through the four-box and then at the end saying, "Our plan will help address these five risks that we're talking about."

Jonathan Forsgren:

Coming to you, Martha, annuities were once thought of as cut and paste, one size fits all products. How has that evolved in recent years?

Martha Hart:

It's evolved quite a bit. I would say in my last 30 years here in the business, annuities have gone from, like you said, being very one size fits all to now we have so much flexibility. They really are tools that can be applied as needed for each individual client and each individual client's unique needs in retirement planning.

Again, some things that we've learned from Dr. Finke's research with consumers is that they want flexibility. Clients want flexibility of income. They want to be able to pivot in retirement to what their needs are.

At Protective, we're working hard to avoid the one size fits all approach. If we think about it, maybe a client buys an annuity when they're single, and when it comes time to turn on income because they're stepping out into retirement, they're now married, or maybe they plan to retire at age 70, and they get further down the road and, lucky them, they get to retire at 68, a couple of years early, or maybe they did a good job of buying an annuity and they're getting this nice guaranteed stream of income, but they're like, Whoa, I don't need that much money. I didn't realize I was going to get all of this money from social security," or, "I didn't realize that my pension was going to cover so much of my costs."

So we put features into our products to help address the flexibility needed for retirement income. So, for example, in my first example of being single when you bought the contract, but needing joint life income when you were ready to turn on income, we don't make you make that decision when you buy the contract. We allow you to choose your joint life income or your single life income when you're turning on your income, so that it can apply to your specific need.

Another thing is that, for my example of a client that retired a couple of years early, in our variable annuity contract, and a couple of other of our guaranteed income contracts, we don't use age bands for the guaranteed income. We use income factors at every age, so that you're not penalized for retiring early. You're able to use the ... Every income factor goes up at every age, so that you're able to start the income stream appropriate for your age.

Then also with our variable annuity contract, we have the ability to reserve a little extra money. So let's say we're paying you that guaranteed stream of income, and it just really is too much money for what you need right now. We allow you to take less than what we're guaranteeing you and keep that into a little reserve account that you can take out either as for future income or as a future lump sum to apply to anything that crops up in retirement, whether it's a healthcare need, or a desire to take your family on vacation, or help a grandchild pay for a chunk of college. We'll allow you to take that reserved fund out because you didn't need all the income that we were providing at the time.

So we do recognize that clients need to have flexibility in their retirement income planning, because life doesn't always go as planned.

Jonathan Forsgren:

Matt, do you have anything to add to that in terms of how have annuities changed in your view over the last ... Martha mentioned 30 years, I believe. But how have they evolved?

Matt DiGangi:

Yeah. So from my perspective, I think they've evolved in a few ways. One, people are more back to the every dollar hat is a job comment that I made. It's not a one size fits all. There's various types of annuities out there that have some objectives that you can match up with what you're trying to do, and not just like let's put this on all the solutions out there for every client that I have.

So that has definitely, I think, changed a little bit where it's really focused on what am I trying to achieve with the customer, with the client, and then matching it up to what the annuity solution solves for.

The second one is I think there's more receptivity to annuities than there has been in the past. It's become more educational in the different benefits, as well as the things folks need to keep in mind. It's like it doesn't fit everybody. There's pluses and minuses. So there's more education around annuities in general where folks can be like, "Is that the value that I'm looking for? If so, then that makes sense for me to move forward with."

I think that education has really ... Not only with clients and consumers but also with financial advisors, as folks have developed more annuities over time, as they've simplified things, that education has definitely ... So I'm seeing more of a receptivity to using annuities in different scenarios and different tools.

Martha Hart:

I would just add a little bit more onto that, just thinking here about how annuities and the receptivity, as Matt said, of annuities has gone. I can remember years where we were teaching advisors what a variable annuity was, and that they didn't even understand where you would use it or how you would use it, or variable annuities before we had living benefits. Those were sold strictly for tax deferral, and then you had to teach them about living benefits and how those worked. And so, it really has become more and more, every year, part of the vernacular of the advisor, and almost an asset class within the portfolio when an advisor is introducing it to the client.

Matt DiGangi:

I think it's also been added in ... Building off the asset class comment, it's been added into the financial planning tools that advisors and financial professionals have been using. So once you started seeing that integration into all the different tools that they're using, you really can see more of a focus how it fits into the overall portfolio and not just a one-off. That's helped propel adoption as well.

Jonathan Forsgren:

So coming back to you, Martha, we've touched on investor bias. So how can annuities help address some of the behavioral biases within investors that can negatively impact their long-term income?

Martha Hart:

We talked about this a little bit already, but the market volatility and frightening headlines, whether they're about the market or about inflation or global uncertainty, it's it all tied into that emotion that's linked to all money decisions, let alone the fact that it's like the biggest money decision of your life is how to spend your retirement dollars.

Talking about how annuities have become part of the vernacular of the advisor, they really have done a great job of adding that certainty and predictability that comes from having ... Whether it's a fixed annuity that's giving you a guaranteed growth rate on your money, regardless of all the noise from the stock market, or maybe you do like to invest as a client in stocks and bonds.

And so, a variable annuity might be right for you, but you love the idea of guaranteed growth rate on an income base, so that you can turn that income base into, again, some retirement certainty that's going to be a lifetime income, an income that you can't out outlive, and therefore that longevity risk becomes less and less of a concern.

We talk a lot about guaranteed income when it comes to annuities, but there's death benefits associated with them as well. Oftentimes clients have concerns or desires to leave a legacy to their kids or their grandkids. The death benefit tools within annuities, variable annuities and other ones, can give that never money a home, like money that they feel like they're never going to ... Probably unlikely to use, that death benefit can give some certainty about, all right, I know that I'm going to be able to leave a nice bucket of money to my kids or my grandkids. If I need it for income throughout the years, I can, but I know that that is there if I don't use it.

Jonathan Forsgren:

Matt, you were just talking about how annuities are no longer looked at so much as a one-off, but rather a part of a toolbox for retirement planning. How are you thinking of annuities as part of a client portfolio?

Matt DiGangi:

So we've used this framework called GAP, growth, access, predictable income and protection. As we think about a client's portfolio, you have assets that you're trying to grow, you have assets that you want liquid in case you have access. So make sure you have enough capital, enough liquidity where you can access money when you need an emergency and not affect your other portfolios.

We think about predictable income, so income that you can't outlive, and then protection. So whether it's life insurance protection, disability protection, long-term care protection, things are going to help protect your portfolio and your stream of income. So we start at that level of framework and then we go into each one of those.

When I think about growth and annuities in a client portfolio, folks are allocating their investments between equities, between bonds, cash, other pieces. Specifically, when I think about fixed income and the fixed part of their portfolio ... 2022 was a crazy year. We had both equities that were down and you had bond values that were down. So I think a lot of clients saw both things on both sides, both asset allocation sides, in the negative.

And so, we think about if you look at your fixed income portfolio with bond funds, individual bonds, whether it's money markets, muni bonds, should you be thinking about carving out a piece of that into a fixed deferred annuity that has a stable value, guaranteed growth of return ,and bringing some stability to the portfolio?

We did a study this last year, the MassMutual Fixed Annuity Study, and we found that 51% of consumers did not realize that when interest rates go up, bond values go down. That's a pretty startling number, 51%. So a lot of folks who had this impact last year didn't really understand it. So including fixed annuity can help bring some balance to the portfolio, bring some stability.

When we think about the equity side of the equation, they could be as simple as looking for some tax deferral on some of their equity investments or looking at adding guarantees to protect value or build some income for the future. So we think about the growth bucket as ways you can complement annuities with what you're trying to do in those portfolios.

Then I mentioned that predictable income bucket. That's to me where income annuities, SPIAs and DIAs, come into play, where you can also give guaranteed lifetime income that they can outlive.

Martha Hart:

I just [inaudible] there's a place in here to talk about the benefits. There's benefits to all annuities. Different clients, different needs, different annuities fit the need. We talked a little bit about the evolution of annuities. But I've been talking a lot with advisors about the importance of variable annuities, specifically after last year's down market, because we all know that the best and most effective way to recover your assets and outpace inflation is to make sure that you have equity exposure in your portfolio.

With a -19% or so S&P 500 last year, clients need market exposure to help dig out of the losses that they had. And so, this year was a year that they were thinking about, okay, I want to take some of my retirement assets and use an annuity for future income, then a variable annuity might be a great solution knowing that we've seen some market decline over the last 12 to 18 months, and we're going to be able to invest some portion of those assets in equities within the variable annuity to help really add a little firepower to growing it and still have that certainty and that predictability that the insurance company brings to the table by wrapping those sub-accounts in insurance, giving them a growth on an income base, and ultimately at some point turning on a guaranteed stream of income.

Jonathan Forsgren:

Matt, you touched on earlier the perception ... And then Martha as well, the perception of annuities has changed and evolved. MassMutual actually conducted a survey on fixed annuities, one focused on financial professionals and one on the consumers. What were the key findings of those two surveys?

Matt DiGangi:

So I think we saw a couple of things. We like to do the two surveys on clients and consumers and financial professionals so we can show where there's some gaps and opportunities for financial professionals as they look at the market.

So the first one I mentioned was the 51% of consumers don't really understand what happens when interest rates go up to their bond portfolio. So that's a great opportunity for education in a lot of the conversations that financial professionals are having.

The second one that came up is really that when we talk to financial professionals, they believe that fixed annuities specifically are really focused for older folks. One of the questions that we asked was what level of interest do you think your clients have at various ages?

So in the 45 to 49 age range, they had 4% of those clients were interested in fixed annuity discussions. Actually 37% were interested in fixed annuity discussions, as part of that discussion I mentioned earlier, which is looking at as part of a fixed income portfolio. So the opportunity there is they can probably engage a few more folks in that discussion to educate them on fixed annuities in general and look at solving a need in their fixed portfolio.

The other one that we looked at was that whether, in the discussions, if a financial professional brought up annuities or didn't bring up annuities. We learned that client satisfaction with that advisor and the advice that they're getting doubled when they had the conversation about annuity as part of it. So even just mentioning it, having the conversation, having the education increases satisfaction with the advice that that financial professional is giving them.

Jonathan Forsgren:

Well, at least it shows that the financial professional has that in their toolbox, or is offering that to the clients. For sure that would be a benefit, I think, that would be welcome.

Martha, keeping on that the theme of financial professionals and advising clients, how can financial professionals use behavioral finance insights to effectively communicate about annuities to their clients?

Martha Hart:

Well, I think we go back to the top of the conversation, when Matt talked about connecting the left brain and the right brain. Investor behavior is forever changing and a very important element in how an advisor educates a client on the importance of just retirement planning in general and having a plan and having a roadmap, and certainly the predictability of where an annuity fits into the portfolio can help. As we've mentioned before, manage the [inaudible] the risk of jumping out of the market at the wrong time.

I'm, particularly on this subject, excited about some more work we're doing with Dr. Michael Finke. As we mentioned, the goals-based retirement income planning we've done with him last year. Coming sometime this year, or early this year, just around the corner here, will be some work that he's done talking about behavioral finance, understanding investors' emotions, and helping advisors anticipate instead of react to how a client might react in a down market, things that they could do to mitigate those risks in advance, and, again, give them that permission to spend the dollars that they've worked so hard to accumulate.

It explores the impacts that markets have on those decisions. Again, it talks about the costly mistakes that a client can make and how they can coach them with solutions, and, again, how a guaranteed stream of income might help them not outlive those savings that they've had and maybe leave a legacy for their next generation.

Jonathan Forsgren:

Martha, you were talking earlier about the evolution of annuities and how the products offer a tremendous amount more flexibility now. So how should financial professionals be assessing which products are best for their clients and then discussing them with the clients? Then, Matt, I'd like to have you also share your insights on that question.

Matt DiGangi:


Martha Hart:

I think the only way you can have that discussion is begin with the end in mind. You sit down with a client and you have a conversation, again what are your retirement goals? How old are you? How much money do you have? How much do you spend? How much do you want to spend in retirement? Are we really planning on spending the right amount of money? Obviously, what their risk tolerance is or risk tolerance assessment is important.

Then you begin with the end in mind, that if I want this bucket of money to not have any market exposure at all and I just want to grow it, then maybe a fixed annuity is the solution for you. Or I want this bucket of money to have a little bit ... I need a little bit of growth there, but I'm still very nervous. I'd like it to have an income stream someday, too. So maybe you think about an FIA that has a GLWB associated with it.

Again, as I mentioned earlier, if you have clients that are savvy with the market and they're comfortable with market cycles, but they are a little bit nervous about the fact that they're bumping up against retirement, or even in retirement but a little bit nervous about the choppy markets, then you can discuss a variable annuity with them that will give them that chance to outpace inflation and grow their money in a more equity-based portfolio.

Also, they could tack on a GLWB onto there, where they could get guaranteed growth on the income base and at some point in time pivot that into a lifetime income stream.

You may also just have maybe some higher net worth clients where tax deferral is an important topic. We haven't really talked about that today. But tax deferral for taxes are another topic that can cause a few jitters for clients, especially if they're in the high net worth category. Being able to talk to them about a variable annuity where they can stay invested in the market, but grow tax deferred might be a conversation that they would want to have.

Talking about our flexibility at Protective, we do have a low-cost guaranteed living withdrawal benefit that they can tack onto a client that just wants to grow tax deferred, but, hey, maybe I might want to turn it into a guaranteed stream of income someday. Maybe you pay for our lower cost, lower income solution for a client like that.

Again, the question needs to be asked at the beginning, what do we want to solve for with this dollar? Matt, I think you had been saying it best, every dollar has a job.

Jonathan Forsgren:

Matt, do you want me to ... The question was with all the different products out there in annuities, how should financial professionals assess which is best for their clients and then communicate that with their clients?

Matt DiGangi:

So I think first it begins, like Martha mentioned, with asking some questions about what they're trying to accomplish and really profiling them on what are you looking to do? What are you looking to get out of?

Then the second piece, I think, of it is really around trying to gauge some of the ways that they would react if different scenarios happened. If you looked at your portfolio and it was down 20%, what would you do? Because it's one thing to talk about things that'll happen, it's another to try and get them to picture themselves in that moment and see how they would react, because that really tells you they could say, "I'm comfortable investing this way," but they might not be. So you probably have to probe into some of those pieces to get those conversations out.

Then I think, depending on the answers that you get and what you're trying to do, it's a matter of tying the solution that you're going to propose to how it solves that need, not only the specific need itself but also the emotional side of the need.

So if you're thinking around, "Hey, this is a fixed deferred product that's going to give you a guarantee. It doesn't matter what the market does, you're going to get this." So tying it to, "This is what it's going to do for you and this is how it's going to protect you from the things that you told me that you were worried about," is really important.

Also telling them the other benefits that it'll give to you outside of just buying that solution itself. So, for example, if they're going to close their income gap with an income annuity, and that money is going to be there, they can never outlive it, it doesn't matter what happens in the market, then they could invest their other dollars a little maybe more aggressively than they normally would have.

So it's not just the benefits that you're getting with the dollars that you're investing in that solution, but what are the benefits that it's giving you in the rest of your portfolio, not only the financial dollar benefits but the emotional benefits that putting that into place gives you?

Jonathan Forsgren:

Martha, how can financial professionals effectively communicate about the benefits of retirement income solutions like annuities to clients with different behavioral tendencies such as those who are more prone to impulsiveness?

Martha Hart:

Wouldn't we all love to have clients that just come in and sit down and say, "Tell me what to do," and we tell them what to do when they do it. Those are the dream clients, and they do exist. But again nobody's immune to their emotions, and how people react to their emotions might be one thing, but how we can guide them as advisors is a different thing.

So your impulsive clients, again that guaranteed income, the risk management that can come with adding that as a component, as Matt was saying, to the overall portfolio. Maybe it's just a ... It will always only be a slice of the portfolio, and maybe there's just enough in that slice of the portfolio to help impulsive clients. Maybe they make impulsive moves with some of their other assets.

The risk-averse clients, of course. We can really help risk-averse people in the annuities space. We have so many solutions. We've just got to find the right temperature of risk-averse that they are. But that security and predictability that annuities can offer, whether it's, "Because I don't want to be exposed to the market," or it's, "I'm afraid to outlive my money," that kind of risk-averse thought process can be eliminated, or mitigated at least, with some of the annuity solutions.

As we've said today a lot, we just have to tailor our message to the client that's sitting in front of us. I think it's tempting sometimes in our busy lives to think about, all right, this is how I'm solving for clients, this is my retirement plan that I'm offering to clients. It's so important instead to meet the client where they are and, as we said before, begin with the end.

Matt DiGangi:

I really like to use stories when it comes to getting the benefits across some of these things. One that we've used in the past, and it's fitting because we're sitting here in New York City, is I think of the GW Bridge. Everybody goes over the GW Bridge. When it's not rush hour, it's going at 50, 60 miles an hour.

I always use the analogy of folks and say if that bridge had no guardrails, how fast would you go over that bridge? Probably a lot slower than 60 miles an hour. You probably did 10 or 20 miles an hour.

So now building off of that, it's like annuity solutions can provide you guardrails and protection on your portfolio to go and invest the way you need to invest for longer retirement, for living ... Not only having 30, 40 years in retirement but building up that equity to make sure you can beat inflation and do those things.

So when it comes to the behavioral side of it, it's really like how can you take something that's very stat-oriented and make it real, where they're like, "I understand what you just told me. I understand the benefits that it'll give me as well." So I try and go down that path.

Jonathan Forsgren:

Well, from what I'm hearing, it's one of the few products that I've ever discussed in these interviews, that one of the major benefits is peace of mind. And so, certainly a non-monetary positive about the products, for sure. So, Matt and Martha, according to LIMRA data, annuity sales hit a record high of $310.6 billion last year. What was driving that demand and do you expect to see that continue into 2023?

Matt DiGangi:

Well, I think building off of what you just mentioned, annuities gave a lot of people a lot of peace of mind in a time where there was a lot of turbulence in the market. Interest rates are going up, equities and bond portfolios both decreased last year.

So knowing that annuities can not only have that financial benefit, but the peace of mind, that really had a lot of value and will continue to have value as we move forward, because giving peace of mind for a short time, for a long time, I think people are really recognizing the value that that brings. Not only the financial professionals and the consumers, but when you think about what happens when markets enter a crazy phase or they go down, consumers pick up the phone and call their financial professionals. Now they can say, "Well, I have protections in place."

This is why we did these things. You remind them why you went to it in the first place. It really gives everybody that peace of mind during uncertain times.

Jonathan Forsgren:

We'll start with you Martha, and then we'll come to Matt. What are some of the common misconceptions or concerns that clients might have about annuities and how can financial professionals address those?

Martha Hart:

Yeah. There are definitely common misconceptions and concerns about annuities, and advisor education on all of them, I think, can help them just disappear. Really first is that annuities are complicated or difficult to understand, and that definitely is just a matter of an advisor having a nice way of explaining it in simple terms, client to understand and get away from the jargon, the prospectus jargon, and using terms that the client can understand.

Another concern of course is that there are fees and expenses associated with an annuity that will be more than just if you invested in a managed money portfolio sometimes. Cost is only an issue in the absence of value, and we need to show clients what the potential value is of carrying that guaranteed stream of income. That adds the certainty and the added confidence that a client needs in retirement.

We've already talked about the lack of flexibility can be a concern, but we've discussed how many of the various annuity structures there are and components within annuities that help to offer the flexibility that clients are looking for. It's an understanding that there's a trade off. What you feel like is a concern is actually also offering something beneficial to your retirement.

Matt DiGangi:

So I think I'll add a few things. I think first when I think about the portfolio of annuity solutions that are out there, the commentary around annuities, it's very high level, and here's things we hear, fees, complexity, "I don't want to put all my money in there," those types of things.

When you go into the individual categories like fixed annuities, income annuities, there are no fees. They are very simple in a lot of circumstances. So there's an opportunity to educate both financial professionals and consumers around the different types and how each of the different types work.

Martha mentioned cost and value, and that is the key right there. I mean when you think about what the variable annuities and the riders have and what they can do for you, it's really around reminding folks there's a lot of value that it can be given, not only in the financial numbers that it can protect and protect your assets and what it can do for you but the peace of mind piece. How do you help consumers and financial professionals put a value on that?

If you're looking at a fee that you're adding to an annuity and it gives you all these different protections, it's like would you be willing to pay that fee if in a 30% down market you didn't see X, Y and Z? Or knowing that you're protected in your income stream when getting to retirement. So if you happen to retire in a down market, you don't have to worry about those risks.

So how do you frame up the value that you're getting when it makes it real? Because in the scenario of they're sitting down and they're working with their advisor and they're purchasing, the value might be five years from now when there's a bear market. How do you help them picture what's going to happen and how they would feel in the times, and how they would feel if they had that and how they would feel if they did not have that in their portfolio?

The other thing I'll mention is when we think about how much in your portfolio you should allocate. We're not talking you should put 80% of your portfolio in an annuity. You should think about your overall portfolio and which portions of it could benefit from having exposure to annuity solutions. It could be 10%, 20%, 30%, but we're not talking about an 80% should go in. So.

I think we need to keep that in the context as well and making sure, as I mentioned earlier, your growth, your access, your predictable income, your protection, you have money that you can access in other places. If you're looking at an annuity solution and you don't have liquid money for access, you shouldn't put all that. You should put a smaller amount in and make sure you have access covered. So having those fundamentals framed out I think really helps with the conversation.

Jonathan Forsgren:

Then we were just focusing more on the headwinds at a client or customer level. What are some of the challenges? In your survey earlier, I think it was 4% of financial professionals thought their clients wanted to hear about annuities, where it was 37%, if I'm correct, wanted to actually hear about it. So what are some of the challenges at a financial professional level that you are seeing and how can those be overcome?

Matt DiGangi:

So I think it was 4% ... Client's age 45 to 49, 4% of advisors thought a client would be interested in a fixed annuity, and 37% actually were. So I think for me it's personally using the research and the views of consumers to help educate financial professionals.

So we did that survey at the beginning of last year. We're in the process of doing another one right now, updating the survey from last year, because a lot has happened in 12 months. We're doing an advisor survey, a consumer survey, and we're actually going to be doing some focus groups as well.

So I find that there's a huge opportunity to take that research and help bring that to financial professionals to help them see maybe some of the opportunities that they might be missing by not bringing some of these solutions up.

Second from there, we need to make it really easy for financial professionals who aren't using these solutions to, a, educate them on them, help them understand them, and then help them be able to work it into a portfolio, position them appropriately, and work through with the client how they want to talk about it in the broader context.

When we think about the tools that financial professionals have in their toolbox, it's really easy for them to submit a mutual fund ticket or an ETF investment. It's a couple of clicks of the process. Annuity technology has come a very long way in the last 10, 15, 20 years to really simplify that process as much as possible, electronic order entry, e-signature, e-delivery, all those things to take a lot of the friction out of the process.

That's, I think, one of the things when advisors or financial professionals think about annuities, they have some of that from the past, is that, "Oh, it's paper. There's 30 pages. It's really cumbersome." I think we've come a very long way into making that process easier and taking a lot of the friction out for the financial professional and for the consumer.

Jonathan Forsgren:

Matt, clients will spend their working years accumulating wealth, but how do financial professionals help those clients transition to the income phase of their life?

Matt DiGangi:

So I think there's a lot going on, especially when a consumer goes from his or her working years to their retirement years. So you want to have this conversation started earlier. You don't want to wait until the year before or the year of. You really want to have it ... I would start at least five years before and really start thinking about the psychology that if somebody's going through when they're transitioning from working years to retirement.

Ask some questions to them around what does that look like for you? What do you think a typical day would be, or a typical month? Where are you going to spend the year? Are you going to be living here or there? What do you plan on doing?

So really trying to get them to articulate what's going to go on during that period of time, because that'll help you understand what they're planning, what they're thinking. A lot of times they're not even sure what they're thinking yet, or it's a little further away. They have some ideas about what retirement looks like, but you don't know really how it's going to evolve over time.

The reason I say have that conversation earlier, even just from personal experience, my mother retired three times. She retired full-time work. She was bored, she went back to another full-time job, different job. Then she was like, "I don't like this," retired again. Then she went back again. So it was a cycle. My father who recently retired, he's trying to figure out what he's going to do with all his time now.

I think clients are going through a lot of psychological change during those period. I think it has more of an impact than most people think. So it's really asking as many questions as you can to get them to start thinking about what that is going to look like.

It's not going to be a one and done conversation. They might have to take some things away. You might get little bits of information over periods of time. But really trying to get them to articulate to you and it's asking the right questions, open-ended questions, to get them to start talking about what the vision of their retirement is.

Jonathan Forsgren:

Your mom was pulling a page from Michael Jordan's playbook?

Matt DiGangi:

She's retired now.

Jonathan Forsgren:

Yeah, okay.

Matt DiGangi:

But it took a little while.

Jonathan Forsgren:

What is the future for annuities?

Matt DiGangi:

You want to tackle that one first, Martha?

Martha Hart:

Let me look in my crystal ball. Well, future for annuities is bright. I say that the largest ... I started in the business in 1993 and I feel like we were talking about the baby boomers back then. Every year I think, oh, we're going to start talking about a different generation, but we're still talking about the baby boomers.

He reason why is that the largest class, I'll say the largest group of baby boomers, is actually just hitting 65. And so, we're doing our retirement planning with a very large group of folks that ... As Matt had mentioned pensions before. A large group of them do not have pensions. And so, the only source of guaranteed income that they can rely on is a social security payment, and that's not enough.

And so, I think that annuities are going to become more and more a part of the conversation, as this large group of people have conversations with our advisors, who are telling them that they can add some certainty to their retirement future by putting a portion of their assets in an asset that's backed by an insurance company, that's going to give them that peace of mind that they're not going to outlive their money.

Matt had also mentioned earlier that the tools that the advisors have, the financial planning software tools that people are using more and more, all have a component where you can tuck an annuity in there and take a look at what the probability of success is, if they have guaranteed income versus if they don't have guaranteed income.

I feel very strongly that the future for annuities and where they fit in a portfolio is bright. We'll have to keep watching the evolution, because it seems to be always changing and we're learning new things and figuring out other great ways to incorporate them.

Matt DiGangi:

So I think about it in three pieces. One is demographics, which Marta mentioned, which is driving demand for solutions that give people the comfort that they're looking for in their retirement. So we've talked about baby boomers, we've talked about generational wealth passing down. There's lots of demand on the solutions that we're providing from consumers. So that's the first, I think, driver of the opportunity.

The second one, I think, is around ... Martha mentioned the decline in pensions. So there's less options available for somebody to guarantee lifetime income, and annuities can provide that guaranteed lifetime income that people can outlive. So with that decline in pensions, there's more opportunity to help people provide that protection that they're looking for.

The third one in my mind is technology. Technology continues to evolve at a rapid pace, with everything from iPhones to all different ways that people interact. It can really simplify and take a lot of friction out of the process. The more that the process continues to improve, becomes easier, becomes less cumbersome, and consumers and advisors, financial professionals have a better experience, the more people use the tools and look at it.

There's still a strong amount of advisors who are using annuities, but there are advisors who are not. So if you have demands coming in from demographics, if you have less solutions that are offering lifetime income and you have technology improvements, I believe we can get more advisors into the fold of doing annuity solutions than they have in the past. That'll create the tailwind to continue to grow the annuity space.

Jonathan Forsgren:

Building off of that, are there any other product types that might be ... Financial professionals might be overlooking annuities because of other products that they might want to think about annuities in place?

Matt DiGangi:

I think when you think about the technology aspect of how easy it is to potentially implement ETF solutions or mutual funds or advisory, there's a lot less friction in that process. I mean we're definitely closing the gap, and we have more to go to continue to do that. So I think that's a headwind as we have these conversations.

It's really around that piece of it, and then how can we frame up the annuities as a complement to what they're already doing? In some cases we're not looking to say, "Don't do this, do this," because that's not how we should be thinking about it. We should be thinking about what is the client trying to achieve? What portion of the portfolio would benefit and what are all the benefits, not only the money they're investing in the annuity solution but how it impacts the rest of the portfolio?

So I think if we have those two pieces of making the process and continue to take the friction out of it, and helping people find out how it complements what they're already doing, we can continue to have success with getting financial professionals into the space.

Martha Hart:

To add a little bit more to that, there is nothing that can do what annuities do within a portfolio. We have very limited places where a client can go to to incorporate guaranteed income or a guaranteed growth rate. And so, there is nothing that can mirror what an annuity can do. And so, to Matt's point, the more we educate advisors and help them realize how it can complement what they're doing and not detract from what they're doing, we'll continue to see growth there.

Jonathan Forsgren:

Martha, Matt, thank you very much for joining us today. I can tell you I've learned a tremendous amount about annuities.

Matt DiGangi:

Thank you for having us.

Martha Hart:

Yes, this was great.

Jonathan Forsgren:

To our viewers, thanks for watching. For Asset TV, I'm Jonathan Forsgren. We'll see you next time.