The New Finance Of Longevity

Wakeup Call: Clients Are Looking to Protect Their Portfolio

Are advisors listening?

by Gary Baker and Jean Statler

Mr. Baker is the president of CANNEX USA; Ms. Statler is CEO of the Alliance for Lifetime Income.

Given today’s economic environment, it’s no surprise that consumers who are in, or approaching, retirement are anxious about their finances. Those ages 45 to 75 are worried about the dual risks of high inflation reducing spending power in retirement (81%) or a recession driving the economy down and impacting retirement income (79%), according to a July 2022 study by the Alliance for Lifetime Income and CANNEX. The anxiety is so pronounced that six out of 10 consumers (60%) reported reducing their spending because of inflation.

Strikingly, financial professionals are even more anxious than consumers about the prevailing economic conditions. The corollary study of registered investment advisors and broker-dealers revealed they are even more worried than consumers about increasing inflation reducing retirees’ spending power (92% vs. 81% of consumers), and trends in stocks and bonds reducing retirees’ potential retirement income (87% vs. 68% of consumers). Financial professionals are also more concerned about the impact of a recession on retirement income (84% vs. 79% of consumers).

Lack of Planning Leads to Retirement Income Worries

Consumers’ anxiety regarding their personal finances is compounded by a notable lack of financial preparation for the future. According to a September 2022 study by the Alliance and CANNEX, three key findings are troubling: nearly one quarter of consumers don’t have any kind of financial plan and another quarter (28%) have an overall direction in mind, but no financial plan to get there; Nearly half of non-retired consumers ages 45-75 are saving less than 10% of their annual income for retirement; and, among those not yet retired and who are advised by a financial professional, only three out of 10 have both talked with their financial professional and have a plan in place in the event they have to or want to retire early.

Not since an economic downturn coincided with steep inflation some 40 years ago have consumers yearned for guidance in protecting their hard-earned savings. So, it’s no surprise that consumers are turning up the heat on their financial professionals and asking them to find ways to protect their portfolios. Unfortunately, the data from both studies demonstrate that many financial professionals are falling short of their clients’ expectations. Only about half of consumers who work with a financial professional would give him or her an “A” for how much they listen and understand needs, according to the survey.

Consumers believe that holistic support is not a “can do” but a “must do.” A key part of a truly comprehensive portfolio includes protection, which is why nearly half of consumers believe financial professionals have a responsibility to present protected income products like annuities to their clients...

Consumers believe that holistic support is not a “can do” but a “must do.” A key part of a truly comprehensive portfolio includes protection, which is why nearly half of consumers believe financial professionals have a responsibility to present protected income products like annuities to their clients.

Protect My Portfolio

And here’s the wake-up call for financial professionals – forty-two percent of consumers who currently work with a financial professional would consider leaving their advisor if they did not present and consider all the possible strategies for producing income in retirement.

Consumers rated the importance of income protection more highly than financial professionals in this most recent study. Given the uncertainty of when and how conditions in retirement will change over time, investors want to understand the full range of solutions and strategies available, from which they can make an informed decision with the help of their financial professional.

To their credit, many financial professionals are beginning to wake-up to their clients’ needs for reliable retirement income. Nearly four out of five financial professionals (78%) have changed their approach to retirement planning in the last year, while nearly two-thirds of financial professionals (65%) are changing their overall approach to retirement planning according to the 2021 survey.

Fast forward to today and we see that this trend has accelerated, with a third of financial professionals more likely to recommend an annuity due to the current climate of rising interest rates, inflation and growing consumer anxiety. Our data show that clients are searching for an alternative to traditional asset allocation strategies, and we’re encouraged to see advisors responding to that demand.

Consumer awareness and understanding of protected income and annuities has risen steadily over the past few years. Given today’s high interest rates and economic uncertainty – and the fact that our country is on the doorstep of Peak 65 in 2024, when more Americans will reach traditional retirement age than at any time in history – it’s no wonder why there has been a record surge in the popularity of annuities this year. Still, as reflected by the escalating anxiety and lack of financial preparation for the future, even amongst those consumers with a financial professional advising them, much more progress is needed.