In today’s shaken financial services industry, the one phrase that should be on your mind is: “Trust is money.” The financial crisis left a lot of investors with deep wounds and empty pockets. But as the market shows signs of recovery, a major roadblock will be investors’ unease with putting their faith — or dollars — back in your hands. If gaining investors’ trust isn’t hard enough, convincing them to invest in an annuity presents even greater challenges.
Annuities involve complex contracts and have developed a stigma due to abuses perpetrated in the past by a small group of producers. Consequently, even if you have an annuity that guarantees income for the life of an investor with little risk to principal, you might have an uphill battle making the sale. Your challenge is to turn a complicated investment product into a simple one and a skeptical buyer into a trusting one — not an easy task.
So what can you do to sell a product so complex that most buyers start feeling nervous when they even hear the word “annuity?”
Put the Client First
Try starting a conversation on the subject of annuities, and you’ll see potential investors run for the door. In order to make an annuity sale, you must put the clients first by asking what their needs are. Build rapport by learning what is important to them. What do they like to do? What are their hobbies? Avoid delivering a sales monologue by beginning a two-way conversation with your clients: Ask when they would like to retire. How much income do they need? Do they have any long term care issues? These are questions that will make clients much more comfortable with you, as well as allow you to make appropriate judgments about which product to recommend.
Remember, the client’s risk tolerance is a particularly important area to understand. We’ve all endured the market volatility over the past few years, coupled with exploding federal deficits and a deep recession. How have your clients reacted to these events? Has it impacted their lifestyle? Do they need “sleep insurance”? If so, then you’ve created the perfect segue into a discussion about annuities.
Assessing a client’s risk tolerance essentially comes down to two elements: what their actual needs are regarding income and expenses, and how comfortable they are with the risk. One easy way to determine this is by showing a client various portfolios with hypothetical returns and asking which ones they are most comfortable with.
Know Your Topic
It’s impossible to make buyers feel comfortable about investing in annuities if you don’t feel comfortable with the material. Would you buy a car if the salesperson couldn’t tell you how many miles per gallon it gets or how long the warranty lasts? The same is true of annuities, so you must put in some time to learn the details. There are a variety of income options, investments and riders in the annuity market, so the more confidence the client has in your knowledge of the product, the better the chance you have of making the sale.
Remember, products will vary from company to company. So, the best way for you to get up to speed quickly is to read and reread the brochures and materials the insurance company you’re working with provides for each product.
Also, learn to describe the product in the language of the benefit or value to the client rather than its features. You could be perceived as just another talking head who talks only about financial details that are actually off-putting rather than relationship-building. So instead of espousing all the fantastic features of annuities to your clients, think in terms of how these features actually work to the client’s benefit, and describe those. It’s far more important for your client to understand how an annuity rider can benefit their retirement situation than it is for them to know the nut and bolts of riders as a whole.
You should also anticipate and be prepared to answer some of the most common questions about annuities, such as:
- What is the financial strength of the insurance company? You can learn this information by visiting www.ambest.com or www.morningstar.com.
- What are the tax implications?
- What are the fees and how do they compare with other companies?
- What types of payouts are available? Can I take my money out when I want?
Make It Visual
Investors are often frustrated by the complexity of financial products and would like the entire process made simpler for them. Purchasing an annuity is a big decision for many clients, as it could well become their second-largest asset after their homes. Part of your value as an advisor is being able to explain the complexities of annuity products to your clients in simple, easy-to-understand terms. At the most basic level, you can present annuities as an insurance product: that is, insurance that the clients will not outlive their money as well as insuring their initial investments are protected.
However, when you get beyond the basics, there are a variety of options: immediate or deferred, fixed or variable, and the dizzying array of income and withdrawal options. Your job is to help the client sort it all out. One of the best ways you can meet this challenge is to relate the process to something simple he or she already understands and literally draw it out on paper for them; oftentimes, a chart or diagram will work best. Even comparing a CD to a fixed annuity is a great way to help clients better understand the product. For annuity products, a picture really is worth a thousand words!
Build Trust
According to a survey by the IBM Institute for Business, 70 percent of clients felt that fund managers were acting in their own best interests rather than in the interest of their clients. A similar survey by Pew Research found that only 22 percent of Americans trust banks and other financial institutions. These dismal numbers should not be all that surprising in light of the scandals and bailouts over the past few years. They simply underscore that in this environment, it is extremely important to build trust with your clients to make the sale and get referrals. Trust comes from building rapport with the client and how well you can relate to their needs. In most situations, this involves asking questions that further the conversation about their family, job, and life goals.
Quality advice will trump product features every time. The IBM Institute survey noted a fundamental gap in perceptions: clients value high-quality advice, while producers’ value innovative products. So don’t advocate for the product, advocate for the client. Be honest about the pros and cons of the various annuity products, recommend the best product and tailor the annuity solution to your client’s needs. Don’t rush the process, as high-pressure tactics breed distrust. Also remember not to let the commission drive sales, but to let the sale drive commissions. Making a little less in the short run can result in a much bigger payoff in the long run through increased business and referrals. The alternative can be devastating: a loss of trust means losing the client, and all the future good will that he or she might have brought to a relationship built on trust
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