Willie Sutton said he robbed banks because “that’s where the money is.” While that’s not the business financial advisors are in, they do need to know where the money is. Today it’s with mature Americans. People older than 50 make up just 25 percent of the population but control 75 percent of the wealth.
This isn’t surprising. Most people in their mid-50s, 60s and 70s have paid off their mortgages, sent their kids to college and bought most of the things they need. They’ve saved for years in 401(k) plans, IRAs and certificates of deposit. It’s rare to find a mature person who doesn’t have at least one CD or annuity.
This trove of wealth represents an enormous opportunity for advisors. Older adults look for a combination of safety and performance in their investments.
They want their money to work as hard as possible without exposing them to too much risk. Few, however, have an ideal set of savings and investments, and they often have too much money in low-interest checking or savings accounts. CDs are a step up, but the after-tax return is usually less than compelling. Furthermore, many older people feel they’ve been abandoned by brokers who made an initial sale but didn’t stay in touch afterwards. They’re eager to get advice from someone who cares.
Annuities help older clients get the most out of their money by producing better after-tax returns and guaranteeing a lifetime income stream. You have a powerful solution; now you need prospects.
Direct mail is one of the best methods to create a steady flow of annuity prospects, and any advisor can use it successfully. Mailing large postcards (5 inches by 8 inches) is a simple, easy and inexpensive way to make sure your message is seen and read. When a large postcard arrives in the mail, it stands out because of its size. All of us tend to pick larger items out of a pile of mail first, turn the card over and quickly read the message. When your prospects do that, you’ll be winning the first battle in getting their attention.
VAs are a key planning tool for funding a retirement that might last 40 years or more.
Consider a “drip” marketing program. It’s called a drip program because it’s repetitive. Send a series of large postcards, on high-quality paper, to your targeted prospects. Even if they throw the card away after reading it, the message was sent, delivered and read, and an image was created in their minds. Most of the time, you must send mail to the same person two, three or more times before you penetrate his armor and get a response. When you send a series of cards, you create a message and an image and improve your response rate.
The following is a formula that has worked in my agency: Each week, we send out a series of postcards to investors 65 to 74 years old living in targeted zip code areas. We mail out 200 postcards and get responses from investors who call the toll-free number and ask for more information, which we send out within 24 hours.
A week later, we call those prospects to make sure they received the information we sent. We also ask if they have a question about one of their current annuities that we can answer while we’re on the phone. Then after a few minutes of conversation, we ask for an appointment and tell them that we’ll do a checkup on their annuities. Most of the time they say yes. During the visit, we show them options to help their money work harder for them.
The sale is easiest when the prospect already has an annuity that could be replaced with a better-performing annuity. This is either a fixed-rate annuity with a higher yield or a variable annuity with better guarantees and a better-performing selection of funds.
Direct mail isn’t the only way to sell annuities. Making presentations at local clubs and associations is also a great way to get in front of prospective investors. These groups often look for people to talk about financial planning and investing, and speaking can yield 10 or more prospects at a time.
Some people, however, are not familiar with annuities. They depend entirely on CDs and say they won’t invest in anything unless it is FDIC insured. I ask them, "Do you know what FDIC stands for? It’s for Federal Deposit Insurance Corporation. Why not consider an annuity from an insurance company?" I show them a one-page sheet with what the CD really yields after taxes. Annuities fare very well in this comparison.
Sometimes a prospect sees the advantage of an annuity, but his or her CD doesn’t mature for several months or more. This is not a problem. Have the client sign the paperwork to buy the annuity. Set up your computer to remind you a month before the maturity date. Then contact the insurance company, which will arrange the transfer of funds from the bank when the CD matures.
Speaking to groups is also a great way to reach prospective investors.
Currently, I recommend variable annuities (VAs) to all but the most risk-averse investors. The VA is a wonderful vehicle that lets investors get the best of both worlds. Clients can allocate a portion of their money to a fixed-rate account for current income and put the remainder in high-quality stock funds for long-term growth. Risk-reducing options, such as a death benefit guaranteed to compound 5 percent annually, allay clients’ fears, which have gotten more acute during the market’s wild ride of the past year. Some VAs even guarantee a minimum payout rate, regardless of the sub-accounts’ performance.
The risk-management features help make VAs an excellent choice for funding a rollover IRA. Many retirees and people approaching retirement age have large amounts of money in 401(k) or 457(b) plans from former employers, which can be transferred to IRAs. With the death benefit, they’re assured that their heirs will get the full benefit if they happen to die during a market downturn.
What is most important, VAs provide the potential for earning superior returns over the long term. Today, you can’t plan based on the assumption that the client will die at 85. You have to assume that the client may live much longer. VAs are a key planning tool for funding a retirement that might last 40 years or more.
Because VAs have a lot of confusing features, simplify concepts so that prospects understand what they are buying or you’ll never make the sale.
Once you’ve sold an annuity to your new client and established trust, more doors will open for you. You should be able to sell your new client a long-term care insurance (LTCI) policy, reposition equity portfolios and perhaps help with estate planning—the options are wide open.
Annuities are a great door opener because they address the crucial need for retirement income. LTCI is an equally effective door opener because it also addresses the crucial need to fund long-term care. If I make the LTCI sale first, I talk about annuities when I deliver the LTCI policy. Almost all my new LTCI clients also buy annuities.
Wilma G. Anderson, of The LTC Coach in Littleton, Colo., teaches financial professionals how to sell annuities, long-term care insurance and other products to the senior market. You can reach her at Wilma@TheLTCcoach.com.