As advice becomes more holistic, helping clients to understand whether an annuity is right for them and aligns with other choices they make in life or different stages in life – for example, inheritance planning – requires more than just technical knowhow. It requires a multi-layered approach.
Mark Ormston, director of propositions and corporate partnerships at Retirement Line, says that while an annuity is often presented as this very simple product – the idea that a client can just “pass all your money to the insurance company and they will do the rest” – in reality, people are being asked to make a decision that will impact their household income for the rest of their lives and potentially beyond.
Do they want inflation protection, and if so, how much? Do they want to guarantee an amount of income is returned whether they are alive or not? Do they include a partner on the annuity policy?
If any of these are selected the immediate starting income lowers, potentially putting strains on immediate income needs.
Ormston adds: “A lifetime annuity purchase is not a decision to be made lightly and needs to be made with the long-term in mind. One way that advisers can make possible future scenarios more understandable and tangible is with multiple annuity quotes.
"When clients see a number of options in black and white, they are better able to engage in the decision-making."
Wants and needs
As advisers build up personal relationships and trust with their clients, this will allow them to help a client better understand their motivation and aspirations.
Andrew Tully, technical director at Canada Life, says despite there being a plethora of factors influencing everyday decision-making, when examining long-term thinking, families are the single biggest influence.
Tully says: “By recognising the important role families play in this form of thinking, there is an opportunity for advisers to leverage the emotional connections and psychology that sits behind this to build better engagement with their clients and encourage a longer-term mindset to financial planning."
David Gibb, chartered financial planner at Quilter, says when armed with a deeper understanding of their clients’ needs and wants, as well as any other factors that may impact both their personal and financial circumstances, advisers can provide informed recommendations that will be specifically tailored to help their clients achieve their goals.
Gibb adds: “Financial advice must be adaptable to ensure it caters for a client’s individual needs. There are many factors that will impact people’s lives and finances, and it is therefore key for an adviser to gather as much information as possible to help inform the advice that they give to their clients.
“For example, while it is often a slightly uncomfortable conversation to have, discussing the longevity of family members can be key to determining how much someone will need to save for retirement, or if they will be likely to need to afford care services later in life.