How to Find a Great Annuity Advisor

Finding a great annuity advisor is similar to finding a great investment advisor: He or she must always act in the client’s best interest and provide honest advice that is best suited for an individual investor’s specific circumstances. He or she should also be able to provide accurate projections of risk and return based on several different types of annuities in order for an investor to choose the best product to meet his or her financial goals.

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The Importance of Experience

While the importance of the level of education, experience, and industry certifications of an annuity advisor will vary for each investor, all investors must make sure that the annuity advisor they choose is licensed by the insurance board of the state in which he or she sells annuities.

Annuities are categorized as insurance products and are therefore regulated by the state insurance commissioner. (In addition, each state may have further requirements regarding supplemental licenses required, continuing education and exams.)

If the annuities he or she sells are variable, then licensing by the Securities and Exchange Commission (SEC) and registration with the Financial Industry Regulation Authority (FINRA) are also required. The SEC license and FINRA registration are necessary for variable annuities because a portion of the annuitant’s money is placed in stock and bond mutual funds and returns are based on stock market performance.

Fees Charged and Fiduciary Responsibility of an Annuity Advisor

The fees charged by an annuity advisor are typically either “fee-only” or “fee-based”. A fee-only advisor receives compensation for his or her services directly from the client. In other words, whether the fee is in the form of an hourly rate, a retainer for a given period of time or, as is most common, a percentage of assets under management, no other fees are charged and no other compensation is received. A fee-based advisor, however, receives a combination of fee-only income paid by the client, plus commissions paid by companies whose products he or she sells.

A fee-based commission structure may raise a red flag in the mind of some investors as it signals a potential conflict of interest. It is possible for a fee-based advisor to recommend products that serve his or her own interests in addition to the client’s. Before making an annuity purchase, investors should confirm with the annuity advisor as to how he or she will benefit financially from the sale of a particular product.

The fee-only and fee-based payment structure distinctions are important for investors to understand, because like stockbrokers and insurance brokers, annuity advisors are not held to the higher professional standard known as “fiduciary responsibility”. Fiduciary responsibility is an oath taken by financial professionals in which they declare that they will always represent a client’s needs over their own.

Annuity advisors are held to a professional standard known as “suitability”. This means that the only criteria an advisor needs use to judge the appropriateness of an investment for a particular investor is whether or not that investment is suitable. If the investor is deemed suitable, then the annuity can be sold to the investor, even if the advisor profits from it. And, the definition for suitability can be quite wide. It can be based on income, net worth or perceived level of financial understanding.

Therefore, annuity investors are encouraged to seek the advice of a Certified Financial Planner (CFP) or a Registered Investment Advisor (RIA) when it comes to purchasing an annuity. A certified financial planner is held to the fiduciary standard. He or she is also required to have at least an undergraduate degree, to have passed a series of exams ranging from investment strategies to estate planning to tax planning, and to be board certified. Further, if an annuity is being purchased as part of an overall financial plan or for estate planning purposes, a certified financial planner will be able to look at the investor’s entire financial plan, not just one segment of it.

There exist two other certification programs available for annuity advisors: Certified Annuity Advisor (CAA) and CAC (Certified Annuity Consultant).

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Certified Annuity Advisor

Advisors Certification Services, Inc. offers a course of study for those interested in becoming annuity advisors. This is a relatively new training course that prepares advisors to recommend the most appropriate annuities for their clients.

Certified Annuity Consultant

The annuity National Brokerage Corp. (ANBC) awards the CAS designation to individuals who complete the required course of study. This is an accredited annuity curriculum and qualifies graduates to advise clients regarding tax-deferred annuities for retirement, annuities for income and equity indexed annuities.

Company Association

It’s often best to find an annuity advisor who is independent and not associated with or employed by one company. Most annuity advisors sell the financial and insurance products of several different insurance companies. The ability to represent more than one company allows the advisor to find more products or structure a portfolio of products best suited to meeting a client’s needs.

Understanding the Goals of the Investor

A truly great annuity advisor will meet with his or her client several times before recommending a specific annuity product. He or she should ask to see financial documents such as retirement account balances, mortgage balances, other loan balances and college savings plans if children are involved. He or she should also make note of the investor’s age, current income and risk tolerance, as these are all factors that should be taken into account before recommending any financial product, including an annuity.

Finally, the annuity advisor should have significant experience with investors in a similar financial situation. For example, an investor who is nearing retirement and looking for an annuity that will provide a guaranteed stream of income for life will want to confirm that the advisor has established successful plans with investors in this group. Making sure that the advisor is experienced with investors with similar goals will also help the investor to better judge the results the advisor presents for his or her other clients.

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