Demand for Annuities is Strong Despite Low Consumer Awareness

It is challenging to think of another sector of the U.S. economy that has the same puzzling mix of characteristics as the annuity industry.  Consider, for example, some of the following contradictory features:

  • Hugely attractive structural trends (aging population, disappearing pension plans, increasing longevity, etc.) that are drivers of product demand.
  • An industry with $250+ billion in annual sales that is experiencing revenue growth rates more commonly seen in young, developing sectors of the economy.
  • Products that address one of the most important and challenging issues (how to finance retirement) facing our country (and many others around the world).
  • And yet, while the average consumer is generally able to describe and request the characteristics of an annuity, the vast majority would most likely not be able to actually put a name to this description.

Darla Mercado of Investment News addressed this conundrum in a recent article that addresses the “fevered pitch” of recent variable annuity sales in the United States.  Mercado suggests that:

Advisers note that clients don't necessarily come right out and ask for an annuity, but often ask for features readily found in an annuity.

A branch manager from LPL says that:

“Clients say they need a way to protect their principal and make sure their checks are coming,”

These comments are telling of the fact that there is huge demand for annuities despite the enormous obstacles that exist around consumer awareness and perception.  Effectively addressing the issue of consumer awareness would seem to present financial advisors and/or product manufacturers with a golden opportunity.