What to Think When a Financial Advisor Says: "You Know I'm Not a Big Fan of Annuities"

Disdain for annuities is a thread of conventional wisdom that seems to exist among a broad swath of financial advisors.

In fact, many financial advisors seem conditioned to wear annuity criticism as a sort of badge of honor.  The inherent logic roughly resembles the following: I am an objective, knowledgeable advisor--not a commissioned salesperson--and therefore shun most forms of insurance and commission-based solutions.

As the past couple of years have so painfully revealed, however, this conventional wisdom rests on shaky ground.

Why is this the case and what types of questions might a client present to an advisor who appears to have a reflexive inclination to dismiss all or most forms of annuities?  Consider the following:

  1. What recourse do I have if my financial plan fails miserably and I am left in a precarious position near or in retirement? 
  2. Are there any guarantees with the solutions that are currently provided?  In other words, what happens if my mutual fund, hedge fund, managed account, ETF or target date fund implodes and delivers results that are wildly different that what was described at the onset?  Is there anyone or anything there that will actually fill that hole, or am I simply told to hang in there and reshuffle my asset allocation since everything will be fine in the long-run?
  3. How are my assets hedged against various forms of risk?  Your antenna should rise if the answer involves diversification across time and asset classes. 
  4. How do you plan to create income
  5. How is this income guaranteed
  6. How do I make sure that I don't outlive my assets? 
  7. In the absense of an annuity, what happens if I do outlive my assets?
  8. How am I hedged or protected against sequence of returns risk?  In other words, what protection do I have to shield me from sharp downturns such as those experienced over that past couple of years?
  9. Regarding items 4 and 5 above, turn and run away from your financial advisor if they are unwilling or unable to acknowledge and discuss the notion of longevity risk and sequence of returns risk.
  10. Regarding item 6 above, there is a whole other discussion to be had if your advisor serves as a fiduciary and does not consider longevity and sequence of returns risk as part of your financial and retirement planning process.
  11. If credit risk or solvency of the insurance companies is a concern raised by your advisors, ask them about the following: a) state guarantee funds, and; b) the number of consumers that have been harmed by insurer solvency relative to the number harmed by investment managers over the past decade.
  12. Cost