Bridging the Gap Between Fiduciary Advice and Annuity Usage

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A few weeks ago, I engaged in some rather spirited discussions on a topic that is typically a less-than-lively one: income annuities and the role they may play in the context of fiduciary retirement advice. The conversations I had on this topic came about while I, a non-financial advisor, was speaking to an audience of CPA advisors at a panel at the AICPA Engage conference in Las Vegas. The panel was hosted by Advisor Perspectives’ own Bob Huebscher.

As someone who works for an actuarial consultancy and not with retail clients, I was struck in these conversations by how difficult it is to be an independent advisor, held to a fiduciary standard of conduct, but without a single agreed-upon framework for what the “best” retirement solution is supposed to mean. The outcome of these discussions led me to conclude that holistic tools are sorely needed to give fiduciary advisors a bridge between “investment-oriented” retirement income generation and annuity-oriented approaches to retirement income. The advice industry still treats them as mutually exclusive.

Better tools and investment products can help fiduciary advisors easily blend these approaches.

Well-respected researchers have demonstrated theoretically that Americans are sub-optimizing their retirements by not at least partially annuitizing in greater scale. This premise begins with Menahem Yaari’s seminal proof of the concept in 19651 and continues with the work of modern academic practitioners such as Wade Pfau, who articulates the “safety first” school of retirement planning that naturally blends annuity and investment based income approaches.

Those academic perspectives are hardly the only valid ones for demonstrating how having protected lifetime income can improve Americans’ retirement security. Milliman’s RISE ScoreTM, for example, is a free framework available through The Alliance for Lifetime Income to investors and advisors. This score, evaluated before and after annuity inclusion in a portfolio, is useful in demonstrating how the addition of an income-generating annuity to a portfolio of investments can improve retirement income security. The framework for the RISE scoreTM was inspired by the credit score framework with which many Americans are familiar. For those who are unfamiliar, the Alliance for Lifetime Income, of which Milliman is a founding member, is a nonprofit 501©(6) organization founded by a consortium of financial services organizations in an effort to provide consumers and financial advisors with the educational resources, tools and insights they can use to build plans for protected retirement income.