Annuities

How the Secondary Market for Annuities Can Build Your Business
by John Zepeda

History has proven that liquidity benefits all parties in a financial transaction. The emerging secondary market for annuities continues to demonstrate the validity of this timeless dictum. Liquidity has led brokers to respond to changing financial needs for investors and annuity owners. But consumers aren’t the only winners. The secondary market for annuities gives agents and brokers new ways to build and improve their businesses.
Access to the wealth transfer market is one of the most exciting opportunities.   “You don’t want to die with an annuity” is a crass expression, but it offers an important viewpoint. Clients who are thinking about transferring their wealth will find draconian tax treatment of annuities upon death. An immediate tax bill is due to the increase in the heir’s ordinary income. Passing on stocks, bonds, and mutual funds enables heirs to enjoy tax deferred investing (albeit at a stepped up basis) across two generations with the prospect of generating substantial wealth from their inheritance.
Agents and brokers can use the secondary market and help their clients sell annuities and purchase more tax efficient stocks, bonds, and mutual funds. There are prospecting opportunities for clients in the over 55 market. These prospects are likely to be on the other side of financing their children’s higher education, are close enough to retirement, and are thinking of their legacy. They are likely to respond to a pitch that says, “Should Uncle Sam get half of your annuity?”
Brokers and agents can also use this strategy to prospect within their book of business and develop a new commission stream. They can also enjoy the relationship-building exercise of reaching out to clients with new solutions.
Cherry Picking Your Competitor’s Clients

For better or worse, the annuity business has remained essentially unchanged for 25 years. Yes, there have been some new bells and whistles, but very little is new. This presents a significant prospecting challenge for financial advisors: how to grab the prospect’s attention. It’s not that offering advice on buying annuities is irrelevant; it’s just that it rarely breaks clients’ habits. Clients may see the product as so commoditized that there’s little incentive to speak to another agent about them unless that agent has something unique to say about annuities.
Helping investors realize the liquidity option for their annuities is not about a commodity at all. It gives agents and brokers the opportunity to make a solutions-based, consultative sale. It’s also worth noting that providing liquidity for annuities offers more than just a good opening line. When prospects do sell, there’s the opportunity to help them reinvest the proceeds from the sale and build assets under management. 
Prospecting Among Clients

Pointing out the shortcomings of your competitor’s products works with new clients, but not with those in your book of business. After all, if your pitch to a client is about the shortcomings of their annuity, the response is likely to be, ‘Why did you sell it to me in the first place?’
But there is the opportunity for different positioning, “Life changes and I’m going to tell you about a way that we can make that annuity change in such a way so that it still suits your needs.” With this positioning, it’s no one’s fault and all of your clients can identify with life changes.
With the integrity of the original annuity sale preserved, agents and brokers have the perfect opportunity to present new options and ideas to their client base. This new interaction offers a new platform to market other products and services.
Ten to 20% of clients in a producer’s book of business should or could consider selling their annuities. However, the initial sale of the annuity is sometimes just the beginning. Liquidity is often needed for other investment objectives. The agent or broker who can deliver liquidity is often in the best position to help clients put the proceeds from the sale to work in other investment products.
The idea of helping clients buy and sell annuities is simple. But liquidity can also contribute to the financial success of clients and prospects. It gives financial professionals an opportunity to provide solutions, develop new revenue streams, strengthen client relationships, and stake out a leadership position in an emerging and important market.
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John Zepeda is a senior sales representative for J.G. Wentworth. For more information, contact him at 866-410-8898 or johnz@jgwentworth.com.