Annuities

Simplifying Annuity Speak

Clearing the Confusion for Financial Professionals and Their Clients

Astronomers and scientists around the world have been buzzing over the discovery of two supermassive black holes that are on an inevitable collision course. According to a study released by NASA’s Chandra X-ray Observatory and published in the Astrophysical Journal Letters in January 2023, the discovery is the first evidence of such an impending encounter. The abstract in the published study provides more insight:

Abstract

We present multiwavelength high-spatial resolution observations of UGC 4211 at z = 0.03474, a late-stage major galaxy merger at the closest nuclear separation yet found in near-IR imaging projected separation). Using Hubble Space Telescope/Space Telescope Imaging Spectrograph, Very Large Telescope/MUSE+AO, Keck/OSIRIS+AO spectroscopy, and the Atacama Large Millimeter/submillimeter Array (ALMA) observations, we show that the spatial distribution, optical and near-infrared emission lines, and millimeter continuum emission are all consistent with both nuclei being powered by accreting supermassive black holes (SMBHs). Our data, combined with common black hole mass prescriptions, suggest that both SMBHs have similar masses,  ∼ 8.1 (south) and  ∼ 8.3 (north), respectively. The projected separation of 230 pc (∼6× the black hole sphere of influence) represents the closest-separation dual active galactic nuclei (AGN) studied to date with multiwavelength resolved spectroscopy and shows the potential of nuclear (<50 pc) continuum observations with ALMA to discover hidden growing SMBH pairs. While the exact occurrence rate of close-separation dual AGN is not yet known, it may be surprisingly high, given that UGC 4211 was found within a small, volume-limited sample of nearby hard X-ray-detected AGN. Observations of dual SMBH binaries in the sub-kiloparsec regime at the final stages of dynamical friction provide important constraints for future gravitational wave observatories.

Say what?

Don’t feel bad if the description in the abstract has you scratching your head. We use this illustration to highlight how participants in a given industry often speak a language all their own that can be indecipherable to the general public.

As a financial professional, you may empathize with this issue as much of the terminology used in retirement planning and investing can be confusing and daunting to investors. Perhaps nowhere is this more prevalent in your business than when discussing annuities with clients.

Much like the way some of the smartest scientific minds in the world introduce the black hole convergence discovery, you are unfortunately saddled with the burden of overcoming years of actuarial and legal annuity jargon that can leave clients baffled.

Fortunately, you have an ally in AuguStar Financial that is committed to helping simplify the language of annuities so that you can be more effective when matching the appropriate solutions to clients’ unique needs. To that end, here are a few concepts we have been kicking around at AuguStar where you might be able to replace confusion with clarity.

Accumulation Phase vs. Saving for Retirement
The term “accumulation phase” is commonly used in annuity discussions. But how about “saving for retirement?” Wouldn’t that make more sense to a client?

Annuity Payout Options vs. Income Choices
When discussing the various ways clients can receive income from their annuities, try using “income choices.”

Guaranteed Lifetime Withdrawal Benefit (GLWB) vs. Minimum Income Stream
GLWB is cumbersome and can be off-putting. Instead, you could use “minimum income stream.” Annuity guarantees are subject to the claims-paying ability of the issuer.

Deferred Annuity vs. Future Income Solution
The term “deferred annuity” can sound complicated. You can try “future income solution” because that is actually what a deferred annuity is.

Surrender Charges vs. Early Withdrawal Fees
Explaining “surrender charges” as “early withdrawal fees” makes the concept more relatable.

Annuitization vs. Income Activation
Annuitization is the process of converting the accumulated funds into a stream of income. So why not use “income activation?”

Fixed Annuity vs. Stable Payment Contract
How about using a “stable payment strategy” instead of a fixed annuity, as it emphasizes the reliable income it offers?

Death Benefit vs. Inheritance Feature
Most clients can’t understand how “death” can be a benefit. A more positive approach would be the “inheritance feature.”

Annuitant vs. Income Recipient
The term annuitant can be perplexing. Instead, refer to the person receiving income as the “income recipient.”

Riders vs. Additional Benefits
A rider is an odd term for most clients. Explain riders as “additional benefits” that clients can use to customize to meet their specific needs.

Conclusion

Confusing language can become a barrier to your ability to improve conversations with your clients and enhance the trust they have placed in you. And a big part of that confusion is simply inherent in the terminology that has been used by participants in the investment industry for years. Unfortunately, annuities are not immune to that confusion.

But the world of annuities doesn’t have to be a convoluted experience filled with obscure terminology. As a financial professional, your role is to guide your clients toward sound financial decisions and make complex concepts more accessible. Adopting clear and straightforward language can help demystify annuities and empower your clients to make informed choices about their retirement income.

Remember, AuguStar Financial is here to help you make your annuity conversations much easier and more effective.