Alternatives to annuities in portfolios? Plenty, financial advisers contend

Erin Botsford hasn’t always been a fan of annuities.

In fact, the president of The Botsford Group — and self-described “former anti-annuity girl” — had little interest in the insurance products until she encountered a wholesaler selling the first variable annuity with a living benefit. That was in 1999 — at the height of the dot-com frenzy.

“It felt like the markets were getting heated up and frothy, so I proposed the annuity to clients,” Ms. Botsford said.

Her timing was perfect. The dot-com bubble burst, but her clients’ income benefit rose by 5% a year.

Better yet, the product had a commuting feature, which allowed clients to move 90% to 95% of their principal value to another product.

Despite such success stories — and the Obama administration’s desire to let plan sponsors include the insurance products in their 401(k) menus — annuities remain a much-debated topic among financial advisers. Indeed, many advisers remain wary of using annuities in retirement portfolios, preferring other strategies to help boost income.

In a panel discussion last Tuesday at the summit, Jeffrey G. Cribbs, president of Chicago Wealth Management Inc., spoke about the stock market’s advantages — and specifically about keeping clients invested in the market through rocky stretches. He also championed the use of a long-term, simple moving average to decide when to increase or decrease allocation to the markets to help dodge large losses.

Such an approach can be hard to pull off because a substantial decline in stock prices tends to spook investors.

Often, they flee the market and go into cash rather than considering which asset classes might fare well during a downturn. Market rebounds take time and require clients to stick around, Mr. Cribbs acknowledged.

“I wouldn’t advocate trying to blindly develop a system like this, but you can use the moving average to get in and out of the market,” he said. “I think you can make more-intelligent decisions outside of emotion when you’re thinking about moving assets from risk.”

Likewise, Charles J. Farrell, principal at Northstar Investment Advisors LLC, touted the use of more-traditional assets to generate retirement income. His preferences: bonds laddered by maturities, and dividend-producing stocks.

During the panel discussion, he said that when buying income-producing assets, clients need to be aware that capital gains take a back seat to the generation of steady and growing income.

“You can provide a stable stream of income, even through other types of volatility,” Mr. Farrell said. “And you can get asset appreciation.”

For her part, Ms. Botsford sees the value in a full array of investments. But she is still using annuities to help meet clients’ retirement income needs.

Ms. Botsford asks clients how much money think that they will need to cover their basic living needs and lifestyle, then funnels assets into the annuity bucket. The rest of the money is invested elsewhere, she said.

E-mail Darla Mercado at [email protected].