Misconceptions are everywhere.
Among many advisors and product managers, the perception exists that selling annuities to a client creates less loyalty than other products and services. Annuities, some argue, are a transaction product, not a relationship product.
In the c-suites of many financial institutions, the belief exists that the institution’s investment services business is not worthy of investment, because the profit contribution of the business is de minimis.
But both of these views turn out to be flawed when compared against what is happening on the ground among the customers.
A recent Kehrer Bielan study commissioned by Eagle Life Company provided insight into how consumers view fixed and fixed index annuities. We analyzed data from the MacroMonitor, the large-scale national sample survey conducted every other year by the Consumer Financial Decisions Group of Strategic Business Insights since 1978. The current survey was conducted during 2018 and published in 2019 and encompasses 4,100 households.
We found that fixed and fixed index annuities actually engender more loyalty than any other investment product, including advisory accounts. Nearly 65% of households that own a fixed or fixed indexed annuity purchased from their primary bank report that they would not consider switching to another financial institution, the greatest impact to loyalty we observed across 11 different types of investment products.
Source: Fixed-Rate and Index Annuities Get No Respect (sponsored by Eagle Life)
We can similarly utilize consumer data to assess the full contribution of investment services to the financial institution. The Bank Insurance and Securities Association (BISA) commissioned Kehrer Bielan to conduct research to help enterprise management see how an increase in customer penetration of investment services – the share of the institution’s customer base with an investment relationship – increases overall bank customer profitability.
Turning again to the MacroMonitor, we found that customers with an investment relationship with their institution are more loyal to the institution, use more banking products, keep more assets at the bank, and remain customers longer, so that the incremental banking income from the additional use of banking services continues from year to year. They are also more likely to view their bank as their primary bank and primary source of financial advice, key targets for the institution to hit as it seeks to deepen the customer relationship.
So, the contribution of the institution’s investment services to overall profitability far exceeds the direct profit contribution of the business. Myth busted.
Smart Investment: Evaluating the Total Return on Investment Services to the Banking Enterprise is available only to BISA members.
What’s Holding Consumers Back? Behavioral Biases and Annuity Myths Busted!
Hal Hershfield, PhD, Associate Professor, UCLA Anderson School of Management
Tim Kehrer, Director of Research, Kehrer Bielan Research & Consulting
Rod Mims, Senior Vice President, National Sales Manager, Athene USA
The Value of Investment Services to a Financial Institution
Kenneth Kehrer, Principal, Kehrer Bielan Research & Consulting
Richard Koll, Senior Vice President, Wealth Management and Insurance, Investors Bank
Nitin Mhatre, Chairman, Consumer Bankers Association