Consider this from 1970 to 2004 5 year Treasury Notes (pretty safe huh?) had losses 46% of the time and the average loss was 4.3% if bought and held for a year. Wow! And the range of losses was 1/2% to 15%. Bonds are not safe. In fact there have been many studies to show that bonds are more volatile than the stock market...and the commissions for buying them are larger too.
I'm sure most of your clients never buy individual bonds, but if they do I have a sure fire way to prove to them that they shouldn't, call me if you need it.
Are annuities better than the stock market? Probably not over the long run, but most of our clients focus too much on the short run and ruin their returns unless you enforce some discipline.
But asset allocation and modern portfolio theory (emphasis on the theory part) say I can get the best returns for my risk level by proper diversification. But there are some flaws: the theory is based on historical numbers...did you know that the predictability of the S&P index from one year to the next is only 1%! But, the standard deviations over the past tell me what to expect. Sorry, but, but the past is not the future and volatility is a lot more now than in the averaged, historical past that goes into those calculations. Things change.
But, a fixed annuity has no standard deviation and is 100% correlated with the expected return...it is guaranteed by the insurance company. Returns of fixed rate annuities are about the same as quality bonds, since it is hard to predict interest rate future moves why not just take the guarantees and build maturity ladders at a rate hedge... which can be done with annuities easily and cheaply. Think about it.
Article from TLC Insights Fall 2005 Issue