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Changing the Conversation About Variable AnnuitiesBetter Communication Is the Key

Investment Products Offered

• Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed

> We believe the best way to raise Variable Annuity net flows is by engaging financial advisors who aren’t selling Variable Annuities

> Many of these financial advisors need what Variable Annuities offer, but are turned off by the feature-heavy Variable Annuity sales pitch

> Variable Annuity providers can expand the pie of Variable Annuity users by communicating with financial advisors more effectively

For use with insurance company home offices and wholesalers only.Not for inspection by, distribution or quotation to, financial advisors or the general public.

About the Authors

Daniel P. Gangemi

Managing Director, Market Research and Analysis

Mr. Gangemi is responsible for all customer, competitor and industry research in support of

AllianceBernstein’s businesses in retirement services, mutual funds, college savings, separate

accounts and variable accounts. Prior to joining AllianceBernstein in 2004, he was Director of

Market Research at OppenheimerFunds, Manager of Market Research at Prudential Investments,

and an analyst at Donaldson, Lufkin & Jenrette. Mr. Gangemi holds B.A. and M.A. degrees in

English from The City University of New York’s College of Staten Island.

Steve Scanlon

Managing Director, Subadvisory Services

Mr. Scanlon is responsible for AllianceBernstein’s subadvisory services business. Prior to joining

AllianceBernstein in 2003 as a regional manager, he was a wholesaler at Manulife Financial, where

he was the top wholesaler for six consecutive years. Mr. Scanlon is Chairman of the Investment

Management Committee of the National Association for Variable Annuities. He holds a B.A. in

interdisciplinary studies from University of Missouri at Columbia.

1

The Conversation Needs to Change

As one of the leading investment managers in the variable annuity/subadvisory business,

AllianceBernstein has witnessed considerable change over the past few years. A development

that especially concerns us is the very low level of new money going into variable annuities.

To understand this trend further, we surveyed financial advisors in 2006. What we found gave

us new insights into advisors’ views about Variable Annuities and Variable Annuity providers.

The most telling insights came from the 1,000 advisors we surveyed who aren’t currently

selling Variable Annuities at all. The vast majority of these advisors—77%—managed at least

$100 million in assets, making them the kind of “mega advisors” coveted by financial

services providers.

When we asked them why they didn’t do business in Variable Annuities, their bottom-line

message was clear: the conversation needs to change. Variable Annuity providers that want to work

with mega advisors have to do a much better job of communicating. That means avoiding product

features and technical jargon, and using client-friendly language to focus on key benefits like

guaranteed income.

If Variable Annuity providers can successfully change the conversation, everybody wins—the

investor most of all. That’s what it’s all about.

We’d like to share our research with you. The pages that follow will go into greater detail about

what our research revealed and our ideas on how Variable Annuity providers can expand their

base of Variable Annuity-selling advisors.

Daniel P. Gangemi Steve Scanlon

The demand for income should have variable annuity net fl ows soaring, but many advisors are using almost anything but Variable Annuities to generate income for their clients.

2 Changing the Conversation About Variable Annuities

Good news, right? Not necessarily—a closer look reveals

that net flows have barely budged. Variable Annuity

providers need to expand the pie of Variable Annuity users

by attracting new producers.

Little Growth from Net Flows

Overall asset growth in variable annuities has been booming:

total Variable Annuity assets soared to $1.2 trillion in 2006

from $583 billion when stocks bottomed in 2002.*

But very little asset growth has come from net flows—

just 8% of overall Variable Annuity asset growth in 2006,

even lower than 2003’s 10%.* The tremendous growth

seen in the last few years is largely due to exchanges and

the rising tide of market appreciation.

Considering the growing need for income-oriented

investment products, this doesn’t make sense: the

oncoming avalanche of retiring baby boomers may be

a huge, natural source of demand for the benefits offered

by Variable Annuities.

Instead, financial advisors are using other vehicles—

mutual funds, stocks, bonds and separately managed

accounts—to generate income for their clients. It almost

seems like Variable Annuities are the only income-oriented

product they’re not using (see exhibit on next page).

* Source: VARDS, SIMFUND Variable Annuity

Variable Annuity Net Flows Need a Jumpstart

Robust asset growth has been the headline story for the variable annuity industry in recent

years: total assets have more than doubled since 2002.*

Variable Annuity Net Flows Barely Register as Asset Growth Booms

Total Variable Annuity Assets (billions)2002–2006

2002 2003 2004 2005 2006

$583

809932 1,008

1,220

Percentage of Asset Growth Due to New Flows into Variable Annuities (billions)2002–2006

2002–2003 2003–2004 2004–2005 2005–2006

10%8 8

21

Past performance does not guarantee future results.Source: VARDS, SIMFUND Variable Annuity

We think the best way to lift Variable Annuity net fl ows is through fi nancial advisors who aren’t selling

Variable Annuities. It’s a great opportunity.

3

The Challenge: How to Add More Users?

The critical challenge for the Variable Annuity industry is to

expand the ranks of consumers who use Variable Annuities.

And the path to them isn’t through financial advisors who are

already selling Variable Annuities: they understand the product

and how to position it for their clients.

We believe the answer is to target advisors who aren’t

selling Variable Annuities, find out why they aren’t, and

turn these challenges into opportunities. If Variable Annuity

providers could learn more about how to meet the needs

of advisors who avoid Variable Annuities, doors that have

long been closed to Variable Annuities would open.

Ironically, many of these advisors would probably find

that Variable Annuities could neatly meet their clients’

income needs.

Expanding the Pie of Variable Annuity Users

Product usage in the past 12 months

Mutual Funds

Stocks/Bonds

Separately Managed Accounts

529

95%

85

71

52

Product usage in the past 12 months (among non-Variable Annuity producers), asked fi rst-quarter 2006.Source: AllianceBernstein Research, 2006.

Most of the non-Variable Annuity selling advisors we surveyed have clients that seem tailor-made for the benefi ts of Variable Annuities

4 Changing the Conversation About Variable Annuities

A Win-Win Proposition?

We wanted to find out why so many financial advisors don’t

sell Variable Annuities, so we asked 1,000 of them. Of the

advisors we surveyed, 77% were “mega advisors” who

manage at least $100 million in client assets.

One of the things we found could be considered a win-win

proposition: clients who need income and high-producing

advisors who want to provide it to them.

Here are a few simple facts that make this point loud

and clear:

> 95% of advisors who don’t sell Variable Annuities told

us that their practices focus on retirement and income

planning.

> 77% of their clients saved primarily to fi nance

future retirement.

> 88% of their clients were at least 46 years old, including

55% in the retirement sweet spot of 56 to 75.

There’s big potential in numbers like these.

Advisors Who Don’t Sell Variable Annuities Need Them—They Just Don’t Know it Yet

Many high-producing “mega advisors” don’t sell variable annuities, but they’re perfect

candidates to do mega Variable Annuity business: their practices focus on retirement and

income planning, and their clients overwhelmingly need income-oriented products.

Nearly All Non-Variable Annuity Sellers Focus on Retirement and Income Planning…

Percentage of Non-VA Selling Advisors Focused on These Business Practices

…and Nearly All Their Clients Need Income-Oriented ProductsPercentage of Clients with These Primary Savings Goals

Retirement planning

Finance retirement

Live comfortably today

Pay for education

Income planning

95%

77%

21

2

95

Source: AllianceBernstein Research 2006

Although non-Variable Annuity selling advisors fi nd the benefi ts of Variable

Annuities appealing, their interest plummets when they hear the word “insurance.”

5

Words Matter

Non-Variable Annuity selling advisors are very interested

in what Variable Annuities have to offer—just not if

Variable Annuities are described using insurance

terminology. 86% of our survey respondents had some

degree of interest in discussing a product that provided

guaranteed income, and 77% were interested in training

on income planning.

But their interest plummeted when these services were

described with the words “insurance” and “variable

annuity.” When we specifically asked respondents if they

were interested in training on insurance products, only

19% of advisors said they were.

Why is “insurance” treated like a dirty word? The answer

to this question is also the answer to an even bigger

question: why do many financial advisors—notably mega

advisors—choose not to sell Variable Annuities at all?

Good News and Bad News: Advisors React Positively Unless They Hear the Word “Insurance”

Income planning

Very interested Strong interest Moderate interest Not interested

Insurance Products

77%

39%

2621

14

19

Here’s how we asked“Are you interested in training on...”

“How interested would you be in a prodcut that could offer your clients guaranteed income in retirement with the potentiaal for market appreciation after your clients are already retired?”

Source: AllianceBernstein Research 2006

There’s too much emphasis on selling Variable Annuity features and not enough on benefi ts. It’s a big turn-off for advisors.

6 Changing the Conversation About Variable Annuities

Chronic Feature-itis

Variable Annuity wholesalers’ chronic overemphasis on

product features is the root of what non-selling advisors

don’t like about Variable Annuities: all of their other major

objections stem from this “feature-itis.” Advisors are

simply tired of taking a feature-heavy pounding.

What they really want to hear about are the benefits that

Variable Annuities offer, and guaranteed income is the

uncontested winner. The old adage that “benefits sell” still

rings true: benefits are what the customer ultimately buys,

and advisors need to know and explain benefits—not

features—to help clients understand the value a variable

annuity can provide.

Lost in Translation

Language matters when it comes to selling Variable

Annuities: Variable Annuity jargon can be so intimidating

that non-selling advisors don’t even want to try to

understand how Variable Annuities work.

While annuity features like GMWB, GMIB, GMAB, GWBL

and GMDB are common terminology for industry

professionals, most of the advisors we surveyed think of

them as part of some top-secret code.

As with features, the problem with Variable Annuity jargon

is that it gets lost in translation—it’s just too confusing for

most advisors or investors to comprehend.

Why Do So Many Advisors Avoid Variable Annuities?

It’s not an accident that many fi nancial advisors don’t sell variable annuities: for them,

avoiding Variable Annuities is an active choice to use other income vehicles—a choice that

boils down to four factors.

The Big Four: Reasons Why Advisors Don’t Want to Sell Variable Annuities

Percentage of Non-VA Selling Advisors Listing These as Reasons Why They Don’t Sell Variable Annuities

Too much jargon/Hard to

understand

Too feature-heavy/No clear benefit

Fees too high

Wholesaler never asks

what advisor needs

57% 54 50 46

Percentages are based on qualitative responses. Responses were grouped based on similarity of themes covered in qualitative discussions. Many discussions contained multiple reasons for decision not to sell annuities. The purpose of this display is to create a sense of prioritization as it relates to the advisor decision process.Source: AllianceBernstein Research 2006

Advisors might complain less about Variable Annuity fees if they

understood their benefi ts better.

7

Fees Seem Too High

There’s a perception among advisors that Variable

Annuities cost too much. Half of the advisors we surveyed

who don’t sell Variable Annuities specifically complained

that fees were too high.

We see a very clear link between complaints about high

fees and feature-itis: if advisors can’t connect features to

benefits, and their clients can’t see the value in the

features they’re being charged for, it stands to reason that

they’ll complain about high fees.

Who wants to pay for something when they don’t

understand why they need it or how they’ll benefit from it?

What About Our Needs?

Advisors feel strongly that Variable Annuity wholesalers

don’t try to understand their needs and, by extension, the

needs of their clients. It’s the natural result of wholesalers’

persistent emphasis on features.

This is basic human nature. People want their needs to be

acknowledged and taken seriously—particularly when

somebody’s trying to sell them something. Our conclusion:

wholesalers who really try to listen to advisors and give

them what they want will probably build stronger

relationships with advisors—and end up winning the sales

game as well.

Advisors in Their Own Words:

Learn More About Us!2

“ I can remember that we used to see Variable

Annuity wholesalers once in a while. We were

always blown away at how much they knew about

insurance, and how little they knew about us. They

never had the smarts to ask us what mattered to us,

so they just talked about the features of their

annuities and bored us to death…”

2 Highlights added. Source: AllianceBernstein Research 2006.

Improved communication can win the day: listen, learn, and use jargon-free language that clients can understand.

8 Changing the Conversation About Variable Annuities

Our research has helped us map out a game plan for

closing the communication gap with advisors who don’t

sell Variable Annuities. It’s based on three core principles.

Listen and Learn

Variable Annuity wholesalers need to go back to basics

when they deal with advisors—this is a two-way

conversation that requires more listening on their part,

not a sales pitch. Leave the detailed feature descriptions

at the door.

Given the chance, advisors would be happy to open up

and talk about what they need. That’s the opening

wholesalers can use to develop a role as the advisor’s own

trusted advisor—a role that should generate higher net

flows over a longer period.

Keep it Simple

Wholesalers should keep jargon and features out of the

conversation, and let clear benefits in: “guaranteed

income” is so much easier to understand than “GMWB.”

The key is to talk to advisors like they’d talk to their own

clients—the people who actually buy Variable Annuities.

Language that’s jargon-free and people-friendly gives

advisors something they can use in their own client

conversations.

Thoughtful questions, common-sense answers and an

emphasis on benefits are the way to go for advisors and

clients alike.

The Answer: Changing the Conversation

What will it take for variable annuity providers to convert non-sellers into sellers?

It’s a matter of communication: providers have to change the conversation to close the

gap with advisors.

Advisors in Their Own Words:

Where Are the Wholesalers Who’ll Listen?3

“ It is so rare to find a wholesaler that really listens

well, someone who isn’t waiting for me to stop

talking so they can blurt out their rehearsed pitch. I

find it difficult at times to find someone who is

genuinely interested in knowing what needs I have.”

3 Source: AllianceBernstein Research 2006.

Wholesalers can expand the pie of Variable Annuity users by helping more

advisors discover Variable Annuities and do the right thing for their clients.

9

Focus on Guaranteed Income

Guaranteed income is the single most important thing that

advisors need to know about Variable Annuities.

Wholesalers who center their conversations on features end

up leaving out Variable Annuities’ biggest benefit, by far:

guaranteed income is the essence of why advisors should

offer Variable Annuities and clients should consider them.

And don’t underestimate the importance of the word

“guaranteed.” In a financial services marketplace in which

guarantees are rare, it’s a matter of fact for Variable

Annuities.

It’s a Win-Win Proposition

If our core principles for changing the conversation sound

deceptively simple, it’s because they are—but it’s not

always easy to follow them.

So the Variable Annuity industry should try to remember

three key words that our advisor respondents used in

describing their ideal relationship with a wholesaler:

“Listen,” “understand” and “solve.”

Wholesalers who take these words to heart can help

advisors do the right thing for their clients, which is to plan

ahead for the income they’ll need in retirement. In the

process, wholesalers will also expand the pie of Variable

Annuity users. It’s a win-win proposition for everyone.Advisors in Their Own Words:

Emphasize Guaranteed Income4

“ Insurance companies should try to build a product

that is simple and less top-heavy with features.

The guaranteed income is the best part of that

product, but it is the last thing that anyone ever

talked about.”

4 Source: AllianceBernstein Research 2006.

Stagnant Variable Annuity net fl ows are a complex problem with a simple solution—just changing the conversation with advisors can make all the difference.

10 Changing the Conversation About Variable Annuities

Sometimes a complex problem has a simple solution.

In the case of stagnant Variable Annuity net flows, our

research concludes that it’s just a matter of improving

communication.

We urge Variable Annuity providers to have better

conversations with financial advisors by listening a lot

more, asking thoughtful questions, skipping the feature-

heavy jargon and emphasizing guaranteed income.

Advisors have told us it’s what they want—so why not

give it to them?

The potential results speak for themselves: significantly

greater interest in Variable Annuities, a much wider

universe of advisors who want to talk to wholesalers,

and more clients who get the guaranteed income they’re

looking for.

As part of our research, we interviewed many non-Variable

Annuity selling financial advisors to get their thoughts on

Variable Annuities and Variable Annuity providers. A

number of them told us how they’d like wholesalers to

approach them to have better conversations.

We’d like to pass some of these thoughts on to the

Variable Annuity community. Their common thread is that

advisors want real value-added from wholesalers—client-

focused ideas and a strategic perspective.

Better Conversations = Higher Net Flows

For variable annuity providers, our conclusion is clear: better conversations can open

advisors’ closed doors and bring in more new business.

Advisors in Their Own Words:

The Conversations They’d Like to Have

Here’s what advisors had to say, in their own words:5

“ A new wholesaler can catch my attention by saying

something that I just wouldn’t expect to hear from a

wholesaler, something relevant to my clients and to

me…something that I will care about at that time…

an idea that connects with the real needs of my

clients and can position me to seize an opportunity

that I may not have thought of.”

“ I had one wholesaler call me on my birthday. She

offered to come in and help me with putting my

clients into groups that needed to establish a regular

source of income in the next one, three and five years

so I could approach them and begin the discussion

tomorrow. That was unique and very real to me.”

“ When a wholesaler shows that they are looking for a

long-term partnership and can offer time and insight

that another wholesaler can’t offer, well, that’s the

wholesaler that I want to work with. A wholesaler

that shows me they are interested in this business for

years and decades is a wholesaler that will get a lot

of my business over that time.”

5 Source: AllianceBernstein Research 2006.

11

We chose many of the surveyed advisors specifically because

they didn’t sell variable annuities—instead, they primarily

sold mutual funds and separately managed accounts.

Of the 1,000 non-Variable Annuity selling advisors that

completed the survey, 77% managed at least $100 million

in assets.

To flesh out our written survey results, we followed up by

conducting in-depth interviews with 300 non-Variable

Annuity selling respondents. This group included 100

advisors in each of three distribution channels: major

brokerage firms, banks and financial planners. These

interviews generated the quotations used in this report.

Summary of Research Methodology

AllianceBernstein conducted a Web-based research survey of fi nancial advisors in 2006.

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1 As of March 31, 20072 Institutional Investor News awards honor the organizations that made an impact on the fi nancial services industry in 2005. Although nominations are solicited from the industry, award winners are researched and selected by the editorial staff. The breadth of the awards includes 10 categories, each with three nominees from across the global pension industry.

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For use with insurance company home offices and wholesalers only.Not for inspection by, distribution or quotation to, financial advisors or the general public.

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