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Annuities as an Asset Class for Fee-Based Advisors l 2 © Envestnet 2022 Introduction Fee-Only Advisors and Annuities There are competing viable approaches for building a retirement income strategy. Traditionally, Registered Investment Advisors have tended to emphasize investment-centric approaches that rely on earning the risk premium from the stock market as the most effective way to support a retired client's financial goals. With this retirement strategy, stocks are expected to outperform bonds over sufficiently long periods, and this investment outperformance will provide retirees with the opportunity to fund a higher lifestyle. Should decent market returns materialize and sufficiently outpace inflation, investment solutions can be sustained indefinitely to support retirement goals. Those favoring investments rely on the notion that while the stock market is volatile, it will eventually provide favorable returns and will outperform bonds. The upside potential from an investment portfolio is viewed as so significant that insurance products are not needed. Advocates for this strategy are generally more optimistic about the long-run potential of stocks to outperform bonds, so retirees are generally advised to take on as much risk as they can tolerate to minimize the probability of plan failure. Answers about asset allocation for retirees generally point to holding around 50 to 80 percent of the retirement portfolio in stocks. In recent research highlighted at Michael Kitces' Nerd's Eye View blog, Alex Murguia and I determined that this investments-centric approach will resonate best with about one-third of the population aged 50-80 in the United States. There are other viable options that favor incorporating contractual protections and commitment to a strategy which are more appealing to two-thirds of the population when seeking to meet essential spending needs in retirement. Investments-centric financial advisors may respond differently to this finding. Some will dismiss it, arguing that aggressive and diversified portfolios are the best way to fund retirement and so the advisor's job is to encourage retirees to invest as aggressively as possible to be exposed to the most possible stock market gains. Other advisors will recognize that there is more than one way to create sustainable retirement income, and it is important to also be open to a role for insurance-based tools such as annuities that use risk pooling to support retirement expenses. A personalized plan can be tailored for each individual client using the appropriate combination investment and insurance tools to make the client comfortable with their chosen approach. Some clients will be okay with only using investments, some may already have enough traditional pension income that annuities are not needed, but some may have a gap between reliable income and core spending needs that they would feel most comfortable closing with an annuity. A personalized plan can be tailored for each individual client using the appropriate combination investment and insurance tools to make the client comfortable with their chosen approach.

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