Given unprecedented low interest rates, which shows no signs of material change, we have been asked a common question from our clients, “Should I continue to promote gift annuities?” There appears to be some skepticism and nervousness in the industry on whether it’s a good strategy to continue to market these gifts now because annuity rates are low and donors aren’t interested, and rightly so. With a few exceptions, and those are from organizations who don’t follow the ACGA rates, most charities are experiencing a decline in gifts this year and at best it’s flat compared to last year.
Not promoting CGAs poses several issues, but the biggest is this: your decline in gifts will be a self-fulling prophecy. Most gift officers probably know this, so the real challenge is to make sure leadership understands why continuing to promote their CGA program is a sound strategy.
It’s actually a pretty good time for charities to issue annuities because annuity rates are at nearly all-time lows. The problem is at the donor’s end. There are a number of reasons donors are not making gift annuities. The uncertainty of the election is probably the biggest problem. Objectively, by all reliable indicators, the economy is strong and getting stronger. Nonetheless, there is lingering economic uncertainty among the gift annuity age population. The net impact is that donors are hesitant to take action.
One Example
Here’s an example that illustrates the problem. A client has been doing a gift annuity acquisition mailing each March since 2011. The response rate (percentage of proposals) generated are low, but consistent with other clients. The conversion of proposals to completed annuities is the most telling statistic. In 2011 3.51% of proposals generated completed gifts, in 2012 it was 2.88%. The 2016 mailing generated only a 1.92% conversion from proposals to completed annuities. In 2016 they generated 156 gift annuities illustrations but only closed 3 annuities. If their conversion ratio was at 2011 levels, they would have closed twice as many annuities as they did in 2016.
The Takeaway
Our advice to our clients is to stay the course. Do not pull back on gift annuity marketing or your organization could enter a downward spiral. At a minimum, keep doing what you are doing or even consider increasing marketing of annuities with messages like, “An annuity is an anchor of stability in uncertain times.”
If a charity has annuities, pulling back or not issuing annuities is locking in losses and increasing risk. Issuing gift annuities during all economic times, up and down, helps diversify the pool. Annuities are profitable for charities that attend to their annuity programs in good times and bad.
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