AgenteNews Insurance Producer's Online Resource
The securities industry has campaigned to spin the poor fixed indexed annuity (FIA) as a low yield, illiquid investment that warrants extreme caution for retirees. The campaign has been effective. Agents have sold FIAs only to get the contract cancelled when the client’s broker convinced them it was a bad move.
Why such a vigorous assault on the FIA? Because fees for money under management disappear when the conservative investor chooses a savings plan like an FIA rather than an investment plan like stocks, bonds and mutual funds. There’s a term used in the securities industry when a client purchases an annuity: “annu-i-cide.” The client buys an annuity and the broker’s income dies. Thus, the campaign to cast an evil spell on the fixed indexed annuity continues.
But we’re fighting back. The Wharton School white paper on FIA’s, called “Real World Index Annuity Returns,” concludes that “Annuity returns have been competitive with alternative portfolios of stocks and bonds, and the FIA’s design has limited the downside returns associated with declining markets.” This white paper should be a staple in every agent’s sales kit. See the link below for a copy. http://fic.wharton.upenn.edu/fic/policy%20page/RealWorldReturns-revisedDec2010.pdf
Customer concern for not losing principle has outpaced the fervor to chase yield. “I just don’t want to lose any money” is the warble that is coming out of boomers today. “Going back to work is not an option.” You should sell your clients on safety and preservation of principle if they are not already sold. You’re there to protect the client’s money from market volatility and provide guaranteed income options. Stocks, bonds and mutual funds don’t provide guarantees. It’s not about the stock broker’s feelings, future income or client loyalty. If the client chooses safety and guarantees, you’ll make the sale.
The insurance companies that offer FIAs are fighting back with innovative annuities that address the second biggest concern boomers have: outliving their money. Guaranteed Income Riders are compounding at 6%, 7% and more on deferred fixed-indexed annuities to enhance income in retirement. In this low interest environment, a 7% compounded rate on an income rider that provides lifetime income is a compelling story. It’s guaranteed. Compare that to the mutual fund with market gains and market losses, annual fees and given a recommended withdrawal rate of 4½% from his portfolio for retirement income, the boomer has a 50/50 chance of outliving his money. At age 65, many lifetime income riders pay out at 5% or more guaranteed so clients have peace of mind. Most FMOs provide online research tools to help you compare income riders and death benefit riders on FIAs.
Each week on the “Ask Mr. Annuity Radio Show” we push back against the securities industry, educating listeners about safety and guarantees—two words that resonate with boomers after the two twin market crashes and the likes of Bernie Madoff that have left many with less money than they had 10 years ago. We discuss pension income that you can’t outlive because only 20% of Americans have a pension plan, and that means that 80% need to find another way to pay their bills in retirement. Ask your clients if they would like a second or third pension income if they were fortunate to have an employer-sponsored pension in the first place. A pension is a warm and fuzzy word that your clients understand. They want one, and you can show them how to get it if they have $100 per month to save or if they roll over an old 401(k) or take an in-service distribution from a current 401(k). It’s all about pension income. That’s an annuity.
The fixed indexed annuity is not the scary abyss that the securities industry would have the consumers believe. In 2009, President Obama appointed a Task Force on the Middle Class. After a year of meetings held all over the country, the task force released its recommendations in January 2010. Annuities are among the tools that the Administration is promoting to give Americans a better shot at retirement. Promoting the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reduces the risks that retirees will outlive their savings or that their retiree’s living standards will be eroded by investment losses or inflation.
