Lately, I’ve witnessed a surge of interest in indexed annuities. Allianz Life Insurance Co. of North America, for example, announced it is making a bigger push to get registered reps interested in indexed annuities by launching a line of products for broker-dealers and wirehouses.
Yet despite their growing popularity, I often have conversations with financial professionals that are still unfamiliar with indexed annuities. I believe this is due in large part to the fact that most financial professionals have had little exposure to them. That’s understandable given that indexed annuities weren’t universally embraced as a viable planning option until recently.
So first, a brief indexed annuity history lesson: The indexed annuity has been around since Feb. 15, 1995, when it was introduced by Keyport (who became SunLife) as a product that offered retirees and pre-retirees a conservative growth option. A Chicago Tribune article described the product a few months after its creation as a “’bridge’ between a fixed annuity, which like a CD, guarantees a set rate of return for a set number of years, and a variable annuity, in which the return depends on the performance of underlying mutual funds.”
At that point, the indexed annuity was a little known entity, and the jury was still out on its value for clients. (To read more about indexed annuity history and trends, check out my article from a few months ago in Financial Planning.)
Fast forward to 2013 and hundreds of indexed annuity options exist, and there are reasons behind their growing popularly. Today’s indexed annuities offer a range of features and benefits that may help people accumulate assets for retirement, protect their principal from market volatility, and turn those assets into a guaranteed source of income*.
At the same time, wirehouses are changing their perceptions of indexed annuities, and insurance companies who sell variable annuities are looking to replace guaranteed annuity products with indexed annuity products because it’s often easier to efficiently price guaranteed income riders. Additionally, low interest rates and the costly price of annual expenses are causing insurers to continually evaluate whether they want to remain in the variable annuity market. Because the recession put a squeeze on pricing lifetime income and death benefit guarantees of variable annuities, many of the largest carriers have taken a new look at the indexed annuity market.
More times than not, indexed annuity riders are less expensive to the client and offer greater benefits.
*Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.
Fortunately, opportunities remain for financial professionals who can navigate the new landscape. So the question for financial professionals doing commission-based business becomes, “How do I incorporate indexed annuity products into the current product options of my business?”
I recommend you do your due diligence. Just as many of you analyze prospective client’s portfolios via Morningstar or other analytic tools, why would you treat your annuity product offerings any differently? If you are looking for help, don’t hesitate to contact us. Our full-time case design team can run a custom analysis on your behalf. At the end of the analysis, if you find a better fixed income product for your clients (as many financial professionals have), make this option available to them!
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