portfolio-design

This article, “The Growing Role of Fixed Annuities with Bank and Broker-Dealer Clients,” by Peggy Porter, published mid-October on NAFA’s Annuity Outlook Magazine’s website is definitely worth reading: http://annuityoutlookmagazine.com/2016/10/the-growing-role-of-fixed-annuities-with-bank-and-broker-dealer-clients/

Here are some of the points we found most interesting:

  1. “In recent years, product innovations among fixed indexed annuities (FIAs) have made these insurance products a rising star. FIA sales fueled by banks and broker-dealers have continued to grow since 2011. At the end of 2015, banks and broker-dealers (B-Ds) accounted for more than one-third of fixed indexed annuity sales (Index Compendium, April 2016). Banks were also the fastest growing channels for FIAs, with a 30 percent increase in sales and independent B-Ds experienced six percent growth.”
  1. “Several studies have found some retirees are more worried about running out of money than death. Although retiree confidence is up in 2016, only 39 percent of retirees are very confident in having enough money for a comfortable retirement, according to the annual Employee Benefit Research Institute 2016 Retirement Confidence Survey. Thus, it makes sense that banks and B-Ds need products with certain guarantees to help address consumer needs.”
  1. “For many registered representatives today, it becomes important to understand where the FIAs fit into the clients’ asset allocation. A traditional rule of thumb for many advisors is working with clients to develop an asset allocation of 60 percent in the equities markets and 40 percent in bond or fixed income options. It is important to understand that fixed indexed annuities are NOT designed to be part of the equities portfolio; they should be an option for the 40 percent in fixed income products.
  1. “On top of the increasing sales numbers and consumer trends attesting to the many benefits of fixed indexed annuities, they are also well loved by the people who own them. Among those who purchased a fixed indexed annuity in 2015, more than 99 percent of owners had no complaints (April 2016 Index Compendium, Jack Marrion). Moreover, 85 percent are likely to recommend an annuity to a friend or family member – which means more referrals and business growth for you.”
  1. “Vice President of Broker-Dealer Sales for Great American Insurance Group, Tony Compton, believes increasing fixed annuities sales is fueled by low interest rates on the products that clients typically consider for guarantees or greater premium protection. The traditional bank product rates are quite low; therefore banks are looking for alternative options for clients. Independent broker-dealers have traditionally looked to bond portfolios for clients seeking a safer option than equities. For B-Ds, the conservative bond portfolios are now offering lower earnings, so they are looking for options for their clients with a lower risk tolerance.
  1. “According to Compton, ‘Many of the products which were traditionally considered safer are producing very low interest rates right now.’ He noted, ‘Transferring the interest rate risk to an insurance company for the guarantees of the fixed indexed annuity is offering additional options for advisors and clients today.’
  1. “Compton went on to note, product fees are also an issue that has come to the forefront with many consumers. As clients are becoming more aware of fees, the consumer and advisor have moved to looking at the fixed indexed annuities which now offer many income riders and death benefit riders. These riders are similar to those offered on variable annuities, but in many cases the FIA riders are priced lower and can provide similar income and guarantees to the consumer.”
  1. “Compton mentioned that the insurance carriers are traditionally very nimble to the needs of the industry and clients. Some insurance carriers that offer FIAs are now responding to the needs of fee-based financial professionals by offering FIAs with zero commission, which is designed specifically for the business structure of the fee-only advisor. This opens the doors to both a fee-only business model and the traditional commission-based model, both of which have their advantages for consumers.”

If you have any questions about how fixed annuities can fit in your client’s portfolio, call us at 800.440.1088.