Annuities with today's low market rates

[Guest]

How do you see the annuity market in a period of high volatility and extremely low rates? I don't see much problem with fixed products, but I'm not so sure FIAs are a good bet for the next 3 or 4 quarters. What do you think?

Al

 

[Ahnuld]

I'm partial to fixed versus indexed. Here's why:

Fixed annuities are easily explained to clients and do what they are supposed to do very well, i.e. they live up to their billing for their intended purposes: safety of principal, tax-deferral, no market risk, competitive interest rates, accessibility to the funds (liquidity), avoidance of probate, the ability to provide an income stream that cannot be outlived. It's not often mentioned, but they do not affect taxation of social security, they generally out-perform CD's with a locked in interest rate for a specified period of time, and importantly, they provide "peace of mind."

I suppose indexed products may serve these features, too, but it has been my experience that few agents with which I have had interaction really understand indexed annuities. And if they don't, how can they explain them to their clients? It's a learning curve for both agent and client to go through.

EIA have a lot of moving parts. i.e. interest crediting methods include annual reset (ratcheting), high-water mark and point-to-point, the participation rate, an upper limit - or cap, the floor - usually 0%, maybe a margin/spread/administrative fee calculation to determine the credited interest rate, index averaging, etc.

A lot to know about which contract features apply to which specific EIA offered by any particular carrier at any particular time. It's a lot to ingest and even more difficult to impart on a prospective client. It's not helped that the carriers periodically adjust and amend existing products and add new products to respond to market demand and change. Many agents keep current, bone up on innovation, new applications, and strategies of EIA's to know what's most suitable for their clients.

(Whew. Let me catch my breath). Before I dismount my soapbox: it is my personal view that shortcutting the process short changes the client (and maybe the agent, too?). Know your products. See what I mean?

 

[J.R.]

I'm partial to fixed versus indexed. Here's why:

Fixed annuities are easily explained to clients and do what they are supposed to do very well, i.e. they live up to their billing for their intended purposes: safety of principal, tax-deferral, no market risk, competitive interest rates, accessibility to the funds (liquidity), avoidance of probate, the ability to provide an income stream that cannot be outlived. It's not often mentioned, but they do not affect taxation of social security, they generally out-perform CD's with a locked in interest rate for a specified period of time, and importantly, they provide "peace of mind."

I suppose indexed products may serve these features, too, but it has been my experience that few agents with which I have had interaction really understand indexed annuities. And if they don't, how can they explain them to their clients? It's a learning curve for both agent and client to go through.

EIA have a lot of moving parts. i.e. interest crediting methods include annual reset (ratcheting), high-water mark and point-to-point, the participation rate, an upper limit - or cap, the floor - usually 0%, maybe a margin/spread/administrative fee calculation to determine the credited interest rate, index averaging, etc.

A lot to know about which contract features apply to which specific EIA offered by any particular carrier at any particular time. It's a lot to ingest and even more difficult to impart on a prospective client. It's not helped that the carriers periodically adjust and amend existing products and add new products to respond to market demand and change. Many agents keep current, bone up on innovation, new applications, and strategies of EIA's to know what's most suitable for their clients.

(Whew. Let me catch my breath). Before I dismount my soapbox: it is my personal view that shortcutting the process short changes the client (and maybe the agent, too?). Know your products. See what I mean?

I have no idea what you just said. Was that English?

 

[GreenSky]

How do you see the annuity market in a period of high volatility and extremely low rates? I don't see much problem with fixed products, but I'm not so sure FIAs are a good bet for the next 3 or 4 quarters. What do you think?

Al

If you are seling any annuity based upon the "next 3 or 4 quarters" then you are selling the wrong product.

Rick

 

[Mr. Bill]

True. As I've stated before, all interest crediting methods except for annual ptp will provide an opportunity for less than market returns and a challenge for the agent when the client complains. Rick's right - FIAs are sold on the basis that the stock market hasn't ever had a 10 consecutive year period with negative returns, therefore, any time period shorter than 10 years is a crapshoot in theory.

That said, there are far better income alternatives but not available to someone insurance-licensed only.

 

[Ahnuld]

I have no idea what you just said. Was that English?

salpro22,

I said I was a Marine. I never said I was smart.

Semper fi

 

[Guest]

If you are seling any annuity based upon the "next 3 or 4 quarters" then you are selling the wrong product.

Rick

Rick is right, of course. What I really meant to ask in the thread was how folks who are in this field see the market for selling annuities during the next 3 or 4 quarters given the current rates.

For the record I don't sell annuities but have been studying the products on and off (mostly off) for about a year and am fairly well-versed in fixed products... I have one myself. As for EIAs (which as the man said have more moving parts than a ferris wheel!) I still have another six to eight months of study before I'll feel ready to talk about these things to real people. Fortunately there are lots of good books and websites on these vehicles.

Al

 

[elliottmarks]

If you are seling any annuity based upon the "next 3 or 4 quarters" then you are selling the wrong product.

Rick

Hi Rick,

I'm curious what you mean by "if you are selling any annuity based upon the "next 3 or 4 quarters" then you are selling the wrong product"? Is there something better for the client or are you just saying they should wait for interest rates to rise and the market to correct itself?

 

[GreenSky]

Hi Rick,

I'm curious what you mean by "if you are selling any annuity based upon the "next 3 or 4 quarters" then you are selling the wrong product"? Is there something better for the client or are you just saying they should wait for interest rates to rise and the market to correct itself?

I'm saying that annuities are not a short term product. However, I don't currently sell annuities but this is one of my goals for the next 6-12 months. (My plate is full with supplements, MA plans, individual health).

Rick

 

[Ahnuld]

I agree completely. Annuities are not a short term investment strategy, it's design is for long horizon of time, say 10 years of more.