Debate over the fiduciary rule cast annuities in a harsh light, resulting in a recent sales slump, but fixed index annuity issuers and distributors remain optimistic.
Few firms have
Fiduciary advocates often rip annuities, and client arbitration cases involving the product
Despite experts pointing out costs to clients hidden in the fine print of annuity contracts, FIA sales
SWEET SPOT?
Labor Secretary Alexander Acosta’s
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FIAs may generate upside with limited downside, a package that appeals to some advisers and clients — as long as some hurdles can be cleared.
July 5 -
FIAs typically are deferred annuities, falling into the fixed rather than the variable category. However, investors' returns aren't fixed.
July 8 -
The broker’s written promise of 7% returns on a variable annuity made for a simple case, the lawyer for the claimant says.
April 21
More than 80% of the richest clients want big asset growth later in life, according to a new UBS survey.
The decision enshrined “the key part of the rule, which is applying fiduciary status to IRAs, the largest segment of the entire retirement market,” Lowe said. He presented a chart showing the largest average retirement assets clustered among Americans aged 50 to 69 years old.
“Look at the sweet spot of that market. Isn’t that exactly where you want to work?” Lowe said. “That’s who index annuities particularly appeal to. So they’re right in the same demographic that you all want to work.”
UPSIDES AND DOWNSIDES
FIAs’ guaranteed protection of retirees’ principal represents their simplest attribute and
Key caveats of those annuities, though, include a 6.25% point-to-point cap on upside for one product and a spread fee between 95 and 155 basis points for another product designed to earn 5%, notes Eric Aanes, president of Larkspur, California-based RIA Titus Wealth Management.
The latter would be “a terrible option because the insurance company controls the portfolio,” Aanes said. A third type pays the client 2.7% the first year but carries a 10-year surrender charge period, during which the insurers can reset the rate every year.
The products have “lots of rules” and “long lock-ups,” according to Aanes.
‘POTENTIAL LANDMINES’
While acknowledging that the fiduciary rule has made such annuities a hot topic, Aanes warned that advisors and clients should examine the products closely.
“It’s a matter of being sure that you understand the product and understand all the potential landmines,” Aanes says. “It’s almost like prescription drugs.”
For his part, Lowe counseled advisors to first identify the issuing company of any annuity. The president of the West Des Moines, Iowa-based distributor, which sells products from fellow Sammons Financial Network firm Midland National Life Insurance, also stressed the importance of educating clients.
“In a DoL world, complexity is the enemy of the advisor,” Lowe said. “Clients don't buy what they don’t understand; they shouldn’t buy what they don’t understand. And hopefully, we don’t see advisors selling products that they don’t understand.”
