Fixed Index Annuities

[VolAgent]

I just looked it was the OPTI-Point series and it was cut in half.

I believe that was just on the 5 year surrender version.

 

[scagnt83]

Me either...

What's your take on FIA's Scag? I know you do VA's too i believe.

My take is that they are a very effective product for the right situation.

I feel that there are some very complicated contracts out there and that some carriers make them more complicated than necessary; but there are still plenty out there that are simple, straightforward, and effective.


What most agents dont take into account when comparing EIAs to VAs is the ratcheting effect of locking in the gains.
It can make a big difference. It takes more catch up than most realize to come back from down years in the market.
Combine that with a guaranteed minimum return and its a very effective package.

LFG has some good FIAs, along with ING and AG as well.
Im not a fan of the more complicated crediting methods and exotic indexes. Just give me the S&P, maybe the Dow.
Also, I am not a fan of participation rates for the indexed returns or guaranteed returns. Just make it easy and base it all off of 100%.

The biggest problem I see with EIAs is not just the complexity of some;
but the general ambiguity of where rate caps might be in the future & in relation to future positive markets.
(like right now, EIA rates suck bad. a VA looks much more attractive in the current rate environment, but the market very well could have just capped too. so you have to plan long term, but rate caps like what we have now make it really hard to think that way...)



The VA market is looking better all the time imo.
Its no secret that im a fan of JN, Pru, & LFG when it comes to VAs.
The income riders available are extremely strong, and Pru has some great riders on the accumulation side.

A lot of clients 50+ who work with a stock broker or money manager know that they need to reduce their risk, but they are still often hesitant to.
VAs combined with riders can be a great way to start scaling down their risk, while still being in the market.

Often times I will split assets between a VA and an EIA.
VA clients that did not choose income riders will probably be presented an EIA when the surrender time is up. Since they will be used to annuities at that point and will certainly need to reduce their risk even more then, it should be a pretty easy sale.

The biggest problem with VAs (imo), are the fees.
To add a rider you are usually looking at 1%-2%, then you have to add on the fees associated with the investment portfolio selected (usually .8%-1.5%).
So your looking at around a 3% loss due to various fees.
So that 10% VA gain is a 7% net gain.
I have seen plenty of FIAs get 7%. I have dealt with old FIAs that have averaged 6%-8%.
So lets say that the VA will need to perform 11%+ on average for the extra investment risk of the VA to have paid off.
In reality, most pre-retirees do not have the risk tolerance to go after 11%+ gains (or at least they shouldnt).

With all of that in mind, I would say that a FIA is a more suitable product for the 60+ crowd (as a general statement), and is also a more effective product for them.

I like VAs with accumulation riders for the younger crowd (again, a general statement). They have longer to go and are in a position to accept the risk needed for a VA to make sense.
But a VA with an income rider can be a great fit for a 50+ client who needs/wants that money to be in the market, especially if they fixed assets elsewhere.

But at the end of the day it just all depends.
They can both be very effective products for the right circumstances.
A lot of it will come down to client preference. Some clients just "want" to be in the market, so you have to go with it.

But there is no way I would want to be a one trick pony in the annuity market.
If I am in competition and the competition is blasting my VA, the first question I have the client ask them is if they are licensed to sell VAs; then, I have them ask if they could explain the VA I presented to them.
That usually takes care of the situation 98% of the time...

FIAs are not suitable 100% of the time (even though its 100% (or close to it) of what many agents sell).
VAs are not suitable 100% of the time.
You need to be able to offer both to properly serve your clients.

 

[crimsontideagent]

Very insightful post Scag...

Have you seen the Jackson setup where you can go straight FA now at 4% and if caps get better, transfer with no fees to the FIA then...? Gotta love JNL

 

[0b1kanobee]

Very insightful post Scag...

Have you seen the Jackson setup where you can go straight FA now at 4% and if caps get better, transfer with no fees to the FIA then...? Gotta love JNL

I might be wrong but I think JN just pulled that product or one similar.
I was just looking at a VA statement yesterday where the account value at the beginning was 142k or somewhere around there and is now at 190k something for the year thus far. The rep said it was a 35% return but there was also 7k in fees for that account. The numbers are not exact but close. I think it was JN but I'm not positive right now (forgot).

 

[crimsontideagent]

Scag - you like Pru for accumulation - can you elaborate?

Also explain the Highest Daily rider for those without a wholesaler contact...

Do you use it straight up with no riders, ie if you are gonna use riders go another way...?

Thx.

 

[scagnt83]

Scag - you like Pru for accumulation - can you elaborate?

Also explain the Highest Daily rider for those without a wholesaler contact...

Do you use it straight up with no riders, ie if you are gonna use riders go another way...?

Thx.

OK, here is my 2min explanation and rationale.

First of all, my philosophy is that there is never just one solution to a problem, especially when it comes to product solutions.

I usually layout 2 or 3 options for the client (all feasible options), explain them, usually make a recommendation out of the picks, and go with whatever gives the client a warm fuzzy feeling...


That being said.

Pru has a couple of "HD" riders to be exact.
(as a disclaimer, interest rates or features i state might be a few months old and are just to the best that I can recall at the moment)

Their GLIB has a highest daily component to it where you can lock in the highest day of a year and use it as a step up in benefits. Its a very strong feature.

But I prefer JNLs GLIB. its the "LifeGuard Freedom 6" if I remember correctly.
It only gives you step ups on a yearly basis instead of a daily basis as with Pru, they both give you a 6% rollup guarantee, but its other features are what makes it better in my eyes.

It has better investment choices, it does not reallocate funds when income is chosen, and last I checked it paid more in income during the years that most people will be taking it (age 65-70).



Then they have two that are just accumulation based.
The HD Gro & the HD Gro Plus.

The Gro lets you lock in the highest day of the year as long as its at least a 7% increase from the basis/last lock in. It is locked in for a 10 year period.

The Gro Plus basically does the same but on a 7 year time frame, it also lets you do the same thing every 7 years after.


So for a client who is not concerned about taking income but wants/likes some type of safety net or doesnt want their safety net tied to an income stream, this can be a good way to go.

But if the client isnt concerned with a safety net of any sort, then I usually would go with JN with no riders.

 

[VolAgent]

But I prefer JNLs GLIB. its the "LifeGuard Freedom 6" if I remember correctly.
It only gives you step ups on a yearly basis instead of a daily basis as with Pru, they both give you a 6% rollup guarantee, but its other features are what makes it better in my eyes.

My only beef with JNL is that the rollup is simple, not compounded, and I believe it is limited to 10 years between step ups. If you get a lot of market step ups, it doesn't matter. But if you have bad luck/timing, you are pretty much going to be using the guarantee on the rider. It definitely matters then.

 

[scagnt83]

My only beef with JNL is that the rollup is simple, not compounded, and I believe it is limited to 10 years between step ups. If you get a lot of market step ups, it doesn't matter. But if you have bad luck/timing, you are pretty much going to be using the guarantee on the rider. It definitely matters then.

You would be hard pressed not to receive any stepups during a 10 year stretch.... yeah i know it could happen, but its not very likely..

Also, its not a true rollup, its a bonus.
So you can take a stepup in a hot year, then if the market is down the next you get a 6% bonus on the stepup amount.

 

[foxmarble]

Im a fan of North American and Allianz. North American has had strong combo of bonus and caps.

 

[VolAgent]

You would be hard pressed not to receive any stepups during a 10 year stretch.... yeah i know it could happen, but its not very likely..

Also, its not a true rollup, its a bonus.
So you can take a stepup in a hot year, then if the market is down the next you get a 6% bonus on the stepup amount.

Same with Met or LFG, you get your 5% off of last years benefit base. And you could easily go 10 years without a step up. If bought in the beginning of 2008, you've already gone two years without a step up. Factor in expenses and your rollup for two years and the account value might never catch up.

Also, aren't most of the rider charges factored off the benefit base and not the account value? The further you get underwater, the less likely you are to ever get out.