Indexed Annuities S&P 500 WTF

[pfg1]

Every IA that I have sold is in the 3%-9% range for annualized returns. Most are in the 4%-7% range.

I agree with that. When I talk to a client about a FIA annuity, I tell them to realistically expect somewhere in the 4-6% range long term, could be better or worse depending on the market.

I don't do alot of them, but some. Got a statement this past week... he earned 6.39% based on the allocations he picked (one of which was 25% in fixed bucket at 2.5%). Sure, its not "market" returns, but he also has no risk. He's happy with what his annuity has done over the past 4 years - given the fact that he can't lose money. I would say most of my clients are in the 4-7% range as well.

 

[Charpress]

I don't even talk about "market return" on any product I recommend. Are there exceptions? Sure.

Most of the cases I deal with involve people with income and long-term care worries. I focus on income riders with guaranteed percentage roll-ups and make it clear the "return" is solely available for an income stream down the road. Then the discussion goes to how the income stream can be increased, even doubled, if long-term care becomes an issue. Then the issues goes to which companies make the LTC option available for in-home or nursing home care as opposed to institutional care only. THAT is what they want to know once you bring it up.

So fine, it is theoretically possible to beat the 7% rollup, and it actually happened with some products I sold that in this past year made close to 9%, but why even confuse the issue? People are hungry for decent fixed rates, not "if the market does this you will do that and here are caps and spreads and whatif and whatis and we need to choose a strategy or maybe some mix of strategies and here are the statement of understanding pages with nifty graphs of what could happen, or maybe won't happen....." No, that is where the eyes glass over and the sale is lost.

The market returns on these products are only relevant to what the non-income bucket is doing. I usually don't get into this at all until we get to the point of choosing a strategy on the application. Then the conversation turns to the non-income issues of "the other bucket". I would say that 90% of the people at this point have no real interest in the "market" strategies. The usual response is "Yes, but -I still get the guaranteed rate for income, right?"

As long as you are very clear that we are talking about money available for income and not money you can walk away with, then that is where the conversation needs to be. That is the conversation people want to have.

 

[scagnt83]

How can I break away and keep my current clients without a BD?

Convert them all over to a Fee based model. I know of some guys that have done it and do not use a BD at all.

 

[SanDiego619]

I'm not an expert in indexed annuities... but for now, the lowest surrender charge and highest annual pt-to-pt cap I've found is with ANICO Strategy Plus 7 FIA. 7 Years & 4.25% annual pt to pt cap.

Independent Marketing Group of American National

However, caps can change every year. And as scagnt83 said in other thread - what incentive does an annuity carrier have to increase caps on in-force business?

It IS a function of interest rates. For example: interest rates are around 3%... so they put 97% of the principal into bonds - knowing that compounding with bonds will make it "whole" after 1 year. They take the remaining 3% and buy the call options.

When interest rates rise (and the index segment is renewed), there will be more money to buy & leverage with index options. Instead of 97% growing at 3% to make it whole, it could be 95% growing at 5% to make it whole. With greater buying power, you can have higher caps. And this way, caps can increase on the same contract.

This is overly simple, but it's generally how it works.

AEI Choice 6 is a 6 year surrender with a 4.5% cap. AEI Choice series should be the #1 annuity in the country right now honestly

 

[unic.consulting]

Some of what you say is true. I see both sides of the argument. I have heard IAs pitched in a way that is totally misleading. But I have heard the same thing happen with stock brokers on how a portfolio will perform... or even worse, from VA salesman about the Income Rider "guaranteeing you x% return on your money"... of course that one happens with IAs too.

But you keep referring to low caps and long surrender charges in your posts about IAs. Which is misleading in and of itself. Like I pointed out before, there are many IAs with a 5 or 6 year surrender. There are two products with a 4 year surrender.

There are also other crediting methods than a Yearly Cap. I have 1 contract that I sold last year that uses a Spread/Participation Rate and is at 7% right now. I have another at 6% that I just reviewed with a client.

From 2012 - 2013, I had some contracts that use a Monthly Cap that had double digit returns as high as 18%.

Every IA that I have sold is in the 3%-9% range for annualized returns. Most are in the 4%-7% range.

Just like there are good mutual funds and bad mutual funds; there are good IAs and bad IAs.
I admit that the current IA market (for new sales) has pretty low Caps generally speaking. There are literally only 3 or 4 products I would sell right now.
But there are crediting methods other than the yearly cap that you always bring up. And those options exist on 5/6/7/8/9 year products.

Any product (securities or non-securities) can be mis-sold or mis-represented. Requiring an additional test is not going to fix that...
I came across a guy a few weks ago with a Pru VA with a 7% Rider. He told me that his money was guaranteed a minimum 7% return and that he could cash that 7% return out after 6 years. He even showed me a one page overview that the series 65 CFP who sold it to him gave him. It did not mention once that the 7% was only for an income account....

You cant regulate ethics.

SC, which products would you sell? I'm still new to the FIA side, and I've seen a few products that I think are good, but a lot of bad ones. I'd just like to check out the ones you like.

 

[scagnt83]

SC, which products would you sell? I'm still new to the FIA side, and I've seen a few products that I think are good, but a lot of bad ones. I'd just like to check out the ones you like.

I use the mutual fund analogy to describe annuities... there are A LOT of MFs in the market, but only a handful of quality MFs that consistently outperform their benchmark index.

IAs are the same way. Lots of option, but only a few really good options. And since the Caps/Spreads/Participation Rates/etc are dependent on interest rates, that really limits the selection in this ultra low rate environment.

American Equity Choice 6 is one of the best, if not the absolute best product on the market right now. It has a 4.5% P2P Cap. But what I like is the 1.75% Spread on the S&P 500 Dividend Aristocrats 5% RC Index. The historicals on that option are very very strong.

AG has a nice looking 7 year product called the Power Protector. It has an option for a Merrill Lynch "Balanced Index" that uses a 2.4% spread on a 2 year p2p basis. It has really strong historical lookbacks too.

NWL has a 7 year product that has fairly low spreads. But I have had less than stellar experiences when working with them. So I no longer send them any business.

I wouldnt sell an annuity over a 7 year surrender right now because of the current rate environment. Nor would I sell an income rider.

 

[EAJoe]

AEI Choice 6 is a 6 year surrender with a 4.5% cap. AEI Choice series should be the #1 annuity in the country right now honestly

100% agreed, along with American National's ASIA 7 & ASIA 10. Great caps with no frills. I always look for a high monthly point to point cap, it makes returns like this possible. Here's the full crediting history for Bonus Gold issued on that specific date - Imgur

If you put $100,000 into that contract at issue, you would have had a fully vested 10% bonus day one. Assuming you were allocated 100% to the S&P monthly point to point, here's what your contract value would have been at the end of each year:

1 $120,109
2 $120,109
3 $132,420.17
4 $149,899.63

I don't think anyone would complain about earning nearly 50% on their money in 4 years, with zero downside risk, and have the gains locked in forever. This situation while not typical, is absolutely possible.

Most products with a bonus, like the one above, have pretty bad rates and caps right now, especially on the monthly point to point, which makes AE Choice Series and American National ASIA 7 & ASIA 10 so attractive right now. Not many other products these days still have a 2% monthly point to point cap.

 

[SanDiego619]

100% agreed, along with American National's ASIA 7 & ASIA 10. Great caps with no frills. I always look for a high monthly point to point cap, it makes returns like this possible. Here's the full crediting history for Bonus Gold issued on that specific date - Imgur

If you put $100,000 into that contract at issue, you would have had a fully vested 10% bonus day one. Assuming you were allocated 100% to the S&P monthly point to point, here's what your contract value would have been at the end of each year:

1 $120,109
2 $120,109
3 $132,420.17
4 $149,899.63

I don't think anyone would complain about earning nearly 50% on their money in 4 years, with zero downside risk, and have the gains locked in forever. This situation while not typical, is absolutely possible.

Most products with a bonus, like the one above, have pretty bad rates and caps right now, especially on the monthly point to point, which makes AE Choice Series and American National ASIA 7 & ASIA 10 so attractive right now. Not many other products these days still have a 2% monthly point to point cap.

Ya ASIA is fine. I still think Choice is better whether it be 6 or 10

 

[EAJoe]

Ya ASIA is fine. I still think Choice is better whether it be 6 or 10

Only reason I would do ASIA over Choice is ASIA 7 has a 2.00% monthly point to point cap, which is the same as Choice 10.

 

[DHK]

Uh... it's NOT a 2% monthly point to point cap.

Here is the product description:
Independent Marketing Group of American National

Please read this carefully: Total Sum Performance with a Monthly Cap

How does it work?

Let's look at the brochure here: http://img.anicoweb.com/cs/groups/p...ents/webcontent/10618_asiaplus10_brochure.pdf

The monthly sum strategy credits interest on an annual basis by comparing the monthly changes in the S&P 500 Index. Each month, American national will calculate the changes in the index value compared to the previous month. Increases each month are subject to a Cap while decreases each month have no bottom limit. The 12 values are summed to determine the annual interest credited with a floor rate of zero percent. There is no Cap on the final interest rate credited.

What does that really mean?

Suppose you actually earn 2% each month (maximum 24% per year)... but in October, the index takes a dive of 30%. How much is credited to your annuity?

Zero. (24%- 30% = -6, but negative interest is never credited)

This is NOT a "2% monthly point to point cap" as you keep alluding to, but a monthly sum strategy that credits interest annually.


Run some illustrations comparing annual caps versus the 2% monthly averaging strategy and you'll see that it doesn't lock in monthly gains.