Fixed indexed annuities: The best of both worlds
By Ryan Parker
Bankers Annuity Brokerage
Remember, while you know this product inside-out, to your prospect or client, a fixed indexed annuity may sound too good to be true.
Not that long ago, annuities were far simpler: Either you chose the safety of a fixed annuity, or elected to go for the riskier variable annuity. Now days, clients can choose from a far greater class of annuities — everything from immediate and deferred annuities to book-value and market-value annuities.
With such an explosion in annuity options, there's certainly an annuity product to serve your every client's needs, depending on their financial circumstances and goals, and, of course, their tolerance for risk. However, this breadth of options can make choosing an appropriate annuity confusing for investors.
This is where the beauty of the fixed indexed annuity (FIA) really shines. The ultimate hybrid of the classic fixed and variable annuities, fixedindexed annuities not only simplify the quest for the ideal product, but they're also well-suited to meet most of your clients' needs — no matter their financial goals or where they are in life.
Unlike traditional fixed annuities, FIAs offer the opportunity for growth in addition to a guaranteed principal. And unlike variable annuities, the FIA is far less aggressive and carries less risk. This makes the FIA ideal for many, if not most, of your clients.
When you describe the fixed indexed annuity to your clients and prospects, be sure to emphasize the simple facts. Remember, while you know this product inside-out, to your prospect or client, a fixed indexed annuity may sound too good to be true. So before delving into the details, try the “in a nutshell" approach. The idea is to succinctly explain to prospects and clients alike that FIAs are tied to indices such as the S&P 500 or the Russel 100 Index, which grants them the opportunity to participate in stock market gains indirectly, protecting them from the volatile nature of the market itself.
Additionally, ensure they understand that while they can benefit from market upswings, their principal investment is guaranteed never to decrease, should the index take a dive.
This appeals to a wide range of investors looking to add some security to their portfolio without sacrificing potential gains. For younger clients who tend to be less risk-averse, an FIA can fetch as much as 60 percent of the underlying index's performance, and if the markets take a hit, they won't lose any of their principal, as it is guaranteed by the insurer.
For older, more risk-sensitive clients, the fixed index annuity can also play a strong role in their investment strategy. The reason is simple: Their investment is guaranteed never to decrease, while still holding the promise of a high rate of return. Some annuity companies even go so far as to promise that even if the markets don't perform well, their investment is guaranteed to grow by a small amount annually — typically somewhere between 2 percent and 3 percent.
Whether you're speaking to a prospect or meeting with a current client, unveiling the mystery of fixed indexed annuities — and how advantageous they can be in any portfolio — will not only open the door to numerous sales opportunities, but also demonstrate that you have your clients' best interests at heart.