Fixed indexed annuities: Working the flexibility angle
By Daniel Williams
Well, if there was ever any doubt about the long-term viability of fixed indexed annuities, those worries have been erased these last couple of years. While some areas of the financial services industry have been clawing and scratching to gain an edge, FIAs have become something of an industry darling.
As Senior Market Advisor contributing writer David Port opines in an upcoming article: “Recent improvements in the user-friendliness of the product — a moderation of fees, the advent of lifetime income guarantees, the availability of features that introduce new contractual flexibility, etc. — not only have rekindled (advisers’) interest in indexed annuities, they also have helped spur a two-year surge in overall FIA sales.
“On the heels of a record $29.4 billion in sales in 2009, fixed index deferred annuities hit record highs again in 2010, when sales climbed another 6 percent to an estimated $31.4 billion, according to figures released this month by Beacon Research. Last year, FIAs also claimed its largest share of total annual fixed annuity sales in the eight years Beacon has been tracking the market — 48 percent.”
One of the reasons advisers are recommending and selling more FIAs these days is their flexibility.
“Many FIAs now come with shorter surrender periods (five years instead of seven or 10). Many others don’t require annuitization to start taking income,” Port wr ites. “Some offer a walkaway option (often after five or six years). These are the kinds of features that make FIAs more appealing to investors who prefer not to have their assets tied up for longer periods, so they have greater wherewithal to adjust to changing conditions, such as fluctuations in interest rates, inflation, etc.”
In addition, “greater flexibility also comes via features such as those that give contract-holders the ability to defer taking income from their FIA, to convert a deferred FIA into a single-premium immediate annuity, and to access additional contract resources specifically to cover health care/long-term care costs through options such as an income doubler. Today’s generation of FIAs also gives investors more choices regarding the equity indices to which their money is linked.”
Have you seen similar success with your FIA business the last couple years? Send us your comments and let us know what is working for you with FIAs and if you are needing a boost, what are you looking for to gain an edge with your FIA practice?