Help your clients understand fixed indexed annuities while minimizing fears from negative pressArticle added by Gerald Zidak, Ph.D. on May 31, 2012
Dr. Zidak

Gerald Zidak, Ph.D.

Johnstown, PA

Joined: April 28, 2008

When recommending an FIA, I explain all the pertinent information, discuss how the product works and detail how it is different from other products. I utilize this mental picture to help a client differentiate between product types.

In my line of work, estate and retirement planning, I come across so many people who want to give their money the best possible chance of gaining value without the fear of losing it. So many of them are so fearful of loss that they place all or most of their funds into CDs or other similar products that give them what amounts to under one percent. They pay the taxes each year and of course, the company issuing the product makes their money.

On the opposite side of the fence are those who consistently lose money as they watch their stock products rise and fall only to end up near or lower than they started. I am not saying stock products are not ever a good fit, but only in the correct situation.

We then have the fixed indexed annuity (FIA), a product that can actually help people but often gets a bad rap. There are so many negative articles about a few untrustworthy agents that it makes a product that's a good fit seem frightening to the ones that could benefit most.

I feel the FIA haters who create fear in our seniors produce negative writings to gear an individual to what they want to sell. And what they sell may not be a good fit at all. I do believe that each product has a proper fit but that fit may not be for everyone.

When recommending an FIA, I explain all the pertinent information, discuss how the product works and detail how it is different from other products. I utilize this mental picture to help a client differentiate between product types.

Imagine yourself in a casino with all the bright lights, bells and whistles. Three of your friends are sitting in front of the flashing machines, while you stand behind them watching. All three have plugged in money time after time and eventually one of them hits and the bells go off. You watch the numbers climb and he is $500 ahead of the $100 he put into the machine. He keeps playing in the hope that it will hit again. As the night continues, he has spent what he has won plus some of what he originally put in.

During this time, your other two friends also hit and the bells and lights go off. Your friend on the right has only been winning small — a couple dollars here and a couple dollars there. He plays all night but very cautiously, and ends up with his original $100 plus a $5 gain. This is nothing to sneeze about, because he not only saved his starting cash, but is also now ahead of the game.
Now your friend in the center, who also hit, won like your friend on the left. However, he hit the cash out button, took the winnings and placed what he started with in one pocket and the extra in another pocket. He takes a bill from the extra money pocket and places it in the machine. He starts to play again and each time he wins he does the same thing. What he is actually doing is preserving his money while playing the house’s money, all the while making more money.

This is how people tend to invest. Some individuals place all their money into a product and wait for it to hit it big. When it does increase, they let it ride in the hopes of hitting it big again. More often than not, it falls and they lose what they made and perhaps some of what they initially started with. They don't realize that when they hit the big time, they could have taken the house’s money and placed it somewhere save, where they wouldn't risk losing what they started with or anything that they gain.

Other individuals play it extremely safe. That is their choice and there's nothing wrong with it, but they never realize their fullest potential since the gain is always a small trickle.

What if you could have the security of the friend with the safe investment with the small trickle, the guarantee that you will never lose your principle (what you started with) and also have the ability to gain like those who look for the big hit.

Do you want something that will gain with the wins and not lose when and if the market falls again? Did you know there is a way to do this? There's a way to play with the houses money and never have to worry about the losses. Are you interested?

Now, we all know we need to give them all the client-approved sales material and explain the product thoroughly, but I find using the explanation above in conjunction with the sales materials, helps the client create a mental picture and better understand the difference between these products.
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