Time for the FIA to R.I.P?
By Jason Kestler
Kestler Financial Group, Inc.
Fixed Indexed Annuities (FIAs) have become a huge industry over the last ten years. They’ve grown from obscurity to almost $30 billion in sales annually. So why would the owner of a national marketing organization that specializes in FIA sales suggest that they “Rest in Peace?” Two words – critical mass.
The "S-curve" has been used over and over again to demonstrate the life cycle of a new product or technology. Take for example the personal computer. When PCs first hit the street in the late 70s, they were cumbersome, expensive and only used by a few individuals who realized the value of the technology. When PC penetration increased to about 10 percent of the market, the technology began a meteoric rise until about 80 percent of the market had been penetrated in one way or another. Think of the great fortunes made by those wise enough to see the opportunity then take advantage of it at the right time (think Microsoft and Bill Gates). Today, computers are main stream. There’s more technology packed into a teenager’s iPod than was used to send astronauts to the moon! As market saturation increases, computers become more advanced and prices drop.
Now, let’s look at FIAs using the s-curve. When the product first appeared, it was marketed by just a few innovative companies and agents. Compared to today’s products, these early versions were primitive but better than the other alternatives available. As agents and consumers began to understand their value, FIA sales began to grow. Then, by the time about 10 percent of the agents began to sell them FIA sales began to grow exponentially. Today they are a $30 billion industry. Those companies and agents that recognized the trend and took advantage of it reaped huge profits.
Are FIAs dead? Of course not. FIA sales will continue into the foreseeable future. However, the acceleration phase has passed and FIAs are now main stream. Competition is driving down commissions, and external pressures from the likes of the FINRA and SEC are making agents and consumers nervous. Consider this quote from Bob MacDonald who literally drew the FIA s-curve from the helm of LifeUSA and Allianz Life, “When you’re feeling warm and comfortable where you’re at, it’s most likely the body temperature at the middle of the pack.”
So what is the next “big thing?” I don’t exactly know. But, here are some thoughts on the subject:
• Beware of copy cats — Every “new” FIA I see is a variation on what already exists. New crediting methods, different caps and creative liquidity options are all ways for the masses to compete with the masses. The next “big thing” most likely won’t look at all like an FIA.
• Be open minded — Just because something is different doesn’t necessarily mean it’s bad. Be aware of new product offerings. Take the time to educate yourself on the options.
• Look for unique opportunities — Maybe the next big thing isn’t a product at all. Maybe it’s a new way of doing business.
• Welcome the experience and knowledge of others — Take advantage of those relationships you trust most. Listen to those who see the “big picture”.
• Look for integrity over commissions — Work hard for your money and acknowledge that commissions are important, but maintain a strong moral compass and don’t be swayed by things that seem out of line with your ethics.
• Avoid taking advice from those who have their own axe to grind (or override to protect). Consider the source of any information you receive.
• Be prepared for multiple opportunities at once — If you are looking for one “next big thing,” you may miss a secondary opportunity altogether.
Assuming we have reached critical mass and are true to the s-curve, the “next big thing” is already out there. Watch the news, watch the journals and watch the ethical marketing organizations — they will be the first to see the opportunity.