Fixed Indexed Annuities

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Feb 10, 2010 8:30 am

What are your thoughts about this product?

Feb 10, 2010 8:51 am

Great product if used correctly...

Feb 10, 2010 8:55 am

Terrible product if used incorrectly...

Feb 10, 2010 9:09 am

ask BioFreeze

Feb 10, 2010 10:48 am

Kind of like everything...

 
I take that back, the incorrect use of spray paint can be great.
Feb 10, 2010 11:03 am
Wet_Blanket:

Terrible product if used incorrectly...


Selling a 5-7 year is never terrible..
Feb 10, 2010 11:32 am
Wet_Blanket:

Kind of like everything...

 
I take that back, the incorrect use of spray paint can be great.
 




You've been fairly pithy lately, I dig it!
Feb 10, 2010 11:58 am

It's that time of the year for me.

Feb 10, 2010 12:17 pm

audit time? Hope they don't check your computer history....

Feb 10, 2010 1:03 pm

Sometimes it pays to be the person who conducts the audit.

 
(Disclosure: My use of RegRep is in full compliance with current regulations and firm policy).
Feb 10, 2010 6:12 pm

Aren't indexed annuities 'fixed' by default. Is there any such thing as an indexed VA?

 
Afterthought; can you imagine if/when a carrier comes out with a self directed VA. One that would allow you to but and sell securities like you can in an IRA. Can you imagine the market share that would be grabbed. I've asked wholesalers if they could get such a product and none could and couldn't give a reason why not.
Feb 11, 2010 1:57 pm

Fixed Indexed Annuities are simply fixed annuities which credit interest based on the performance of an index rather than a declared rate of interest.  Instead of paying the declared rate, the use that money to buy options on the indexes which that particular annuity tracks. Using such a strategy, they have consistently performed better than other guaranteed type products - CDs, fixed annuities, short term treasuries etc.  Here's a recent study done on their performance from University of Pennsylvania's Wharton Business School.  http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf 

 
Additionally, many have income and death benefit riders that represent a tremendous value.  Compare them to VA riders, they will be better since they don't have to underwrite for as much risk.  If you are selling VAs based on riders, then you should really look at FIAs. 
 
They are definitely something to look at for retirement solutions for clients.  There was a good thread here the other day in the general section about what to tell clients when they ask how to avoid the next big market dive or why MPT may be obsolete.  IMO, these are PART of the answer to that question. 
 
The downside - liquidity/surrender charges and reduced upside potential.  Right now, I think most investors are wishing they had made that sacrifice 10 years ago. 
Jul 15, 2010 7:35 am

Fixed Annuities come with the security people look for in a retirement investment. There are few investments that are no risk, however, this type of annuity is just about as close as you can get. It provides an ongoing fixed payment. This payment includes the premium paid by the investor, as well as interest, at a set, pre-agreed upon interest rate. Fixed annuities are similar to bank-issued CD’s, but geared specifically for retirement savings. The interest rate is guaranteed by the issuer. In the event that the issuer goes bankrupt, most states guarantee investors that their premiums are secure, usually between $100k up to $500k in some states under some conditions. For more information, you can check with your state government, or simply fill in our Annuity Quote page and an expert will provide the answers.

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Nov 30, 2010 9:07 pm

I hope someone can enlighten me, but my opinion of equity indexed annuities is based on the negative press and some not-so-ethical schucksters in the insurance industry who make a fortune stuffing these things down the throats of the elderly. 

Here's what I know:

- the "guaranteed" crediting of interest rarely will beat any reasonable portfolio over a long-term period

- the commissions to the agent/advisor are borderline egregious (10-15%), hence why so many people sell them for the wrong reasons

- the surrender period is longer than some marriages, and the fees just as painful. 

- there is a mountain of negative press on these products, mostly citing the three main issues above.  I think Dateline did a special on them recently and it wasn't pretty. 

Again, I hope someone can tell me different, as I'm not trying to be negative, but this is my understanding of them.

Dec 1, 2010 11:20 am

[quote=Nova02]

I hope someone can enlighten me, but my opinion of equity indexed annuities is based on the negative press and some not-so-ethical schucksters in the insurance industry who make a fortune stuffing these things down the throats of the elderly. 

Here's what I know:

- the "guaranteed" crediting of interest rarely will beat any reasonable portfolio over a long-term period define long period.. last 10 years it would have..

- the commissions to the agent/advisor are borderline egregious (10-15%), hence why so many people sell them for the wrong reasons there aren't actually that many that pay that.. most are similar to a VA with a trail option

- the surrender period is longer than some marriages, and the fees just as painful. There are no fees, surrender is based on product, they have 5,7 or 9 yr surrenders also.

- there is a mountain of negative press on these products, mostly citing the three main issues above.  I think Dateline did a special on them recently and it wasn't pretty. 

Again, I hope someone can tell me different, as I'm not trying to be negative, but this is my understanding of them.

[/quote]

You can't look at these products as Mutual Fund competitors.. These products are for people who don't want to lose any money and are willing to risk losing upside growth for not having to lose anything..

Dec 1, 2010 7:12 pm

Nova2,

I don't know what you mean when you say a "reasonable portfolio".  FIAs aren't designed to beat an index or a basket of mutual funds, so if that is what you are referring to, you may be correct.  They will certainly outperform in down markets, and underperform in most up markets, but there is certainly an audience for that kind of solution.

I have yet to sell one, as I, like you, have only been outside of the ML for a short time where they obviously aren't distributed.  And their benefits have come down significantly as volatility and interest rates have dropped.  But I will use them at some point, as they are a good fit for moderately conservative investors, in my opinion. 

Dec 1, 2010 9:08 pm

these are all good points, thanks.  It's always nice to know that various options exist for everyone, and while I never want to blindly dismiss something, I do appreciate the feedback.

Fly, by "reasonable," I guess I meant something with a moderate allocation looking to return anywhere from 4-7 percent on an avg annual basis.  

Dec 1, 2010 10:02 pm

[quote=Nova02]Fly, by "reasonable," I guess I meant something with a moderate allocation looking to return anywhere from 4-7 percent on an avg annual basis.  [/quote]

That is what I figured, but didn't want to assume.  For just about any portfolio you put together, the FIA will have less risk.  I've never calculated a Sharpe ratio or anything on these, but I think you can justify the lower potential cumulative return based on the significant risk reduction. 

Dec 2, 2010 10:27 am

I answered your questions below in bold. Hope this helps.

[quote=Nova02]

I hope someone can enlighten me, but my opinion of equity indexed annuities is based on the negative press and some not-so-ethical schucksters in the insurance industry who make a fortune stuffing these things down the throats of the elderly. 

Here's what I know:

- the "guaranteed" crediting of interest rarely will beat any reasonable portfolio over a long-term period

Depends on what you call reasonable.  I've got some that averaged over 9% over the last several years, considering they never got less than zero they overall did better than some other investments that did more than 9% on some years.  Zero can be good.  Structured correctly across the different crediting methods one can reasonable expect a 4-7% return as the other poster mentioned.

- the commissions to the agent/advisor are borderline egregious (10-15%), hence why so many people sell them for the wrong reasons

I'm sure there are some carriers that offer that type of % but I only have dealt with top shelf carriers, Lincoln and Jackson and the top payout if you take all upfront is 6.05% w/ Lincoln and 7% with Jackson.  This is no reason to not look at them as an option.  I know many brokers that churn people in and out of this or that security to generate commissions but it doesn't turn me against that particular security.

- the surrender period is longer than some marriages, and the fees just as painful. 

Surrender periods can be chosen from 5 to all the way up to 10 or 12, depending on the company offering.  No diff than VA's.  What fees are you referring to?  There are no fees.

- there is a mountain of negative press on these products, mostly citing the three main issues above.  I think Dateline did a special on them recently and it wasn't pretty. 

Again, I hope someone can tell me different, as I'm not trying to be negative, but this is my understanding of them.

[/quote]

Dec 2, 2010 11:32 am

Now, to be clear - are we all talking about Equity Indexed Annuities or are "Fixed Index" annuities something different?  Perhaps that's where I'm missing the boat here.