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Equity Indexed Annuities

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Apr 4, 2008 2:00 pm

What is everyone's thoughts on Equity Indexed Annuities.  Due to these markets, its a great time to offer downside protection with upside potential.  Can someone suggest a clean/intuitive product that would be suitable for my clients.  I've been hearing about a new product called the Structured Allocation Annuity developed by Annexus Financial, LLC.  Its a 6 year pt. to pt. with very little moving parts.  I think I might take a look at it.

Apr 4, 2008 3:18 pm

Wow, I actually have heard about this new product I also dug a bit deeper and it truly is unique.  I can’t find another firm that has anything close to this, its so transparent.  Looks like its underwritten by AVIVA which is a huge insurance company out of England getting into the US market.

Apr 4, 2008 3:21 pm

The EIA’s I have seen have huge surrender charges.  I’ve seen as high as 20%.   The people selling EIA’s have typically been people without a securities license and quite frankly clueless.  I cannot think of ANY situation where an EIA makes sense to anyone but the salesman selling it.

Apr 4, 2008 3:28 pm

Henry, let me ask you a ?  Do you have any clients currently worried about the market or looking to get out all together?  How do you guarantee your clients downside protection as well as piece of mind?  In my research the Structured Allocation Annuity is a 6 year pt. to pt.  with no moving parts and a surrender of 9,9,8,7,5,3

With the current rates the product looks pretty sweet

Apr 4, 2008 3:50 pm

Here’s how some guys in my area have used EIAs to make themselves very, very wealthy:

  1. Aggressively tell everyone you know that investing in the stock market is like gambling in  Las Vegas. 2. Tout the wonderful upside potential and downside protection of EIAs. 3. Don't talk about surrender fees, loooong maturity dates, the fact that the 10% "free withdrawal" causes them to lose any and all interest that was credited to the amount they're withdrawing, the fact that they'll have to annuitize to get the interest and the bonus they were promised when they bought the annuity or that even the death benefit cannot be withdrawn in a lump sum without incurring surrender fees. 4. Sell the annuity to them and make as much as 15% on the transaction. 5. Call them 13 months from the time of the original purchase and tell them you've found a better annuity that they should move their "free withdrawal" money into. (There's another commission for you.) 6. Get a prescription for Ambien to sleep at night. 7. Start over at step #1.
Apr 4, 2008 4:00 pm

Great feedback Borker Boy.  I know EIA’s have had a tainted image.  However, I have to disagree with you because there is a need for this strategy in a client’s portfolio.  But in all honesty, can you come up with a stratgey that offers downside protection with upside potential other than an EIA.  According to what I have read, the Sructured Allocation Annuity is not an annual reset, its a 6 year pt. to pt. thats priced daily so your client realizes gains to date thereby eliminating the typical look back provision of an annual pt. to pt.  That sounds pretty innovative and compliant to me. 

Apr 4, 2008 4:45 pm

hey heddy, I think you hit the nail on the head!  It also looks like the product your speaking of addressed some of issues that were wrong with EIA’s.  They gave it liquidity and a better tax efficiency that addresses the age old “phantom income” it looks like.

Apr 4, 2008 4:58 pm

Dearest heddymm06,

  Thanks so much for gracing us with your presence.   I'm sure that we can count on you to continue to educate us on this issue.   Please hurry up and tell us how we can get involved with Annexus.  Also, don't forget to let us know why all of our clients will benefit from this fine product and how this is the best EIA.     
Apr 4, 2008 5:19 pm

Mr. Anonymous, since I’m feeling a little tone in your message.  How does the expert “Mr. Anonymous” manage downside risk?  Do you have any recommendations for EIA’s?  I came across the Annexus one and can’t find anything out there that could compare.

Apr 4, 2008 5:48 pm

Can anyone say, WHOLESALER?!

The giveaway was that both of you buttheads(heddy & mm06) joined today, and you’ve only posted in 1 thread…

Now, please leave.

Apr 4, 2008 5:59 pm

Ashland “Mr. 2 Million AUM”…  How you manage downside risk? 

Apr 4, 2008 6:00 pm

Ashland Pumpkin!  why are you getting worked about a discussion forum.  I don’t know who heddy is and on top of that I’m really interested in the EIA biz!  you leave!

Apr 4, 2008 6:07 pm

Wow, we’ve had some bold people come visit us from time to time, but this guy takes the cake.  Do you really believe that we think mm06 and heddy32 are two different people? 

  Some questions about your wonderful annuity, since you didn't give us any details:   1) Annual fees 2) Surrender period and provisions for free withdrawal 3) What is it indexing 4) Participation Rate 5) Is there a cap on the participation rate 6) guaranteed minimum   Finally, one more question.  How do you feel about the regulators calling for the adoption of the NAIC's Suitability of Annuity Transactions and requiring indexed product training for sellers of EIAs, which could take effect sometime this year?  How's it feel to be a part of an industry that has virtually no accountability to any regulators for ethical standards and sales practices?  I think I'd take Borker Boy's advice and go ask your doc for some Ambien.            
Apr 4, 2008 6:08 pm

heddymm, Can you give me a specific situation in which an EIA would be the best product for the client?   Furthermore, can you please tell me why the EIA that you are pushing would be the best one for the client to buy?  Finally, how much money will I make from selling this EIA to the client in this situation? 

Apr 4, 2008 6:17 pm

Mr. Anonymous, 

  Have you had clients that have lost most of their nest egg due to the volatile market?  Now they're afraid of the market and want to be invested in instruments that barely keep up with inflation.  I'm not saying to put all of your clien't eggs in one basket, but I believe a portion deserves principal protection with upside potential ties to the market.  Do  
Apr 4, 2008 6:25 pm

Heddy, for these clients, which EIA should I use?

Apr 4, 2008 6:33 pm

Mr Anonymous…  Why you do think I posted this thread?  I am looking for some advice.  What would you use as an alternative to EIAs if you believe they are all unsuitable? 

Apr 4, 2008 6:38 pm

I’ve used Jackson National’s EIA.  Five year surrender and half the commission of similar VAs, so I’m certainly not selling it to people to make more money!

  Anon, my slot for such an EIA is in between VA's and FA' downside risk, a small guaranteed return, even if the crediting index doesn't work (Jackson pays 3% on 90% of the initial deposit...not much, but at least not a goose-egg at five years), and some market potential.  Return locks in each year.  The audience is limited...a client should make more in a VA, but every once in awhile, I get a client who (1) needs somethings besides a CD, (2) wants assurance that they will make SOMETHING and get their principal back too, (3) do not want a long-term committment (five years in my example and they are out with profits of they want) and (4) Could benefit from some sort of minimal equity exposure.   I think some of the newer EIAs are quite a bit more transparent and less costly than the old ones that I demonize along with most of the rest of you.  I've seen some truly terrible abuses in EIAs and have thus been very slow and very cautious to adopt.  If there are holes in my suitability analysis and any of you have better suggestions, I'd gladly hear them.  I'll admit that I'm pretty new to the EIA game, and I'm sincere in being very open to better suggestions.  As near as I can tell, these things probably average in the 5-8% return range...a little better than fixed annuities and probably a bit lower than VA's.
Apr 4, 2008 6:41 pm

Don’t feed the troll.

Apr 4, 2008 6:45 pm

Thanks Indyone for the great info.  I do agree that the newer contracts are much more transparent.  My only issue with annual pt. to pt. is that you do not know what your client is going to receive year to year because of the volatile options market.  Would you agree?  Ashland… Go pound sand