Cost, Complexity and Commitment
In today’s volatile environment, most people working to build a nest egg are looking for meaningful growth potential without exposure to market losses. That’s precisely the promise of Fixed Index Annuities (“FIAs”) — growth potential with zero market losses. Yet, consumers are often reluctant to embrace FIAs as a component of their retirement planning.
It generally comes down to three Cs: Cost, Complexity and Commitment. But each of these may be based more on perception than reality.
Keeping these 3 Cs in mind, here are some ideas to help adjust some of your clients’ perspectives on FIAs.
Transform “cost” into comfort
Clients who aren’t comfortable with paying the fees they associate with annuities will be very pleasantly surprised to learn that FIAs typically have zero upfront sales charges associated with the purchase of the annuity. Your clients can get the upside potential and downside protection they want, usually without any cost of a sales charge.
Potential upside. Zero downside. And typically, no sales charge for purchase.
Transform “complexity” into clarity
If clients raise the complexity concern, encourage them to consider this: With an FIA, you have two choices for interest-crediting strategies (not a thousand or a hundred — just two), “fixed” and “index-linked.” That is what an FIA offers at its base, and this simplicity might help calm the complexity concern. With the fixed strategy, money grows via a specific percentage of interest credited each period, guaranteed. But there is more to the story. With an index-based strategy, interest is earned when the index the strategy is linked to (like the S&P 500®)1 has positive performance.2 Where it gets more interesting is when one starts to consider the possibilities within the indexed strategy. Generally, your client will have a number of index-linked strategies they can work with you to choose from. This adds a greater level of flexibility and strategy to the baseline simplicity If an index-based crediting strategy is selected and it has negative performance for any strategy term, you simply receive zero interest credits for that year.
Two choices. Not subject to market losses. We think it would be hard to replace complexity with clarity in a more straightforward way.
Transform fear of “commitment” into increased control
Annuities should only be a “portion” of your client’s retirement strategy and should utilize funds that your client doesn’t need immediate access to. So, the very nature of the funds that are used to purchase an FIA helps address the “commitment” concern. Also, rather than 7-10 years, some FIAs have a withdrawal charge period of as little as 5 years. That might be half of what your client expects! Lastly, consider pointing this out: While the client is committing to a multi-year timeframe for the annuity, they are often not committing to a specific crediting strategy for that entire time. Depending on the Strategy Term of the crediting strategy (or mix between fixed and indexed) that they choose at the outset, they’re not stuck with it forever. At the beginning of each Strategy Term, they can choose again between a fixed or indexed crediting strategy. Any interest realized at the end of a strategy term is locked in. The contract value cannot go down due to market losses, so the client does not experience statement fluctuation.
Shorter withdrawal charge period than might be expected. More flexibility and no fluctuation. Those factors alone might be enough to turn a fear of commitment into a sense of control.
Two bonus Cs: potential to turn concern into confidence
Don’t let client misconceptions and misunderstandings morph into insurmountable, unfounded concerns regarding FIAs. By presenting the combination of upside potential, downside protection and flexibility, and educating clients on the benefits of FIAs, you may be able to replace concern with confidence in two primary ways: First and foremost, for those concerned about incurring losses due to market downturns, an FIA is never invested in the index. Therefore, it is not subject to market losses. But for those who are worried about “missing out” on market upswings, the FIA offers index crediting tied in part to index returns. So, with both worries addressed, an FIA presents the real possibility of replacing concern with confidence for many clients.
Show your clients how they can have confidence in retirement with the new annuity client toolkit, containing turnkey materials for both you and your clients.