We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (16,323)
  • Industry Conferences (3)
  • Industry Job Openings (10)
  • Negative Media (138)
  • Positive Media (73)
  • Sheryl's Articles (606)
  • Sheryl's Blogs (173)
  • Wink's Articles (235)
  • Wink's Blogs (216)
  • Wink's Press Releases (94)
  • Blog Archives

  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • How to Sell the Right Index Annuities

    January 9, 2010 by Sheryl J. Moore

    Published 2/1/2007   

    Even if you’ve never sold an index annuity, you’ve most certainly heard of fixed index annuities (FIAs). These increasingly popular products line the advertisements of financial services Web sites. Daily newswire services tout the hottest new FIA product to hit the street. If you are affiliated with an independent marketing organization (IMO), you can barely finish the contracting paperwork before they’re trying to give you the marketing kits for their favorite FIA picks.

    Fixed index annuities have definitely become a mainstream insurance product in recent years. Perhaps an understanding of the basic product mechanics would help explain why that is the case. These fixed annuities provide a minimum guarantee (typically 87.5 percent of premium, credited at 3 percent interest). This is lower than a traditional fixed annuity (FA), but in exchange the client is given a higher potential for earnings based on the performance of an external index such as the S&P 500. Potential earnings are typically limited by a stated maximum participation rate or cap. Other designs may also apply an asset fee. (All three of these pricing levers are just different ways of limiting the interest credited to the product.) This is different from a variable annuity (VA), where the potential earnings are not limited by any sort of ceiling. However, unlike a VA, the index annuity always has a minimum guarantee, and in years where the external index has a negative return, the policyholder receives zero percent interest crediting instead of a negative adjustment to their cash value. So in short, with an FIA, you are giving some of your downside to have a chance for a little more upside.

    The attraction to FIAs comes primarily from declining rates on traditional fixed savings instruments such as CDs and traditional fixed annuities. When rates on traditional FAs dropped to levels where first-year rates were around 4 percent, people began asking themselves if there was a better alternative. However, consumers’ sour stomachs for declines in securities products such as stocks and variable annuities also had them leery of losing their assets in the VA market. Index annuities were a natural solution for those who wanted the best of both worlds. The products are a safe money place with a higher potential than FAs.

    Who can sell the product?
    Today, all that is required to sell an index annuity is a valid insurance license. You do not have to be a registered representative to sell these products because they are not securities. While on the topic of regulation, however, it is important to note some recent turf issues on the securities status of this popular product. This is a fixed insurance product, and it is therefore regulated by state insurance divisions as opposed to the Securities and Exchange Commission (SEC). The National Association of Securities Dealers (NASD) is a self-regulatory organization that has no regulatory authority regarding the securities status of index annuities. However, they did issue the Notice to Members 05-50 in August 2005, suggesting that FIAs should be treated as securities by member firms. Furthermore, the NASD advised that broker-dealers supervise their registered representatives’ sales of index annuities, and consider creating “approved lists” of FIAs from which they can sell.

    Despite the fact that the NASD had no regulatory authority, their suggestions were enough to change protocol for BDs. This means that if you are a registered representative, your BD may have additional guidelines for your sales of index annuities and may limit your sales of FIAs to a shorter list of products. Agents who are not registered have been able to conduct business as usual.

    Product knowledge
    Now that you are prepared to sell, let’s talk about product. You’ve got 56 carriers offering 311 products for you to sell today. You have a choice of surrender charge durations ranging from one to 18 years. Premium bonuses are available in all varieties and amounts: 1 to 10 percent, payable up-front or 1 percent for every year of surrender charges, or even contingent upon annuitization. Street-level commissions can go all the way up to 13 percent on index annuities today. One would speculate that this may be why sales of the product line have steadily increased since their introduction. However, the average street-level commissions for all products was 7.01 percent as of the third quarter 2006. And if all of that wasn’t enough, there are 21 different crediting methods for your client to choose from. You can choose among many different indices, choose which pricing lever you are comfortable with (participation rate, cap, asset fee, etc.), and choose the method you desire. With so many different products on the market, you are sure to find something you feel comfortable with.

    Nearly all products today offer 10 percent penalty-free withdrawals annually and the full account value upon death. Many products also offer additional benefits such as surrender charge waivers in the event of terminal illness, return of premium riders, or even guaranteed minimum death benefits (GMDBs). The latest development in the indexed annuity industry is the emergence of guaranteed lifetime withdrawal benefit (GLWB) riders — similar to those in the VA industry, which are intended to pay the client guaranteed lifetime income, regardless if the account value falls to zero. Product development in FIAs has much to offer agents and clients alike.

    Realistic expectations
    Do clients receive double-digit returns sometimes? Yes. On the other hand, they can get zeros just as often. The No.1 one rule of selling FIAs is don’t oversell the potential for the interest crediting, as it may not perform. This is a fixed annuity product, not a variable. To give yourself a realistic expectation of index annuity returns, they can be generally somewhere in the range of 2 to 3 percent higher interest than what a traditional fixed annuity is currently crediting. However, all that you should disclose to the client is the minimum (zero), maximum, and worst-case scenarios (minimum guarantee).

    Satisfying the client
    The most important thing in selling an index annuity sale is education. If you discuss the product in layman’s terms, the client will understand. Our research indicates that if you give consumers realistic expectations along with the basic product mechanics, they are open to the concept of FIAs over other traditional savings instruments. Overall, listen to your client’s needs and concerns. Find a product that not only addresses them, but is competitive and will not be open to replacement. Follow up with them annually to discuss policy performance.

    Sheryl Moore is president and CEO of AnnuitySpecs.com, an index product resource. She has nearly a decade of experience working with index products and is formerly head of competitive intelligence for two key life and health insurers. For more information, email sheryl.moore@annuityspecs.com.

    Originally Posted at Agent's Sales Journal on February 1, 2007 by Sheryl J. Moore.

    Categories: Sheryl's Articles
    currency