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 (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • 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
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • Safer havens: bonds vs. indexed annuities

    June 14, 2010 by Joe Anzalone

    By Joe Anzalone
    Director of Sales , Asset Marketing Systems
    Featured Expert: Seminars and Presentations

    “The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already, but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of a doubt, what is laid before him.”
    –Leo Tolstoy

    During the younger, prime earning years, an investor looking for maximum accumulation should have a portfolio weighted heavily towards stocks, which offer the best opportunity for growth over a long time horizon. As that same investor approaches the retirement years and income becomes their primary investment objective, they should shift their portfolio towards bonds. After all, bonds are generally safer than equities. In their many forms, bonds offer a variety of ways to take income. And bonds are certainly a more appropriate investment than an indexed annuity, since indexed annuities are complicated, high-commission, shady insurance products. Right?

    Ever heard that before? I have. In fact, one of my own advisors — a smart, thorough professional — has laid that pitch on me. He, and almost any broker trained over the last 30 years, is the “most intelligent man” that Tolstoy refers to. It’s not that his intentions are misguided; he is simply part of the “broker bias” culture that dismisses insurance products, and especially indexed annuities, as the redheaded stepchild of the investment world. Mention the word insurance, and an otherwise reasonable advisor loses their objectivity and immediately thinks “bad investment.” Say the words indexed annuity, and they think “high commissions, hidden fees, hard to explain, ripping off seniors.” Most brokers confuse the surrender charges and fees inherent in variable annuities with those in indexed annuities.

    Bonds and bond funds, however, they feel more comfortable with, and recommend to their investors as their prime earning years begin to wane and their objectives shift towards stable growth and income. One could say that the bond is the broker’s annuity — their “safe money place.” Given that fixed indexed annuities (FIAs) also espouse stability and income, let’s compare the two.

    1. Ease of explanation

    What is a bond? A loan. Your investor is loaning money to an entity — a corporation, state, municipality, or government — with an expectation of repayment. That definition, however, is only part of the story. One of the most prevalent tenets of Broker Bias is that annuities, especially fixed indexed annuities, are either too complicated for the advisor to explain or for the typical client to understand. But bonds are not the most decipherable of investments. The run-of-the-mill Series 7 candidate spends an inordinate amount of time studying the inverse relationship between bond prices and interest rates — and explaining the concept to a prospective customer is yet another matter. The disclosed yield on the bond sold (yield to maturity, yield to call) varies according to its sale price relative to par. Depending on whom the investor is “lending to,” different bonds have different tax implications. And researching and understanding a bond’s price on any given day is not a simple exercise, as it is for stocks.

    What is a fixed indexed annuity? Fundamentally, it is a contract between the issuer (the carrier) and the customer that outlines (in more exhaustive detail than ever) the responsibilities of both parties. The money is given to the insurance company by your client. Like a bond, the company agrees to return their investment, in accordance to its terms. The various crediting methods, income options, and surrender periods can be confusing to investors, and a good advisor must explain them both simply and thoroughly. Similarly, the investor’s objectives for the funds, and their anticipated time horizon, are factors that demand that the FIA is explained and positioned carefully.

    By any measure, an FIA and its proper placement in a customer’s portfolio is no more difficult to explain than bond investing; moreover, in many cases, it could be argued that the annuity — a vehicle specifically designed to provide income for a lifetime — is easier to understand for most.

    2. Stability

    Bond investing has experienced an enormous spike in popularity in recent years, as investors have been spooked towards safety. This trend is disturbingly ironic, as the ever-murkier world of bond derivatives has been an instrumental cause of the economy’s unprecedented collapse in the first place. While the average investor did not directly pour money into a collateralized debt obligation made up of subprime mortgages, that investor has certainly suffered their consequences.

    Moreover, traditionally safer bond strategies have been affected by the malaise. Nowhere has this trend been more evident than in municipal bond investing. While munis have remained a popular destination for the flight to safety, some have experienced a bumpy landing, as described in this Smart Money piece:

      Since last July, 201 municipal bond issuers have missed interest payments on some $6 billion worth of bonds, or an average of about one every other day. That’s up from 162 in 2008, and a hefty increase from the 31 that did in all of 2007. Almost 13 percent of municipal bonds currently active are trading at less than their face value, according to Barclays — up from 7 percent before the recession… even if the crisis doesn’t spread, it remains bigger than it has been in decades.1

    Predictably, the corporate bond investor must be just as careful. Indeed, some are wary of new “bubble” in the economy — the bond bubble. Bond strategies are often depicted as relatively stable, a claim that seems hollow given our extraordinary market and economic conditions. To wit:

      Investors have gotten a push from the financial industry. Many brokerages started touting bonds right after the crash, but they’ve continued to pitch them as bond yields drop… (but) bond investors have to keep an eye on the companies and governments that issued bonds. Some firms get into so much trouble, they can’t pay the interest or principal on the bonds they’ve issued…when that happens, the company defaults, and bondholders could lose half their investment or more, analysts such as Roland Manarin, an Omaha-based money manager who in the 1990s advised clients to stock up on bonds, now tells clients who insist on a guaranteed return to buy annuities instead.2

    Simply put, when compared with fixed indexed annuities, the stability argument is a rout in favor of the insurance vehicle. Unlike its higher-risk cousin, the variable annuity, an FIA is a principal-protected contract with a minimum guarantee. In fact, “not a single indexed annuity purchaser has lost a penny as a result of the market declines, bank failures, or general weakening of the economy.”3 As with other fixed annuities, the risk is borne by the insurance company, not the investor.4 And while some may criticize the perceived liquidity restrictions of FIAs, virtually all FIAs today offer 10 percent free withdrawals annually, and shorter contract lengths are common today. Many now offer income options without requiring annuitization.

    Originally Posted at ProducersWeb on June 9, 2010 by Joe Anzalone.

    Categories: Industry Articles
    currency