Fixed Annuity Sales: The Money Is Moving Like Water
“We just had the biggest fixed annuity sales month weve ever had, at the lowest interest rates in our companys history. Its incredible, but true!”
Ive been hearing that comment a lot over the past couple of months from an assortment of insurance company executives. The money is flowing into fixed annuities.
From my vantage point, there are two primary reasons for fixed annuity sales being so hot:
1) The largest increases are coming from CD-type annuities, where the rate guaranteed period matches the length of the surrender penalty period.
In the past couple of years, companies that saw the future developed CD-type annuities. These turned out to be the right product at the right time. They are “right,” because todays clients and agents are trusting insurers less and less to pay a fair floating interest rate. Through experience, theyve learned that renewal rates on traditional designs dont generally float up, only down. Thats why CD-type annuities are pushing annuity sales up.
2) Fear is driving money to guaranteed safe investments.
A lot of people have lost all the money in the market they care to lose and are moving their money to where they can earn a guaranteed return without risk.
For example, a lady recently came to my office and said, “I invested $80,000 with my stockbroker two years ago and he made it grow all the way to $50,000. It may not be his fault, but Im having bad dreams about him making it grow to $30,000. At my age, I cant afford to lose any more money. Can you invest my money for me and guarantee a good rate and that my money will be safe?”
In one form or another, I hear those comments every day.
A general consensus of opinion from financial advisors is that client portfolios are far over-weighted in stocks. A lot of rebalancing is going on.
In short, investors believe the outlook for stocks in the next five to 10 years may be only single-digit returns. “If thats true,” they reason, “why subject my money to risk when I can earn a competitive return in a guaranteed safe fixed annuity?”