Advisors Find Markets For EIAs Are Expanding

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With equity index annuity sales continuing to rise, financial professionals are increasingly asking which market segments are best suited for EIAs.

The answer, according to Jeff Weinstock, is “this product is for anyone who wants upside potential with downside protection, provided it fits the needs of the client.”

The insurance coordinator at Investacorp, a Miami Lakes, Fla., broker-dealer, Weinstock notes his firm does not sell many EIAs. But, he says, EIAs are “not a risky thing,” and when clients want upside potential with downside protection, the EIA is suitable.

Virtually every EIA distributor contacted for this article made the same point. But those who are active in the market also went further, identifying certain market segments as especially well suited to the product.

Pre-retirees age 50+ are one example. These individuals are still working and saving for retirement, explains Alan Kifer, vice president-agent education at Creative Marketing International Corporation in Overland Park, Kansas. And many who were invested in the stock market during the previous 3 years are just now recovering from 50% to 70% declines in account values, he says.

Many just arent sure they can make up for those losses before they retire, nor are they sure Social Security will be there for them, Kifer continues. So, financial safety and security are their big issues.

The women are especially vocal on the subject, he says. “The ladies are putting their foot down. Theyre telling their husbands, Im not having any of this [equity investing] anymore. We need to have enough money to put the kids through college and we need.”

There is a “genetic disconnect” on the issue, Kifer allows, noting men are more prone to taking risks than women. “These discussions are causing some disruption.” Still, they seem to be having an impact. “Pre-retiree men are starting to pare back on risk taking,” Kifer says.

The EIA has become a very attractive option for this market, precisely because it meets both requirements, he says. That is, it provides the safety and security the women want (via the guarantees) and the upside potential the men want (via the equity-linked crediting of interest).

Older people who already have retired like the EIA, too, he adds, but for a different reason. “They are using the EIA for money they dont need now but cant afford to outlivebecause they might need to use it later on. What they like is, it insures their money, grows tax-deferred, allows partial liquidity without penalty and can be converted to income at any time.”

Retirees also like the EIAs potential to earn somewhat higher interest than traditional fixed annuities, Kifer says.

The mid-market is yet another segment, says Andrew Horowitz, president of Index Annuity World, Weston, Fla. An example would be county workers holding regular salaried positions or living on a fixed income. “If they have some money in a mutual fund or low-yielding CD, they are often interested in redeploying it into an EIA in order to get the potential to earn a little more than before,” he says.

Typically, these will be single-premium transactions, he says. (Other professionals say they, too, tend to do mostly single-premium cases with EIAs.)

Business people, by comparison, tend to be less suited for the EIA, Horowitz says. He speculates this is because they frequently prefer to take more financial risks. And, he says, “they usually have the potential to replenish any losses they may experience.”

Widows are another group that like EIAs, Horowitz says. “Many do not understand the finances their husbands had set up and they are very risk averse. This is aggravated by the fact that their own feeling of personal safety is gone. So, they want something that is not volatile.”

Widows have another concern, too, Horowitz says. “They always ask, Am I going to run out of money?”

For such clients, he says the EIA works well. “Of course,” he adds, “the advisor has to talk to the widow first and understand what the person is looking to get.” Sometimes, the EIA may not work, he explains. “For instance, if the person needs income and has limited resources and is elderly, the EIA is inappropriate.”

People who are doing estate planning and are concerned about taxes are a good market for EIAs, too, according to Marvin Schroeder, owner of J. Marvin Schroeder & Associates in Winston-Salem, N.C.

For example, EIAs with the longer surrender charges (10 years and up) often have no caps on upside earnings and only nominal management fees, he says. So, he may put some of the money intended for use later on in those EIAs and target other money for more immediate expenses.

Something to keep in mind, Schroeder says, is that “I have never had a client whose income tax bracket has gone down when they retire.” There are various reasons for this, but he says the point is, the EIAs tax deferral and upside potential become important considerations for these individuals.

The EIA can be used as part of a retirees asset management, he says.

Community banksand their customersare emerging as a market for EIAs, as well, says Brad Tison, a partner in Maxx Financial Partners of Fargo, N.D. Based in his firms Des Moines, Iowa, office, Tison is an EIA wholesaler.

“These banks are getting on board with this because they and their customers value the EIAs safety of principal, opportunity for higher [than CD] interest rates and tax deferral,” he says.

He says some people are so happy with the results of their first EIA that they come in and ask if they can put more money into the products.

Banks tend to choose EIAs that minimize complexity and have strong guarantees, Tison adds. They also tend to prefer EIAs with shorter surrender charges (5 to 7 years). And, to get up to speed on the products, they typically send employees to EIA training”because people sell what they understand.”

One EIA market that rarely gets a mention is income planning, but that is a market that Devin Reimer believes is well suited to the product.

Based in Des Moines, Iowa, Reimer is the head of fixed annuity distribution for ING U.S. Financial Services, which recently debuted an EIA aimed at income planning. Called the ING Income Outcome Annuity, the policy offers not only fixed and index-linked growth strategies but also 2 “tracking values.” One of the tracking valuesthe “income value”pays substantially higher interest to policyholders who annuitize after 10 years using at least a 10-year payout period. (Other money earns the “accumulation value,” which is lower but still “competitive,” according to ING.)

The market for such a design is wide, contends Reimer, because it not only offers the upside potential and downside protection of all fixed EIAs but also a higher guaranteed income for life. “We are living longer today,” he says, “so our retirement planning horizon is longer. We need to plan for where we will be at age 75, 85 and longer. Thats where this comes into play.”

Anyone with a 20- to 30-year planning horizon can buy the product, knowing they can access the money if needed or let it keep compounding and get an enhanced income after the first 10 years, he says.

Producers need to focus on more than EIA market segments, stresses Kifer of Creative Marketing International Corporation. “The EIA needs to be presented by a trained, educated, and experienced insurance and financial services advisor,” he says. “Its too complex to learn about and choose on ones own.”

Horowitz of Index Annuity World agrees. Advisors need to look at the structure of the products, the calculations, and run the figures so they can select what is most appropriate for the client, he says. That does take time to do, he allows, “but youve got to pay to play.”


Reproduced from National Underwriter Edition, April 30, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.