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April 29, 2004 at 08:00 PM
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.”
