Automation also addresses regulatory concerns
As the 10-year-old equity-indexed annuity industry has matured, it has grown both in complexity of products and product selection. It is so complex that manual analysis of competing products isn’t feasible. Responding to a bewildering array of products and features, however, a few technology firms have created software tools that make it possible for agents to illustrate a range of possible EIA returns in a way that is convincing to clients and keeps the advisor out of regulatory hot water.
These unique fixed annuities, designed to provide investors with a share of the stock market’s gains without corresponding losses, receive their returns from a derived relationship to an equity index known as a “crediting method.” Although studies show that the crediting method selection will substantially affect the annuity’s performance, the financial advisor is solely responsible for determining which EIA crediting method is best for a client’s particular need. But technology provides techniques for due-diligence research and proper presentation of equity-indexed annuities that can be done.
Since one EIA index crediting method will capture more of the gains than another during different market periods, it is crucial to test the various EIA index crediting methods in more than one type of market environment to find the crediting method that performs best during the expected market type. A basic online EIA calculator allows the advisor to select from standard credit method strategies and historical time periods to view hypothetical performance of that credit method. These calculators run on a Web site. Unfortunately, the credit method choices are typically very limited, the online interface can be awkward (too simple or too complex) and the output (usually on-screen display only) is probably not something you’d show a prospective client.
The adage “you get what you pay for” holds true with these calculators, and most are free to contracted agents. If online tools really are your preference, however, consider purchasing one that offers comprehensive credit methods, simplified input fields, and the ability to produce side-by-side comparisons and printable reports you’d be comfortable showing a prospect.
EIA calculators are often used by wholesaler/marketing firms as a value-added service to agents. Firms looking to add these tools to a Web site should be sure that they personally can control which products their agents can compare (a contracting incentive), as well as track and report on the product comparisons each agent has been running.
Like their online counterparts, spreadsheet software programs like Excel provide a minimum level of due diligence for the advisor. They usually facilitate side-by-side comparisons of multiple EIA crediting methods or a benchmark, although the crediting methods available are still limited.