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Bringing Clarity to Equity Indexed Annuities

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David Macchia, CEO of Hingham, Massachusetts-based Wealth2k, a provider of communications technology and multimedia presentations exclusively for the financial services industry, has a great interest–personal as well as professional–in baby boomer retirement security, and his project of the moment involves shedding light on the rather obtuse world of the equity-indexed annuity (EIA).

“This is a product with a great inherent value proposition, but which has become so clouded through the years because of poor product design, bad marketing and awful sales practices,” says Macchia, who is also a director at the Retirement Income Industry Association (RIIA), a nonprofit think-tank. “I felt that someone ought to step in and come up with a way to present equity-indexed annuities in a balanced and clear manner.”

To this end, Macchia’s firm has launched a multi-media educational presentation, entitled “The Equity-Indexed Annuity: A Long-Term Vehicle for Savings,” designed for both the creators of these products and the advisors that recommend them to their clients to present them in a clear, unbiased manner. Wealth2k is also offering advisor-personalized microsites to all broker/dealers and licensed annuity agents in the U.S., as well as a personalized brochure, Macchia says, both of which will enable customers to learn about how equity-indexed annuities work and the potential that they offer.

“The equity-indexed annuity has to fix the problems that plague it, as it offers a lot of value to boomers,” Macchia says. “The value proposition of the equity-indexed annuity has to be showcased in a new way and we have the technology capability to do this.”

If equity-indexed annuities can be demystified, it would be easier to realize that they offer a greater potential for higher returns than other safe instruments, such as certificates of deposit, because they grow tax-deferred under federal tax law, says Keith Singer, CFP and founder of Boca Raton, Florida-based Keith Singer Wealth Management.

“Index annuities are simply fixed deferred annuities and they are not investments; they are savings vehicles,” Singer says.

The equity-indexed annuity is an important part of a retirement savings plan as it places protection under a principal sum of retirement income while still maintaining prospect for growth. However, many salespeople do not adequately explain how they work, Singer says, and many index annuities have high surrender charges and very long terms.

There has also been a great deal of debate as to whether equity-indexed annuities are insurance products or financial securities, which is probably due to the fact that the amount of interest credited to index annuities is based on stock market indices, Singer says. “However, in my opinion index annuities are not securities because they are not subject to any market risk, nor do they lose value if the stock market indexes go down,” he says.

According to Macchia, equity-indexed annuities are not securities, even if the Securities and Exchange Commission (SEC) might be likely to consider them as such. “These products are long-term vehicles for saving–they are not for investing nor are they a replacement for investing,” Macchia says. “However, the best way for the insurance industry to make people understand this and to ensure that equity-indexed annuities don’t get considered as securities is to market these products in a clear and transparent manner.”

This can only happen through technology, Macchia says, because in today’s rough annuity marketing climate, indexed annuity producers have got to reach out to more prospective clients in order to remain economically viable. Indeed, if the space is not cleared up and made more transparent, regulators will inevitably force more stringent suitability standards, not to mention a clampdown on traditional sales practices. “If [equity-indexed annuity] producers don’t embrace consumer-facing educational technology they will face business decline,” Macchia says.

But if the creators of these projects make use of technology and interfaces such as the one created by Wealth2k, there is a good chance that equity-indexed annuities can be better understood and that both advisors and their clients can get a better sense of the advantages of buying these products for retirement.

“Over time, as this world becomes less opaque, we’ll start to see more consumer-oriented equity-indexed annuities appear,” Macchia says. “We’re trying to use technology to bring in transparency and help this product evolve.”

Wealth2k’s microsite, multimedia presentation and brochure are available through


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