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.