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February 25, 2008 at 07:00 PM
The question was: Should I start offering fixed index annuities in my family practice? I’ve stayed away from them due to the regulatory scrutiny they’ve attracted–I didn’t want my customers to think I’m selling something that may be questionable. But now I see that FIAs sold over $25 billion in 2007 and sales are still going pretty strong. Is this the time to rethink this annuity option?
The answer is: There has never been a better time to offer fixed index annuities (FIAs). I mean never. There are several factors that contribute to the substantial opportunity that exists right now.
1. Interest rates on bank certificates of deposit are falling and will likely continue to fall. Clearly the Federal Reserve intends to cut rates further. Bank CDs are now being offered below the inflation rate. Inflation was 4.1% for 2007 and is 4.3% for the last 12 months. Purchasing a CD at 4% or less means that the CD holder is losing money on an inflation-adjusted basis. A carefully selected FIA can give the prospect the opportunity to fight inflation while still protecting his/her principal.
2. Market volatility is continuing. When the seas get rough, the prudent sailor looks for a port. While many investors hope and expect the market to improve with the heavy helping of monetary stimulus from the Federal Reserve, many of these same investors are concerned about building in a level of protection. Investors are worried.
There’s never been a better time to apply the old adage, “hope for the best, but be prepared for the worst.” That is precisely what underpins the use of the FIA. If we knew with a high degree of probability that the markets would do well…then we’d invest directly in the market. Of course, we can’t and don’t know that, so prudence dictates being conservative and protective with at least part of an investor’s retirement funds.
