One of the primary reasons that clients consider purchasing fixed or fixed indexed annuities is to protect their retirement savings dollars from loss. Since safety is a priority when considering an annuity purchase, it is unsurprising that clients often worry about the failure of the issuing insurance carrier. They will often express this objection by saying, “I just don’t trust it — it’s not FDIC-insured!”
This is a reasonable concern given the events of the past few years. Lehman Brothers and Bear Stearns were both highly respected companies when they suddenly went out of business. A large money market fund, the Reserve Primary Fund, dropped its share price below the near-sacred $1 mark, causing the federal government to create a temporary program that guaranteed money market mutual funds in order to restore investor confidence. And we can’t ignore the fact that some very financially sophisticated clients thought for a long time that their money was safe with Bernie Madoff.
How do we put our clients’ fears to rest? Our first instinct may be to inform our clients of the protections that their state’s guaranty fund provides — but unfortunately, nearly every state carries some prohibition on the mention of these guaranty funds during the sales process.
So what other ways can we address this objection? Here are four ideas.
#1; Carrier strength Ask your client, “Even with the FDIC insurance, would you put money in a bank that you thought was in bad financial shape?” The answer will likely be, “Of course not!” So, the strength of the issuing insurance company is a factor in the decision process.
You can share with your client information about the financial strength of the carrier. Many carriers publish financial information, and independent rating agencies examine and assign financial strength ratings to annuity carriers. Also, stock analysts regularly publish reports on the future earnings prospects of publicly traded carriers.
If you can show your clients evidence of the carrier’s financial strength, stability, and outlook, you will be able to begin addressing this objection.
#2: Written guarantee Ask your client, “In the case of Bernie Madoff, Lehman Brothers, Bear Stearns, the Reserve Primary Fund, or whatever other situation you are thinking of, was there a written contractual guarantee of safety?” The answer is “no.”
Even money market mutual funds, which have historically maintained a steady share price of $1, do not contractually guarantee the safety of client money. A money market fund prospectus will typically include the statement, “Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.”