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Retirement Planning > Saving for Retirement

FIAs: Catering to the Conservative Consumer

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In the world of financial services, the term “conservative” can take on many meanings. For some, it may have negative connotations, describing an individual or financial strategy that’s missing out on the potential gains made possible by being more open to risk. For others, it’s the hallmark of a sound financial strategy built on less volatile returns with limited highs and lows.

Regardless of your personal feelings about conservative savings strategies, one thing is certain – the “great recession” has many people more interested in a conservative approach than ever before. According to Allianz Life’s “Reclaiming the Future” study, when Americans aged 44-75 were asked to describe their ideal financial product, the most selected feature was “ the ability to create a stable, predictable standard of living.” In second and third place was the “ability to provide a guaranteed income stream for life” and “guaranteed not to lose value,” respectively.

In fact, when asked to choose between high returns or guarantees, 69 percent of those surveyed said they prefer a product that was “guaranteed not to lose value,” while only 31 percent chose a product with a goal of providing a high return.

Another factor backing this claim is the sales of fixed indexed annuities (FIA), a product that offers the attributes described above. According to‘s Indexed Sales & Market Report, FIA sales for the third quarter of 2010 hit a record-breaking $8.7 billion, up 16 percent from the third quarter. Total FIA sales through the third quarter of 2010 have increased four percent year-over-year and 28 percent since 2007. Through the end of September, conservative-minded consumers had put nearly $24 billion into FIAs – a particularly notable feat in today’s low-interest environment.

A surprising source

It’s interesting to see just how much of these sales are coming from an unexpected source – banks. In the past, banks may have steered their more conservative customers toward CDs. For several years, CDs, which are financial instruments backed by the FDIC, provided annual interest rates of more than 4 percent ( and offered the principal protection that conservative consumers sought. Since CDs are generally considered a relatively liquid asset, they also provide the easy access to money that many people desire.

Things began to change around September 2006, when the Fed cut interest rates to combat the global financial crisis. At that time, the national average interest rate for CDs was 4.53 percent. A November 2010 analysis by Market Rates Insight found that the average interest rate for CDs ranging from three months to five years has dropped to 0.99 percent, and the national average for interest on CDs, money markets, savings, and checking accounts stood at 0.80 percent.

For people who want to see a decent return on their investment, that just won’t cut it. Slowly but surely, banks have begun realizing this and offering a different retirement planning alternative to complement the use of CDs – in the form of an FIA.

Because FIAs are insurance products, it’s important to note that they are designed for consumers who not only wish to accumulate funds for retirement, but who are also looking for guaranteed lifetime income – a guarantee that is backed by the financial strength and claims-paying ability of the insurer. However, it’s also essential to understand that there are fees included with FIAs that don’t exist with a CD, such as surrender penalties with early withdrawals that could result in loss of principal and any interest.

Growing trends

According to’s Indexed Sales & Market Report, through the third quarter of 2007, FIA sales through banks accounted for only 4.5 percent of total sales. In 2010, that number is up to 7.3 percent, with more than $1.7 billion in FIAs sold.

Perhaps a reason for this is the newer breed of short surrender charge FIAs that are much more flexible than previous product designs. Although not as liquid as CDs, FIAs with surrender charges of six years or less now allow much greater access than annuities of the past. FIAs offering competitive interest rates present a strong value proposition for people who still value safety, but want the growth of their money to at least keep up with the rate of inflation.

Three years ago, sales of shorter surrender charge FIAs through the third quarter amounted to $1.1 billion, or 6 percent of the total. In 2010, sales of those products have more than doubled to $2.7 billion, according to, and it stands to reasons that bank sales have contributed a significant amount to this number.

Opportunity knocks

Although FIA sales through the bank channel are clearly booming, this should be seen as an opportunity for agents rather than a threat. Increasing bank sales prove that the appetite for FIAs is strong, and that more conservative customers who might have previously put some of their savings into a CD may be suitable candidates for FIAs for a portion of their assets.

Agents can take advantage of this trend by connecting with more conservative clients and determining if an FIA may be appropriate for their retirement and income planning needs. The big differentiator that agents have is the selection of FIAs that they can provide, which is typically larger than most banks can offer. This is particularly important when you consider advancements in the products themselves, even within the last five years. Today’s annuities now offer distinct innovations with regard to passing money to heirs, protecting against inflation, growing income throughout retirement, and mitigating loss.

Field marketing organizations (FMOs) should also see this as positive news. Record-setting sales and newfound interest from banks can make FMOs a valuable wholesaling resource for regional banks and mid-sized broker/dealers that are now helping to grow the FIA pie.

If you know your client prefers to play things on the safe side, it’s time to extol the virtues of an FIA. If they’re interested in guaranteed income and a good way to complement other conservative investments, they should be eager to hear what you have to say.

Eric Thomes is senior vice president of sales for Allianz Life.


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