For advisor Thomas B. Hamlin, the drought lasted about a decade. A strong proponent of equity indexed annuities back in the early and mid-1990s when they were still a relatively new product, Hamlin, CEO and founder of Somerset Wealth Strategies in Portland, Ore., says he largely stopped recommending indexed products to clients in the late 1990s and only recently has resumed doing so.
Avoiding indexed annuities, he explains, was a conscious decision made with his clients’ best interests in mind. “I didn’t use them much because they were the proverbial moving target. It seemed like they could change the rules on you any time. Lower caps, lower participation rates–it felt like you weren’t in complete control. Nothing personal against the insurance companies [that offer indexed annuities], but I just didn’t want to feel like my clients were being set up to fail.”
The drought ended for Hamlin and his firm in 2010, however. “We did more business with fixed indexed annuities last year than we had done in a decade,” he says. Recent improvements in the user-friendliness of the product–a moderation of fees, the advent of lifetime income guarantees, the availability of features that introduce new contractual flexibility, etc.–not only have rekindled Hamlin’s interest in indexed annuities, they also have helped spur a two-year surge in overall FIA sales.
On the heels of a record $29.4 billion in sales in 2009, fixed indexed deferred annuities hit record highs again in 2010, when sales climbed another 6 percent to an estimated $31.4 billion, according to figures released in March by Beacon Research. Last year, FIAs also claimed their largest share of total annual fixed annuity sales in the eight years Beacon has been tracking the market–48 percent.
Shorter surrender periods, richer lifetime income guarantees, lower fees and, of course, the combination of principal protection on the downside and positive market participation on the upside. These are some of the reasons advisors such as Hamlin are recommending and selling more FIAs these days. Here’s a closer look at how to leverage those key selling points to generate new business with fixed indexed annuities:
Selling point: Flexibility
Many FIAs now come with shorter surrender periods (five years instead of seven or 10). Many others don’t require annuitization to start taking income. Some offer a walkaway option (often after five or six years). These are the kinds of features that make FIAs more appealing to investors who prefer not to have their assets tied up for longer periods, so they have greater wherewithal to adjust to changing conditions, such as fluctuations in interest rates, inflation, etc.
Greater flexibility also comes via features such as those that give contract-holders the ability to defer taking income from their FIA, to convert a deferred FIA into a single-premium immediate annuity and
to access additional contract resources specifically to cover health care/long-term care costs through
options such as an income doubler. Today’s generation of FIAs also gives investors more choices regarding the equity indices to which their moneys linked.
Those types of features “make the [FIA] products out there today much more user-friendly,” says
Nolan Baker, CSA, an advisor at Retirement Specialists of Northwest Ohio.
Selling point: Guaranteed lifetime income
Now indexed annuity owners have access to the same guaranteed lifetime withdrawal riders that were once available only to variable annuity investors. The pairing of income guarantees with FIAs has contributed to the recent surge in indexed annuity sales, observes Hamlin, noting that about half of the indexed annuity purchases he orchestrates for clients now include a lifetime withdrawal benefit.
“People want insurance instead of just assurance. That’s why having a lifetime withdrawal benefit is great within a fixed indexed annuity. It’s a guaranteed income provider. It gives someone who’s now 55 and planning to retire at 65 the certainty that the income will be there in 10 years when they retire.”