For the past 114 years the stock market has ebbed and flowed in a distinct pattern. There are cycles when the stock market is either generally rising or instead trending in a violent whip-saw trading-range pattern.
Baby boomers had the luxury of riding the greatest stock market expansion wave in the history of our nation beginning in 1982. But that all ended in March of 2000. The average “sideways” trading cycle lasts about 18 years. We are now in the eleventh year of this sideways market; thus, chances are improving that we may be nearing the beginning of the next big up market.
As an advisor or agent who reads this blog can attest, we’ve done a marvelous job of protecting the wealth of our clients using insured or protected products and investments. The plain vanilla equity indexed annuity was the solution during the tumultuous time early in the new millennium. But today with 10-year interest rates at 2 percent or less, the time has come to transition your practice and your product mix to more sophisticated investments, strategies and products for your clients.
While it is technically accurate that index annuities have no fees directly charged to the client, obviously these products are not totally free. Taking a closer look into what’s most important to your client (net risk-adjusted return) and the variable annuity (VA) with lucrative living benefits make more sense than ever now. Annual bonuses and quarterly market value step-ups (even daily step-ups) are available.
There are far fewer moving parts (and total transparency) in a variable annuity. VAs also have the potential for your client to truly participate in the wealth-building effect that long-term investing in the stock market can offer. Comparing one very popular equity index carrier chart on real returns versus the S&P 500, it’s clear that when interest rates were much higher, their product made a lot of sense to risk-averse clients. And their commissions might have made them attractive to agents and advisors, too. But now there just isn’t enough “room” in the equity index product to satisfy the distribution infrastructure of them.