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January 16, 2012 at 08:41 AM
We’ve lived through seven recessions in the past 40 years but the current secular bear market has spawned the worst worldwide economic environment in 80 years. We advisors earn our living in times such as these. Now is the best opportunity in history to contact your clients and prospects and hold their hand, financially speaking.
Generally, “Joe Public” is less informed about insurance products than licensed professionals, and the unfortunate fact is that many agents have made a nice living selling fixed and indexed annuities, drank the industry Kool-Aid and believed the hype promulgated by their FMOs that variable products were evil. This just isn’t true. If a rep thinks he or she can still simply “sell” a product to Joe Public and not continue to monitor it, they’re going to become a dinosaur and a serious threat to our industry and image as professionals.
This “dilemma” for the big players and firms is a windfall opportunity for the smaller independent rep and agent. An exodus from large firms to independents continues and is accelerating. There were simply too many little pigs at the trough in the distribution channel. Tremendous declines in U.S. Treasury interest rates have cut out the “wiggle room” that fed these parasitic organizations and product distribution channels.
One product does not fit all needs. There are more fears and potential losses to address and avoid other than investment or stock market loss. Even fixed and index annuities can actually lose principal in addition to the surrender fees, if the contract has a market value adjustment clause (MVA). For now, it will be all about cash flow and survival. Using a bucket type approach to segmenting investments into short, mid and long term might be the best solution.
Listen, annuities are not a miracle solution; they are a tool in the shed. You wouldn’t use a chain saw to trim the hedges and conversely you wouldn’t use a hacksaw to cut down an oak tree. I’ll get a lot of negative mail from near-sighted agents that think I am recommending a full-court press away from fixed or indexed annuities and into variable ones. I am not. However, it’s typically wise and profitable to buy low and sell high. With interest rates at historic lows, bond prices have never, ever been higher. Investing money into a product that is land locked in the case of rising interest rates and financially catastrophic in hyper-rising rates and inflation makes no sense either.
