Clients need guarantees, not Wall Street promises. Photo credit: <a href = "http://www.freedigitalphotos.net/images/view_photog.php?photogid=778">thephotoholic</a>

From a financial industry perspective, the first quarter of 2012 was a reason to celebrate.

The stock market had its best first quarter in 14 years, with the Dow Jones Industrial Average up 8 percent and the S&P 500 up 12 percentthe best start since the bull market of the 1990s. The NASDAQ composite index, made up of technology stocks, had an even more remarkable run, up 19 percent for the year, its best start since 1991.

The trigger for this amazing quarter actually happened very early in the year. On January 3, the Dow rose 180 points. Later that month, the Federal Reserve said it would keep benchmark interest rates near zero for almost three more years. That news sent stocks to their highest levels since May 2011. It soon became the best January for stocks since 1997 and the momentum continued in quick succession, with the stock market passing two milestones in the process:

  • Milestone 1. On February 28, the Dow rose above 13,000 for the first time since May 2008, four months before the financial crisis hit that September.
  • Milestone 2. Two weeks later, it was the NASDAQ’s turn, as it crossed 3,000 for the first time since the dot-com era a dozen years earlier.

A final impressive note from the first quarter can be found in the market’s steady performance. The gap between the daily high and low for the S&P averaged only about 0.9 percentage pointsthree times smaller than early last fall when volatility was the norm.

So what does this mean for you and your clients?

It’s likely that many clients will want to take advantage of the current market environment, but as we know, people have short memories and would be wise not to forget not-so-long-ago events. Along those lines, a key point can be gleaned from one of the highlights abovethe Dow rising above 13,000 for the first time since May 2008, only four months before the financial crisis destroyed a large number of retirement portfolios. As that proves, change in the financial industry can happen quickly, so as financial professionals, it’s our responsibility to remind our clients of recent history and help them understand that their retirement savings should have some level of built-in protection.

That doesn’t mean you have to be a wet blanket and downplay the positives of recent market performance. Depending on their age, growth strategy and risk tolerance, employing a more aggressive strategy may be entirely appropriate, but retirement planning isn’t just about accumulation. It also needs to address retirement income and protecting against things like inflation and rising health-care costs.

Annuities meet those needs

Annuities can help meet those needs, and there’s evidence that many Americans are beginning to understand the role they can play in a well-rounded retirement portfolio. Last year was another record year for annuities as total sales increased eight percent compared to 2010, to reach $240.3 billion (according to LIMRA’s fourth-quarter 2011 U.S. Individual Annuities Sales survey). So whether they utilized a fixed annuity, a fixed indexed annuity (FIA) or a variable annuity with an optional rider, a growing number of people have added some guarantees to their retirement plan.

Because after all, there is no guarantee that the strong market performance of the first quarter will last for another quarter or the rest of the year. Many of the issues that worried investors in 2011 are still in play for 2012, which have the potential to send the market tumbling in a short time frame. Rising oil prices, the debt crisis in Europe highlighted by Spain’s severe recession and potential disappointment in U.S economic data and corporate earnings may have people on alert and mindful of the potential need for some guarantees.

One way to offer a level of guaranteed protection is with a fixed annuity. And the great part is, with innovative products like fixed index annuities, you can offer your clients the guarantees they need and still provide them the opportunity to earn interest based on positive changes in an external index, without participating in the market. Keep in mind that all guarantees are based on the financial strength and claims-paying ability of the issuing company.

Although it can be difficult to get clients thinking about the need for financial protection during the good times, it’s an important message that has its place no matter how well the stock market is performing. By offering your client different options to help meet this goal–including ones that offer both the potential for accumulation and guarantees–you can demonstrate your understanding of their larger financial picture and that you always have their best interests in mind.