Photo credit: <a href = "http://www.freedigitalphotos.net/images/view_photog.php?photogid=2664">Stuart Miles</a>

When the economy is mediocre, advisors need to be on their A game. It is essential for advisors to be informed about the latest economic changes, so they can help clients invest their money wisely. Within the last quarter, annuity standards have changed. Low interest rates are causing annuity companies to raise the cost of annuities and/or decrease the benefits in order to turn a profit.

Some of the recent changes I’ve noticed annuity companies making are:

  • Lowering the 5 percent guaranteed benefit to 3 percent or 4 percent.
  • Changing the starting age of guaranteed lifetime income from 59-and-a-half to 65 or older.
  • Increasing annuity prices and rider costs.
  • Lessening the availability of bonus products.

However, these changes do not mean clients should write off annuities as a potential investment. Presently, annuities might be slightly more expensive or provide fewer benefits, but overall, annuities tend to be a safe monetary decision. This is because annuities still have the guarantee they have always had. For the right clients and client situations, I would recommend annuities as a practical investment.

With annuity companies making alternations, it is your job as an advisor to make clients aware. The simplest annuities are a complicated concept to grasp, so it is imperative to be very clear when explaining annuity changes to clients. Your clients need to be fully informed of new annuity prices and benefits before they can feel confident purchasing them.

Clients might be interested in knowing if these annuity changes are temporary or permanent. Assure your clients the annuity changes are temporary. When the interest rates begin to increase, annuity benefits should start to improve. Annuity companies have no choice but to increase the cost and lessen annuity rewards during times of low interest rates. As soon as interest rates increase, companies will again begin to offer more annuity perks.

Before making any financial decision, it is best to do research. Do the leg work for your clients and eliminate the anxiety brought on by annuity changes. Once you present all of the facts, your clients will realize the changes are not as drastic as they may appear.

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