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3 ways clients can benefit from old annuities

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Remember those fixed and variable annuity contracts you sold 10, 20, 30 years ago? Well, not only are they out of the contingent deferred sales charge period, but they present a great opportunity for your clients. Here are three ways you can help your clients take advantage of their older annuities.

1. Look for and ask about “idle” money that should be repositioned

There is more money invested in “cash” assets than ever before, and your clients are going broke slowly, earning next to nothing with their CD, money market and savings accounts. To make matters worse, what little interest they do earn is taxed! It has been a rather productive few months for me, as I have been calling on clients who own matured fixed and variable annuities and are looking for opportunities to reposition some of their cash assets. For example, in the last 90 days, I’ve called and sent letters to my matured annuity accounts telling them, “You remember that annuity contract with ABC Mutual? Well, it has a fixed account that guarantees 3.5 percent interest, and there’s no tax until you withdraw the money. I see you have $22,000 in a money market with XYZ Mutual Fund. I think it would be a wise move to have $22,000 earning 3.5 percent, tax deferred, instead of zero percent in that money market mutual fund. What do you think?”

The goal is to help the client make more money, have less money at risk and pay lower taxes in the process. It’s not always in the client’s best interest to replace an annuity, especially when there are ways to put existing contracts to good use. You’ll do a lot of good for them, and you’ll be paid in the process.

This is also a favorable way to get back in front of clients who you may not have talked to in a long time.

Photo credit: Michael Elliott

2. Consider variable annuity fixed accounts as an alternative to bonds and bond funds

In October, when I was rebalancing a client’s portfolio looking to reduce his allocation in equity mutual funds, I was reluctant to increase his holding in bond mutual funds since interest rates are so low. My concern in this case, given the clients age, was reallocating assets from equities into bond funds and not reducing his overall risk. In fact, you could make the argument that I was increasing the portfolio’s risk because he will certainly lose principal in bond funds as interest rates go back up.

So, what will reduce his portfolio’s risk and improve his returns when interest rates turn around? My answer was the fixed account in the variable annuity he owned, which guaranteed him 3 percent interest. It was a perfect solution to my rebalancing dilemma. Now I don’t have to lose sleep knowing one day in the near future, when interest rates rise, he will lose money. Instead, the guaranteed fixed account protects against loss of principal, and the interest it pays will rise over time.

In fact, the same client had a required minimum distribution in November that he usually deposits right into his bank savings account. Of course, I found it a better home in the non-qualified variable annuity guaranteed principle account.

Photo credit: Stuart Miles

3. Don’t forget those orphans

Over the years, I have had friends leave the business and ask me to service their accounts. My general agent also occasionally distributes accounts to me that do not have an advisor (also known as orphans). Frankly, I begrudgingly agreed to service these accounts, believing they held little opportunity for me. Then, this past summer, one of these orphan accounts contacted me with a request to liquidate his variable annuity. The account owner said, “I’m retiring next spring, and I don’t like losing sleep over what’s going on in the economy. I am going to just put my money in the bank and call it a day. At least there I know it’s safe and guaranteed.”

I explained to him the fixed account in his annuity guaranteed him a 3.5 percent rate of return. It turned out he had nearly $300,000 in CD and savings account IRAs, so it was a beneficial transaction for him to pursue. It was a win-win transaction. This opportunity gave me the idea to market to my other orphan annuity accounts and help them in the same way.

In this low interest rate environment, it’s critical not to overlook value-added opportunities within your existing annuity book of business. Help your clients make smart choices with their money by helping them reduce risk and taxes while increasing returns.

Photo credit: Stockimages

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