We all can agree that, unfortunately, annuities are still the “curse word” of the financial services industry and especially among the majority of the mainstream and uninformed financial media. This is tragic, and we the annuity industry can easily win this financial propaganda war by just focusing on one easy to remember phrase: “Transfer the Risk.”
The “market growth” mistake
In my opinion, the mistake the annuity industry is making is trying to compete in the world of growth. I understand that this is the sexy sell, and fills the “greed” factor, but annuities will never compete head to head with the full upside of equity markets. Why are we trying to compete in that growth category when we can own our own “unique message” space? Variable annuities (VAs) are the obvious argument for growth, but even fixed indexed annuities (FIAs) are trying to compete in the “market growth” category as well. Let’s break down VAs and FIAs and the growth argument, and what the annuity message should really be.
Variable annuities have the best argument to be classified as growth products, but most policies start limiting investment choices with the addition of any contractually guaranteed riders. Because most variable annuity policies are sold with these attached riders, this fund choice limitation realistically prevents this strategy from being a pound the table upside strategy when it comes to “market growth.”
One VA exception
There is really only one exception to the annuity “market growth” argument, and that’s the no load/no rider variable annuity. This pure “tax deferred growth” space is continuing to expand, and will see even more popularity if new capital gains tax proposals are implemented.
Fixed indexed annuities
Even though FIAs were initially created to compete with CD/fixed-rate returns, most annuity agents love presenting FIAs as pure market growth products via the index option strategies. Yes, I understand that the upside to an FIA is that there is no downside…and that there is limited participation in the upside and that growth can be locked in, etc., etc. I get that. All of you FIA Kool-Ade drinkers out there calm down, because I recommend FIAs as well and sell a ton of them, but primarily for contractually guaranteed target date income planning using the income riders. I just don’t think we should present them in the growth category due the index option upside limitations.
The marketing fix and message strategy: “Transfer the risk”