When clients begin conversations with their agents or brokers on planning their retirement portfolios, they likely will have researched fixed indexed annuities (FIAs). There’s no lack of information available online designed to educate prospective investors on the various benefits and potential drawbacks of annuities.
Some of this information is fair and unbiased, others strongly discouraging annuities. Investors can also readily find information from very reputable sources warning investors to be wary or stay away from annuities. For instance, in an article titled “What’s the Alternative to An Annuity?” Forbes presents reasons why annuities, in general, aren’t a good deal for investors. Further, a Wall Street Journal article “Fixed Index Annuities Merit Caution,” addresses fixed indexed annuities in particular, warning investors to be cautious about fixed indexed annuities, but noting that FIAs can make sense for some investors seeking steady retirement income—particularly those typically drawn to products like CDs and safe-haven bonds.
Investors may come to meetings with their agents and brokers with negative perceptions of FIAs, and questioning this type of annuity’s value in their retirement portfolios. Some published reports state that FIAs can be both complicated and carry some hidden risk—both true statements. FIAs can be complex, and all investments carry some degree of risk. FIAs aren’t for everyone. But agents and brokers who feel that this type of annuity is a good fit with their client need to know how to effectively counter negative perceptions and beliefs.
In its Fixed Indexed Annuity Study, Athene surveyed 543 individuals who have both worked as an investment or insurance professional for a minimum of one year, and who have sold at least one annuity product to a client within the previous 12 months. As part of the study, Athene uncovered the main perceived drawbacks of FIAs and discovered that there are nine common reasons prospects are hesitant to buy into FIAs, some having to do with preferences. Some clients:
- Fear the lack of liquidity (73%). Individuals who purchase FIAs commit these assets for a period of time, typically between five and 15 years;
- Prefer equities (71%);
- Believe FIAs are too complicated and/or confusing (60%);
- Object to penalties for early withdrawal (52%). While the money committed to FIAs are tied up, there may be substantial fees or penalties for withdrawing money or surrendering the annuity;
- Do not have sufficient funds to purchase FIAs (51%);
- Prefer CDs or money market (45%);
- Prefer non-indexed deferred fixed annuities (43%);
- Prefer deferred variable annuities (40%); and
- Prefer bonds or bond funds (37%)
Those with no FIA sales last year are more apt to point to client preference for other vehicles, such as equities or other annuities, as well as confusion surrounding FIAs,” according to the Athene report.