Two questions help clients avoid annuity surrender charges

There is no such thing as a perfect financial product. Every product has its strengths and weaknesses. That’s why there is such a great variety of products available, as providers put together offerings to appeal to clients with varying preferences. 

A fixed annuity is a great option for a client who is looking for a safe place for his or her money to grow without risk of loss. A fixed annuity provides a guaranteed interest rate, a flexible payout option, and a guaranteed income stream that he or she cannot outlive. Not only that, earnings from a fixed annuity aren’t taxed until the funds are paid out of the annuity.

However, a client may be deterred from purchasing a fixed annuity because of his or her concerns about surrender charges. You can overcome this objection by ensuring that a fixed annuity is selected to fit a client’s specific situation.

Meet client needs

When evaluating options to add to their financial portfolio, a client will usually have three concerns about where they put their money: how safe is the product, how much will they earn from it and when can they access funds?

Because no financial product meets all of these concerns perfectly, you’ll have to break the news to your client that they may have to do some compromising to find the product that best fits their financial goals. That’s because products like securities and mutual funds may provide earning potential, but lack a guarantee of safety. Alternatively, a bank account may provide safety and allow access to funds whenever needed, but lack earnings potential.

A fixed annuity can come close to meeting all three needs; the key factor is when the funds will need to be accessed. A client often has concerns about surrender charges when they haven’t sufficiently thought about two questions:

1. What is your purpose for the funds?

If the purpose is to grow the funds to ultimately provide an adequate retirement income, then your client should understand that liquidity isn’t free. If your client has a long time horizon, then perhaps the best way to get the combination of safety and earnings potential that they want is to buy an annuity with a long surrender charge period. Annuity issuers can provide higher interest rates when there is a longer surrender charge period.

2. When do you plan to actually use the money?