5 Questions to Ask About an FIA Income Benefit

One thing is for sure in the financial services industry, things change.

Everything from regulations, to how we interface with our clients is very different from it was even just 10 years ago. In the past, when I would call an investment advisor about a fixed indexed annuity (FIA), the most common responses I would hear ranged from “I’m not interested,” to “I’m a fee-only advisor,” to “I use bonds for fixed income,” or to my personal favorite, the dial tone. Remember getting that good ol’ dial tone when you were building up your book of business?

Fast forward to today, it’s the opposite.

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In his recent white paper Fixed Indexed Annuities: Consider the Alternative, respected industry expert Roger Ibbotson of Zebra Capital Management said, “Annuities have for a long time deserved a place in retirement portfolios, and the evolution of the industry has made these vehicles more flexible and attractive.” Ibbotson went on to say, “It is our view, considering today’s low interest rate environment and our modest expectations for bond returns in the coming future, FIAs are an alternative to consider.”

Consumer and advisor interests are at an all-time high. With retirees focusing more on income, the guaranteed income benefits of FIAs have taken center stage for advisors. (With, of course, due attention to the disclaimer that annuity guarantees are based solely upon the claims-paying ability of the issuing company, and the annuity holder’s compliance with product terms.)

During retirement, when every day becomes Saturday, income is very important to retirees. With pensions quickly becoming a thing of the past for most, advisors are challenged with the task of making clients’ money last as long as they do. Annuities, by design, generate lifetime income. They are the only financial instrument that is designed to do that contractually. When evaluating FIAs, advisors should focus more on the annuity’s ability to satisfy a client’s required income need, rather than its ability to keep up with equity like returns.

With so many different options available in this space, how does an advisor choose the best fitting one for their clients?

To help, here are five questions to ask when choosing the right guaranteed income benefit for your client: