Should Your Client Buy a RILA?

As your clients near retirement, protecting their money from potential losses due to an uncertain market environment is understandably a priority.

But for some investors, the cost of gaining protection from market risk may not be worth the benefit.

If you have clients in this situation, you may want to discuss a registered index-linked annuity (RILA). This product may be able to fulfill an accumulation need for those clients in retirement or those who are close to reaching retirement age, typically within five to seven years.

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RILAs are insurance products that can be described as a cross between a fixed indexed annuity and a variable annuity. Like fixed indexed annuities, RILAs provide the opportunity for growth based on the performance of a market index. However, RILAs differ from indexed annuities in that clients do assume a level of market loss risk in exchange for a higher cap on the upside potential.

That said, a RILA may be a great addition to your client’s retirement portfolio but with so many new products entering the marketplace, how do you choose the right one for your client? To help narrow the field, answer these 5 questions.

1. What’s the growth opportunity for my client?

RILAs commonly feature capped indexed interest crediting methods, some advertising cap rates – an interest rate that limits the growth of an indexed annuity – of 200% or more. This may look impressive, but the best value for your client isn’t always found in the highest rate. When comparing rates, it’s important to consider the potential of the crediting method as a whole.

For example, some RILAs offer participation rate methods alongside capped options. While a cap rate allows 100% participation in positive index returns up to the cap, a participation rate – sometimes greater than 100% – works as a multiplier on any increase in the index.

2. Does the product offer flexible features and benefits?

Life can be unexpected. Just as your clients’ financial goals can change over time, so can their tolerance for risk. With so many RILA options available, it’s important to offer a product that is flexible enough to adapt to evolving needs. Here are a few things to look for:

• Diversified index options: Indices that perform differently in a variety of market environments enable clients to diversify for the highest potential return.
• A choice of protection levels: Different ways to help balance risk and reward.
• Multiple term periods: Both short and long-term crediting strategies offer unique benefits.
• Liquidity features: Free withdrawals, a death benefit and confinement and terminal illness waivers add flexibility to a RILA.

3. What makes RILAs stand out?

While RILA products have similar designs, some offer features to help maximize return potential. Custom interest crediting methods are a great example. They are designed to adapt to economic conditions, relieving clients of the burden of trying to time the market.

4. Is the company a quality carrier?

The strength and stability of a carrier is critical when selecting a product, especially one designed for long-term savings. Look for a highly rated carrier with a strong business model, sufficient capital and experienced leadership. The carrier you decide to work with should be able to meet the challenges of today’s marketplace, give your clients confidence and help you build your business.

5. Will the company provide the support needed throughout the sales process?

The relationship between carrier, financial professional and client is a long-term commitment. The carrier you work with should be able to provide support before, during and after the sale. This support includes but is not limited to:

• Before the sale: Product training, education and forward-thinking thought leadership.
• During the sale: Dedicated sales support, established new business processes and well-designed materials.
• After the sale: Exceptional customer service, expedient commissions process and strong claims paying abilities.

As with all investment vehicles, it’s important to level set with your client on their financial goals and risk tolerance before making a decision. Before you offer a RILA to your client, be sure to select a carrier and product that checks all the boxes. This could set them apart and help them achieve retirement success.

Rod Mims is senior vice president, distribution, at Athene USA.