I recently had someone reach out to me who wanted to replace six annuity contracts that he had with Nationwide.
He had purchased them three years ago, and the current surrender charges were 9% plus a market value adjustment (MVA) charge of over 3%.
With a total of over 12% in surrender charges to get released from these contracts, I usually shy away from doing a replacement for an annuity.
Replacements are funny. Sometimes, they're in the best interests of the client, but many times, they're not, and an advisor will push for a replacement so they can make extra commissions.
As advisors we should always be looking out for the client and their interests instead of our own.
As much as I may want the deal, I really just want to do the right thing for the client.
This should be how every advisor treats a client or potential client.
The Spreadsheet
In this case, the client wanted to look at an annuity replacement if he could get more lifetime income in eight years than what the current ones would give him.
He had a nice spreadsheet filled out showing all of the account values, surrender values, and what the combined income would be if he activated it now, plus every subsequent year till the eight-year goal.
Knowing that he had hefty surrender charges, I tried to find the highest lifetime income annuity that would also offer a premium bonus.
I found one with Athene that ultimately would pay him $6,600 more per year versus what his current ones would do if he kept them.
The Athene annuity also offered a 10% premium bonus to make him "somewhat" whole.
I still did not like that he was losing money to replace the contracts, so I let him make the decision.
His most important goal was to secure the highest annual income in eight years, regardless of the account value costs. He chose to do the replacement because of this.
The Thinking
Whenever I get requests for an annuity replacement, I always look at the potential costs as well as what the person might give up with their current contract.
It's important to always look at the pros and cons of any annuity replacement and to do what is in the best interests of the client.
The line can sometimes get blurry when faced with the idea of a replacement because, whenever I put someone into an initial annuity contract, it's never my intention to replace it later on. I want clients to get the very best right from the beginning.
This should be the case with everyone we serve.
So, with interest rates at historic highs, what are you doing for your clients?
Are you actively looking for replacement opportunities for the people you serve or letting them reach out to you first?
Would you allow for a small loss in the account value for more guaranteed lifetime income if that was the person's goal?
With these questions in mind, I would like to invite you to reflect on your own personal motives and ethics for how you serve your clients.
John Stevenson is a retirement and wealth strategist based in Las Vegas.
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