Clarity in communicating the fixed annuity value proposition

Over the past 18 months, Americans have seen their lives turned upside down by the ongoing pandemic. This has put uncertainty in the spotlight, as well as the critical need for future planning. In fact, 70% of Americans saw the pandemic as a financial wake-up call, claiming it has “caused them to pay more attention to their long-term finances.”¹ As a result, we are seeing an incredible rebound in annuity sales. According to data from the Secure Retirement Institute, strong equity market gains and lower volatility – along with rising interest rates – are all contributing factors to annuity sales reaching $ 129 billion since the start of the year. year, an increase of 29% compared to 2020.

Despite these encouraging statistics, we know that there is a considerable need for pension education. The word “annuity” still carries a stigma, and many annuity myths continue to circulate in the market. One of the things you’ve probably heard from your clients is that annuities are too expensive. To combat this myth, start by helping them understand the difference between fixed and variable products.

Most fixed annuities do not assess an initial or annual recurring fee. During this time, they may offer a fixed growth rate or the opportunity to earn interest credits based on the performance of the market index if a fixed indexed annuity might be in their best interest. Although some products offer endorsements that can be added to the contract for an additional fee, this is clearly disclosed before the contract is purchased. These riders may offer additional features and benefits beyond what the base annuity provides to address such things as terminal illness provisions, enhanced guaranteed lifetime income benefits, or protection against death. inflation.

However, the insurance guarantees inherent in annuities and the promise to provide additional interest are not free and, therefore, are considered a burden on the insurance company. Other expenses and costs of acquiring these products may include product development, issuance costs, commissions, regulatory compliance and reserve requirements. The beauty of fixed annuities is that these costs are built into the contract and are not billed separately or on an ongoing basis.

Finally, fixed annuities generally have a surrender charge. These can be imposed from two to 12 years, depending on the product design, and generally decrease to zero over time. While those who don’t understand annuity products – or those who actively try to encourage clients to move money into managed accounts – may speak ill of surrender fees, the reality is that they are valued. ONLY when the annuity owner withdraws money from the annuity. Most fixed and fixed indexed annuities allow the owner to withdraw a set amount from the contract each year without paying a fee, but withdrawals exceeding the maximum will be charged a penalty. In addition, if a person terminates their annuity contract early, before the fees expire, a surrender fee is assessed.

In other words, surrender charges are a loss prevention tool used by the issuing insurer to ensure that the business remains profitable and solvent. This, in turn, protects annuity buyers while ensuring that all consumers receive the most competitive interest rates and annuity features possible, and that insurers are adequately protected against a “rush on the bank”.

With a growing number of consumers recognizing the need to protect a portion of their nest egg against market risk while securing guaranteed income for life, it is more important than ever that we are ready to educate our clients on how these products. NAFA is here to help. Download a free copy of our new resource to help communicate clearly why redemption fees are not only fair but necessary to provide the consumer protection that customers seek.

FOR PROFESSIONAL FINANCIAL USE ONLY. DO NOT USE WITH THE GENERAL PUBLIC.

¹ The Four Pillars of the New Retirement: What a Difference a Year Makes, a Study Edward Jones and Age Wave: June 2021

The guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by a bank or the FDIC. Annuities are long-term vehicles for meeting retirement income needs.