On the surface, fixed indexed annuities (FIAs) may seem like the perfect investment for risk-averse investors, but they have earned a dubious reputation for being difficult to understand due to their complex structure. Any investment that allows for participation in the positive returns of the stock market while protecting the principal against its negative returns can be a great option for certain clients. Increasing numbers of financial advisors are promoting these FIA’s. We can help you keep them simple for your clients to understand.
FIA Innovations Increases Complexity
FIAs have several moving parts, which may make them more difficult to explain. With the introduction of hybrid assets and a multitude of new riders in the last few years, these innovations have boosted the attractiveness of the product, but this may involve more explaining.
Gone are the days when the returns of an FIA are pegged to just the S&P 500 which most investors were/are familiar with. Today, there are more than 150 hybrid indexes used with FIAs. While offering investors more choices is certainly an upside, it can complicate the advisors’ job of K.I.S.S. with clients.
Contact us so we can help simplify the presentation and create easy-to-understand illustrations.
To Aid Clients’ Buying Decision, Keep it Simple
Our advice to any advisor wishing to introduce their clients to any type of the new and improved FIAs is to keep it as simple as possible. We recommend keeping the explanation framed around the most basic elements of an FIA, starting with participation and cap rate and the fact their capital is protected from market declines. They are likely to be familiar with the S&P 500, so we suggest one sticks with that to start.
The great part of FIAs is their flexibility. As your client grows more comfortable with the investment, you could introduce additional allocation strategies using hybrid indexes and explain how they can improve their performance.
FAIs can be an ideal solution in many situations. With FAIU (First American Insurance Underwriters) as your partner working with all the top FIA carriers, we can help you match your clients’ needs and circumstances to the right product and lay out a simple presentation your clients can understand.
— By Ed Stone, LTC, DI & Annuity Specialist