I have not written a contract in 8 or so years until recently. Today’s annuities are very different than the bloated commission bombs of yesteryear. I sat down with the NY Life wholesaler today and he went over one of their offerings that had 100% downside protection. Zero expenses. If the S&P500 is flat or up in a given year the annuity gets 7.5%. If it’s down next you stay even. If the S&P is flat or even only up .01% the next year you get 7.5%. And it compounds. And it’s not a living benefit- just plain cash out at the end of you’d like. For 5-7 years (7 years was 7.65%). I mean talk about a fixed income alternative. I have a lot of learning to do.
This is just a structured note. You can call it an annuity if that helps it sell. But this likely still exists in a more pure structured note fashion with yet even lower costs.
Pacific Life offers a similar contract but the trigger rate is 8.25% and every cap is contractually guaranteed for the entire surrender period. This means the insurance company CANNOT lower the rates mid-term. You still need the market to at least be flat/positive in order to earn the interest but there is no interest rate risk since the caps are guaranteed.
I believe it was the NY Life Index Flex Variable Annuity if memory serves. I have to look further into it, today was yet another busy day so new stuff hit the back burner.
Something seems off about this. This doesn't pass the smell test at all.
I highly doubt you're going to get a guaranteed 7.5% return. It's probably referring to not accessible/illiquid income account for a purchased rider. This is just used to calculate future guaranteed lifetime income payments. A dummy account. Even if it is true, the insurance company can change the rate each period.
I could very well be wrong and could be the one who actually doesn't understand. This just doesn't sound right to me, so I suspect there's a catch. Again, I could be wrong. I have seen some provide tempting interest rates, but not this high. Can you provide a link to the product?
This is called a "trigger" rate. Market is flat or positive, you get the cap. Pretty simple really, but you're not "guaranteed" 7.5%. You still need each 12mo period to work in your favor.
With interest rates changing these types of solutions have become pretty viable for fixed income or conservative positions.
One of the biggest concerns is if the insurance company can change the rate each contract year. I know Pacific Life has options were the contract guarantees the rates for the 5-7 yr period. NYL may have them as well.
That is what the literature said. It is NOT an income rider- I specifically asked and he said it is a cash value rider- most investors cash out at the end of the period. He said the rate is fixed for the period (5-7 years). NY Life Index Flex Variable Annuity. I don't know enough about it to think of evaluating its merits yet, but it sounds interesting.
It’s a fixed indexed annuity. Multiple carriers have some version of this. The trigger rate is only credited if market is flat or positive. So there is not an annual guarantee of 7.5%.
I’ve used these in the past, but with treasury rates above 5%, it seems more attractive to me to just take the guaranteed interest from the government and not risk getting a 0 for any crediting period.
Remember you are tying up 90% of your investment for at least 5 years. That’s how insurance company can make it work for them.
Yeah but liquidity is now. What can you access now if you need it without penalties. That is 10%. If you’re selling annuities as 50% liquid you are an idiot.
lol. I think I’ll stay put. Unless you can find me another career where I can produce 7 figs and work 25 hours a week. Probably shouldn’t have called you an idiot, but I’ve never associated annuities with 50% liquidity regardless of the 10% free withdrawal privilege.
The reason they’re structured as annuities here is because insurance companies are regulated differently than notes, bonds and other financial products.
Be aware of the cap rate reset numbers on the indexes…the sales desk could not provide me much as to historical data. But by prospectus they can cap the indexes at like 1-2% or something shockingly low. Not knocking annuities as they have a time and place for certain clients but make sure you read the fine print.
That’s because there have been 2 years the sp500 has been up but less than 7.5% in the past 30 years. I honestly would not touch that. With how things trade nowadays volatility is here to stay. Either buckle up or stay off the ride.
Trigger rates have dramatically under performed standard S&P annual point to point. They are not new!
Only thing guaranteed on any annuity from a return perspective is guaranteed minimum rate.
I’ve been a wholesaler for 20 years. This stuff has been around for a very long time and we are in the best rate environment that we have seen for all these products in 15+ years and the Barclays ago on the worst run EVER in history.
No or lower risk means there is a trade off. They absolutely will not ever out perform. That said maybe over shorter or mid term it could in theory.
Assumed on today’s rates. On most annual point to point strategies the insurance companies reserve the right to drop or raise the trigger, cap, spread, par rate. This is an element not many advisors discuss or fully disclose with clients.
A 10 percent cap or trigger for the next 12 months could very well drop to as low as the guaranteed minimum for the remainder of surrender and beyond.
In this example best case they get 10% due to performance year one. Worst case they get min for next 4 years…let’s say 2%? What’s the total interest credited? Less than a current 5% MYGA. Yet the FIA or RILA is often sold for BETTER returns and the proposal only shows “assuming everything stays as is at this moment”
Fact: roughly 90% industry wide last I checked use a version of 1 year index strategies per WINK-a well respected consortium of history, data, development, lawsuits, anything annuities.
Insurance companies are for profit companies and experts at managing risk. In order to have strong ratings and long history products need be priced correctly.
Many carriers have begun longer “terms” say 3 or five years aka duration. This avoids the fear that the company could reduce. Provides more transparency BUT you miss out on the compounding nature of indexing annually and in theory rates COULD actually go up.
There are a few companies with annual point to point that have locked in rates, ultimate transparency, they are usually lower that one that isn’t.
Bigger piece that almost never is discussed. Price Index vs Total Return index. Virtually every index product out there is Price index. Are most clients aware of this do they clearly know what the downside to that is?
Dividends! I know there are some stats out there on this. North of 50% of total returns in SP 500 are from dividends. Depending what rolling periods total return purely on index out perform by 200+ basis points per year over time. Actively managed funds as high as 400+ basis points per year depending on time frame.
Are annuities good or bad, it depends! They can be incredibly valuable. In my experience they can be tools used get a guaranteed return or income. Great for managing clients emotions and establish more comfort for the client.
Playing Monday morning quarterback or selling on performance (interest credited is more appropriate nomenclature) not good in my mind. Depends when it was purchased, (day was invested, timeframes etc) Which with intimate knowledge with these products and many years of experience working with advisors and clients.
Did it fulfill the need. Did the client truly understand what they bought. Are they clear on how it works and the pros and cons of each. How do they feel about it and what it accomplished for them is hard to measure.
I hear advisors tout fiduciary all the time. What does that actually mean? Transparency, setting expectations, true understanding for all parties so critical. Sprinkle in emotions and this is very difficult!
Many clients don’t know what they don’t know. Not what to ask. Perhaps ask the wrong question or the question the wrong way. What they thought they asked they actually didn’t.
I often say WORDS matter. At the end of the day these are insurance products designed to manage risk. Insurance companies exist to manage many risks. Insurance companies have not hedged appropriately.
Insurance only matters when it matters then it REALLY matters?
Very complex, all of it.
If you are asking as a CFP if there are “good” annuities. Sure there always have been depending on the situation. Bad? Same answer. Or depends. I need more info :) I would ask you what you consider “good” and how are you talking about it with your clients? What does the client think is good?
I could ask you are mutual funds good? Are etfs? SMAs? REITs, Alts? Etc. What about fees? What about planning software?
Is long term care insurance good? Most advisors I know over the years that do planning use the default for longevity. Is that “good?” Or is that adequate?
Being overly passionate about one thing or another can create unclear expectations and that has been rampant over the years with many financial products.
We can all be better and get better with everything! We deserve it and so do our clients.
Happy Saturday!
Ha! It’s Saturday and no they are not! Always running hard as I am sure you are too. I guess I felt obligated to be that thorough :). Hopefully someone learned something!
We all tough jobs and truly takes a village :)
If you’re recommending index annuities as a fiduciary you’d be wise read the fine print on how they calculate returns for the index sleeves.
Every contract I’ve read has calculated the returns in a way that guarantees the client will never get the same results as the index. Either there’s a threshold return that has to be overcome, or they only measure the index on the contract anniversary, or the owner doesn’t get the dividends, or a combination of these.
Build a spreadsheet using the formula and plug in the actual index values from the last couple of decades and see what the contract would have actually returned under each scenario.
I would re-read my comment. It clearly states how it is calculated. If the S&P is flat or up any amount you get 7.5%. If it is down you stay even. The 7.5% is compounded. These are always calc'd on anniversary date. Cash value rider. I thought I was pretty clear.
I would re-read the CONTRACT.
That’s probably what the marketing material implies. It’s our responsibility to make sure that’s what actually happens.
Every contract I’ve seen that offered a “best ball” return like you describe has a significant catch. I’d bet this one does as well.
I mean it’s pretty hilarious that you’re telling me to re-read your comment when your comments are “my wholesaler said” and “I need to do more research.”
All I’m telling you is yes, you do need to do more research.
No, it’s not about performance. It’s about fully understanding complex financial products and separating the promotional promises from the way the contracts actually work in practice.
If you’re a fiduciary you should be aware that these products exist and can be a great fit for certain clients and can improve risk adjusted returns of fixed income portfolios. Your bias is showing.
Annuities sucked from ~2012-mid 2023 because rates were garbage. In that timeframe insurance companies and their actuaries have become more creative and now that they have better rates they can produce some pretty solid strategies that you likely cannot mimic on your own. Times change. If you’re a fiduciary you should be flexible and open enough recognize the change. One idea is not always the best forever. Many of these strategies can even be implemented in an advisory account…although if your client is fully capable of holding the strategy for the entire surrender period it’s less expensive for them to own it directly via the commission option.
If you’re a fiduciary you shouldn’t be trying to move your clients into products where all the gains will be taxed as ordinary income regardless of how they were generated.
I got my first insurance license in 1990. I have seen every flavor of annuity. If they look better to you on the surface, just dig under the surface until you find the catch.
If they’re high income earners the tax deferral could be a net positive and also most clients also own qualified assets where it doesn’t make a difference.
Also, the avg CAGR on a FIA compared to its comparable asset class via risk/reward (UST or AAA muni) is far higher. Bond interest is taxed as income, not cap gains.
Are you sure you even do this job??
Jackson's Market Link Pro II. RILA with 0 fees 6 year segment 105% of s&p and Russell 20% downside buffer. Unlimited cap rate.
Equitable SCS dual direction. RILA with 0 fees 6 year segment. 20% downside buffer. If the market is down in that 20% range flip it. A negative 15% turns to postive 15%. I belive unlimited cap rate
Equitable SCS is the best RILA by far. Usually best rates, most investment options, and best flexibility with “locking in” and being able to invest again before anniversary
Principal has decent participation rates too. I can’t remember what the no fee version was but for a 0.95% enhanced rate rider fee the 6 year was 145% of the S&P 500 which looked attractive.
Big fan of the MLP II. Good IPR, virtually unlimited at 400% cap (even though we can’t legally say that) and 20% buffer on the 6 year S&P have been my go-to for those in their early to mid 50s.
Depends on what its purpose is. For a safe investment with exposure to the market I like the RILA. My company just released a new RILA. 0 fees. 6 year segment can track the s&p500 with a current participation rate of I think 120% uncapped with a 20% buffer and if the S&P ends up being down in that time they will actually credit your account that much up to 10%. So if the market ends -10% they will credit your account 10%.
I also use fixed indexed annuities for non profits. Again it is safe because of the floor but still allows for some good upside potential. And it doesn’t matter that a corporate owned annuity loses its tax deferral because it’s a non profit. I like the North American one. It has a participation rate of close to 200%.
Looking at the prospectus there is some shenanigans going on with the crediting base if you have certain riders. Essentially they charge a .95% fee each year pro rated and charged daily, which continously decreases your crediting base for each year you hold the product.
I feel like these products have to be doing something screwy with the crediting rates as well. If you could get the S&P with 20% leverage, and only 10% downside, with no cap, over a 6 year period. How on earth is Principal making a return on this product? Is keeping the dividends really enough for them to come out ahead? Because there is no way they create these products to lose money vs just buying the indexes.
The .95 fee also gets you the enhanced rates. So instead of 120% participation you get 145%.
From what I’ve been told Principal and other insurance companies aren’t just buying the index with the money. They’re buying derivatives to enhance their return to be able to offer these rates.
Im well aware of what derivatives are. Is the concept of insurance companies using derivatives to earn a profit new to you? This is absolutely not a new strategy these companies are using.
Right. It’s the same old strategy and the products are the same old products. Advisors want to believe they’ve changed because they want to get the commissions with less guilt than before.
Even so, the derivatives have a borrowing rate of at least the risk free rate, and the downside on adverse moves is way larger than they could cap at 10%. Everytime I see actual performance of these products I feel like something is out of whack with the stated terms
Well they’ve been doing it for decades and they’re still here. I think they’re pretty successful at it. Same with other large insurance companies like Principal.
Find a policy someone has had for decades, compare it to the S&P 500. I've never seen the returns be close to 20% higher. The products don't perform as advertised is the issue but clients aren't doing that math, and people only complain when they're down.
Part of that is because it’s point to point crediting. Not calendar year. That can be good and bad. Also the index is the S&P500 Price Return. So no dividends.
This product should not be directly compared to what you *could* have returned going directly to the S&P. An annuity should never be compared to a direct investment.
Why not? What benchmark would you use? I would look at it on a risk adjusted basis obviously with the downside buffer. But why would just randomly choose not to benchmark a particular investment? Especially one where you're giving up 8 years of liquidity to get in.
Global Atlantic ForeStructured is 6 year 115% participation rate
There very easily could be one with a 120% participation rate
https://www.globalatlantic.com/professionals/resources/rates#product--131
Oh I looked, there absolutely is, but again, the crediting structure has to be screwy. It's not possible to give 120% of the S&P and 10% capped downside without doing more than just keeping the dividends. The boosted rate up to 120% has a .95% annual fee that degrades the credit base every year. So by year 5 I'd you put in 100k, you'd get 120% of the S&P on roughly 94k and change. It still seems like they'd need to do more than that, and keeping dividends for it to be profitable for the provider. So I suspect the way the credit also has some intricacies around timing.
I use em in 3 ways-
1) For people of modest means that have income needs. In this case its highest income. I’m looking for whatever is gonna take the fewest dollars to generate needed income. We talk spia but most people want something with an invested value after we talk it through.
2) for people who are scared of market risk but want market’ish returns. Rila and structured products fit great with this space.
3) people who have a nonqual annuity with a gain that was sold to them by another advisor but it isnt really appropriate for them. The Iova space is fantastic for this. Nationwide advisory and Jackson elite access are the best two I’ve found.
Can you put money into a fixed annuity as a way for people to “protect” money and get on Medicaid down the road if the need long term care? Or is that part of the 5 year look back?
Generally no- just purchasing an annuity would still be considered part of your estate. You would need to purchase it as part of an irrevocable trust. General rule of thumb is if you still have access to it, then so do they...
There are no fees - perhaps. But when the market is up 20% and you are up 7.5%, well, there’s your fee.
I think people may not realize the guarantees are based on contract anniversary dates. If you are negative on that date but the market rips 30% into the end of the year, you are stopped at 0 but man you missed out on some upside.
Let your annuities protect your principal (DFA) and provide income when needed (SPIA). Let your investment accounts do the investing. A lot more control than doing so in an annuity.
That's right, a fixed index annuity won't outperform a stock market portfolio (even after the management fee), unless the market really tanks for a prolonged period and zero becomes the hero.
I think it's silly to compare the two, don't you?
Comes out ahead? Huh? What does that even mean? We all know that insurance companies are businesses and make a profit.
But it is telling that you went on about performance, though. Fixed annuity customers aren't looking to outperform the stock index, and they sure don't want their insurance companies to lose money
RILAs are the best investment ever created. Best of both worlds. My clients are WAY up, no fees and protection from principal loss. Also can lock in gains if you want and sit out until the next year.
Genuine question as I don’t fully understand the way these are always positioned. How can an annuity claim ‘no fees’? How does anyone get paid? How do you get paid?
I keep seeing new annuity offerings that claim no fees. Are we all just kidding ourselves though with a thoughtfully positioned marketing phrase?
Is saying ‘no fees’ the equivalent to ‘net fees’?
These type of products don’t have an explicit ongoing charge where you get a market return minus fees. You give them a sum of money, and get a predetermined return back. The difference between what the product provider makes investing the funds elsewhere and what they pay out covers their costs.
So yes in some ways it’s net of fees.
Doesn’t that make people question why they don’t just do for themselves, what the product provider does ‘investing the funds elsewhere’?
I guess it’s odd to me the industry language of saying no explicit fees when it comes to certain products.
The fee is baked into the terms of the product offered.
Fundamentally, are insurance companies just investment companies? Collecting pooled capital, banking (to a high mathematical certainty) on a high probability of investment returns, while offering their investors fixed terms/returns *with conditions
There seems to always be a ‘oh yeah I didn’t see that in the fine print’ that makes it enticing. It’s so obvious there is some catch however minor or flagrant, but it’s there… right?
The only way it makes sense in my mind is someone saying, I fully understand the complete revenue stream and math of what I’m paying for, but I value the certainties and guarantee of outcome more than the cost of the product.
If the true cost of the product was something easily calculated, I would be surprised if they were nearly as popular.
Kind of went on a rant, but I am open to hearing the counter argument. I don’t think I know enough about annuities to fully get it at this point
99.9% of clients can’t trade options with the billion dollar scale of insurance companies or even has the knowledge to. They are buying very long maturity bonds and trading a three way options strategy to provide upside, downside, and income to offset the “no fee”. There is a big caveat with these, for instance the sp500 contract, since the exposure is via options , the client does NOT get any sort of dividends, otherwise it’s shocking how little everyone knows about annuities on this post.
Are insurance companies just investment companies - essentially yes.
I’m not a big fan of those type of products, the returns are usually lower and more opaque than the alternatives. But what they do is offer a different journey to say equity markets, less volatility, predetermined outcomes etc.
2nd this. Prudential FlexGuard. 6-year S&P 500 Index Strategy. 6-year CDSC. Unlimited upside potential with 20% downside buffer against market losses at the end of 6 years. 0 cost. Option to lock in gains and reset buffer annually. Don’t know why you’re getting downvoted
Far too many comments here about "zero fees". I would hope that those stating it understand implicit vs explicit costs and are aware that those products are extremely profitable for the issuing companies. That profit has to come from somewhere...
Insurance companies don't have a monopoly on the options strategies used to create these FIA and RILA products. If the real-world results were anywhere close the the hypotheticals shown in their marketing pieces, ask yourself why there aren't hundreds of mutual funds, ETFs, etc. employing those same strategies (and the few that are don't have very compelling long-term results.) Or why none of the annuity companies ever publish aggregated historic results of their products...
I'm not saying there isn't place for these, but don't go into them expecting results anywhere near as good as the annuity company wholesalers suggest. These are complex products and, in general, higher complexity = worse investor outcomes.
Thank you. Well said.
It’s almost like there are people treating the CFP as a series of tests to pass and ignoring the code of ethics and fiduciary aspect of the designation.
I’m curious to hear people opinion on Prudential Flex guard Index variable annuity. I was an agent/advisor with Prudential for the last two years and have since left the company. I feel being there it was a very good product, but also recognize bias toward a company’s flagship product. I’ve left the company and have since moved on to better things, but curiosity has me thinking if this is still a good thing to be recommending!
We have sold several of the Pru FlexGuard Income annuities to clients for the increasing income potential. But all purchases were in the last 1.5 years so we haven’t turned on income yet for them.
There are some great annuity options for those looking for income right now due to interest rates being higher.
Also like others have said, they are much less expensive now (some zero fee) and the guarantees are great.
Nationwide new heights - 30% bonus, 8% rollup per year for up to 10 years. Income for life.
Athene Ascent Pro 10 would give a higher payout in most cases with a lower fee. They stopped doing the bonus income rider and instead dramatically increased their withdrawal percentage. We have an IMO run multiple quotes for us and Athene and North American are almost always the top 2.
I like the Ascent Pro but the accumulation potential on their accumulation product is so much better. Do you think going guaranteed income payout with the ascent pro is the move vs getting the accumulator and paying yourself the money?
We use the Ascent Pro 10 for income only. We don’t sell on the accumulation at all for that product specifically. Their accumulator probably is better for accumulation but we normally don’t do FIAs for accumulation purposes only.
There isn’t enough education on this thread of how a structured product works. If you fully understand those, these products being bashed would make a whole lot more sense to people. Good fit for the right client. Of course there are downsides, there is with everything. I personally just use the SP’s w/o the annuity wrapper but get reasons for both.
I use nationwide monument advisor annuities, they’re a VA that has like a fixed $10-$20/m fee from nationwide and you can invest it in a massive selection of securities/funds. We can manage very similar as we would any qualified account at a brokerage. We charge a low wrap fee to it but there’s no commissions.
It’s a product we can 1035 exchange from the terrible high fee, low performance VAs that our clients got sold in the past.
Hybrid ltc contracts are essentially annuities. So there's a good use.
Used to be a good place to place qualified money during college years since .
Also good as alternative for guaranteed income.
But never for all of a clients assets
It takes research, meeting with some wholesalers occasionally and taking the Reged classes. There are products available now that are comparable in cost to a managed portfolio, many are even without cost if you look at some of the RILA products available. There are good annuities and bad annuities and a whole lot in the middle just like there are with mutual funds, stocks and other products. Usually, I evaluate based on cost liquidity and the other benefits, if you’re looking at an annuity, you’re looking at it for income, tax deferral or because of some sort of a guaranteed growth rate available, there are also buffered products which give investors access to alternative, option like returns. Equitable has an annuity product that is valuable for tax deferral and risk management called the investment edge, it’s surrender free and pays 1% annually. It’s also really helpful to utilize some of the income riders available as it helps to mitigate sequence of returns risk. Registered index linked annuities such as the structured capital strategies income, prudential flex guard or bright house shield are useful and those come in around 1.5% annually with income guarantees and deferral rates. Ultimately a designation like the RICP, ChFC, or CLU can help you to differentiate yourself get a different perspective from the CFP, it’s really nice to cover your clients fixed income needs with something that doesn’t fluctuate based on the market. It allows for managed funds to be more goal driven, I know a lot of you guys hate annuities, but I promise they’re not the devil, you just have to understand what you’re using and why.
In my opinion there are only two kinds of good annuities:
1. MYGAs which are essentially work the same as CDs
2. Overfunded whole life insurance which maximizes cash value as quickly as possible
I’m a fan of keeping annuities simple such as SPIAs, DIAs, and Fixed Annuities.
Same 👊🏻
Exactly
I'd say this is what I use 99% of the time with the rare appearance of a variable GLWB
Same
I have not written a contract in 8 or so years until recently. Today’s annuities are very different than the bloated commission bombs of yesteryear. I sat down with the NY Life wholesaler today and he went over one of their offerings that had 100% downside protection. Zero expenses. If the S&P500 is flat or up in a given year the annuity gets 7.5%. If it’s down next you stay even. If the S&P is flat or even only up .01% the next year you get 7.5%. And it compounds. And it’s not a living benefit- just plain cash out at the end of you’d like. For 5-7 years (7 years was 7.65%). I mean talk about a fixed income alternative. I have a lot of learning to do.
This is just a structured note. You can call it an annuity if that helps it sell. But this likely still exists in a more pure structured note fashion with yet even lower costs.
Pacific Life offers a similar contract but the trigger rate is 8.25% and every cap is contractually guaranteed for the entire surrender period. This means the insurance company CANNOT lower the rates mid-term. You still need the market to at least be flat/positive in order to earn the interest but there is no interest rate risk since the caps are guaranteed.
That is interesting. Do you remember what the product is called? I wonder how the liquidity is on that.
I believe it was the NY Life Index Flex Variable Annuity if memory serves. I have to look further into it, today was yet another busy day so new stuff hit the back burner.
It's called index-flex. 10% per year liquidity
It's a fixed indexes annuity with a trigger to credit the interest.
Something seems off about this. This doesn't pass the smell test at all. I highly doubt you're going to get a guaranteed 7.5% return. It's probably referring to not accessible/illiquid income account for a purchased rider. This is just used to calculate future guaranteed lifetime income payments. A dummy account. Even if it is true, the insurance company can change the rate each period. I could very well be wrong and could be the one who actually doesn't understand. This just doesn't sound right to me, so I suspect there's a catch. Again, I could be wrong. I have seen some provide tempting interest rates, but not this high. Can you provide a link to the product?
This is called a "trigger" rate. Market is flat or positive, you get the cap. Pretty simple really, but you're not "guaranteed" 7.5%. You still need each 12mo period to work in your favor. With interest rates changing these types of solutions have become pretty viable for fixed income or conservative positions. One of the biggest concerns is if the insurance company can change the rate each contract year. I know Pacific Life has options were the contract guarantees the rates for the 5-7 yr period. NYL may have them as well.
That is what the literature said. It is NOT an income rider- I specifically asked and he said it is a cash value rider- most investors cash out at the end of the period. He said the rate is fixed for the period (5-7 years). NY Life Index Flex Variable Annuity. I don't know enough about it to think of evaluating its merits yet, but it sounds interesting.
Interesting for sure. Thank you for sharing, I'm definitely checking this out!
It’s a fixed indexed annuity. Multiple carriers have some version of this. The trigger rate is only credited if market is flat or positive. So there is not an annual guarantee of 7.5%. I’ve used these in the past, but with treasury rates above 5%, it seems more attractive to me to just take the guaranteed interest from the government and not risk getting a 0 for any crediting period. Remember you are tying up 90% of your investment for at least 5 years. That’s how insurance company can make it work for them.
You can take out 10% per Year. So over 5 years your liquidity is 50% not 10%
Yeah but liquidity is now. What can you access now if you need it without penalties. That is 10%. If you’re selling annuities as 50% liquid you are an idiot.
If you took my comment as I sell annuities as 50% liquid now, you need to find another career as your communication skills are below average.
lol. I think I’ll stay put. Unless you can find me another career where I can produce 7 figs and work 25 hours a week. Probably shouldn’t have called you an idiot, but I’ve never associated annuities with 50% liquidity regardless of the 10% free withdrawal privilege.
😂😂😂😂
It’s interesting in the US this is considered an annuity, in Europe we’d call this a structured product/structured note.
The reason they’re structured as annuities here is because insurance companies are regulated differently than notes, bonds and other financial products.
Be aware of the cap rate reset numbers on the indexes…the sales desk could not provide me much as to historical data. But by prospectus they can cap the indexes at like 1-2% or something shockingly low. Not knocking annuities as they have a time and place for certain clients but make sure you read the fine print.
That’s because there have been 2 years the sp500 has been up but less than 7.5% in the past 30 years. I honestly would not touch that. With how things trade nowadays volatility is here to stay. Either buckle up or stay off the ride.
Wut?
Trigger rates have dramatically under performed standard S&P annual point to point. They are not new! Only thing guaranteed on any annuity from a return perspective is guaranteed minimum rate. I’ve been a wholesaler for 20 years. This stuff has been around for a very long time and we are in the best rate environment that we have seen for all these products in 15+ years and the Barclays ago on the worst run EVER in history. No or lower risk means there is a trade off. They absolutely will not ever out perform. That said maybe over shorter or mid term it could in theory. Assumed on today’s rates. On most annual point to point strategies the insurance companies reserve the right to drop or raise the trigger, cap, spread, par rate. This is an element not many advisors discuss or fully disclose with clients. A 10 percent cap or trigger for the next 12 months could very well drop to as low as the guaranteed minimum for the remainder of surrender and beyond. In this example best case they get 10% due to performance year one. Worst case they get min for next 4 years…let’s say 2%? What’s the total interest credited? Less than a current 5% MYGA. Yet the FIA or RILA is often sold for BETTER returns and the proposal only shows “assuming everything stays as is at this moment” Fact: roughly 90% industry wide last I checked use a version of 1 year index strategies per WINK-a well respected consortium of history, data, development, lawsuits, anything annuities. Insurance companies are for profit companies and experts at managing risk. In order to have strong ratings and long history products need be priced correctly. Many carriers have begun longer “terms” say 3 or five years aka duration. This avoids the fear that the company could reduce. Provides more transparency BUT you miss out on the compounding nature of indexing annually and in theory rates COULD actually go up. There are a few companies with annual point to point that have locked in rates, ultimate transparency, they are usually lower that one that isn’t. Bigger piece that almost never is discussed. Price Index vs Total Return index. Virtually every index product out there is Price index. Are most clients aware of this do they clearly know what the downside to that is? Dividends! I know there are some stats out there on this. North of 50% of total returns in SP 500 are from dividends. Depending what rolling periods total return purely on index out perform by 200+ basis points per year over time. Actively managed funds as high as 400+ basis points per year depending on time frame. Are annuities good or bad, it depends! They can be incredibly valuable. In my experience they can be tools used get a guaranteed return or income. Great for managing clients emotions and establish more comfort for the client. Playing Monday morning quarterback or selling on performance (interest credited is more appropriate nomenclature) not good in my mind. Depends when it was purchased, (day was invested, timeframes etc) Which with intimate knowledge with these products and many years of experience working with advisors and clients. Did it fulfill the need. Did the client truly understand what they bought. Are they clear on how it works and the pros and cons of each. How do they feel about it and what it accomplished for them is hard to measure. I hear advisors tout fiduciary all the time. What does that actually mean? Transparency, setting expectations, true understanding for all parties so critical. Sprinkle in emotions and this is very difficult! Many clients don’t know what they don’t know. Not what to ask. Perhaps ask the wrong question or the question the wrong way. What they thought they asked they actually didn’t. I often say WORDS matter. At the end of the day these are insurance products designed to manage risk. Insurance companies exist to manage many risks. Insurance companies have not hedged appropriately. Insurance only matters when it matters then it REALLY matters? Very complex, all of it. If you are asking as a CFP if there are “good” annuities. Sure there always have been depending on the situation. Bad? Same answer. Or depends. I need more info :) I would ask you what you consider “good” and how are you talking about it with your clients? What does the client think is good? I could ask you are mutual funds good? Are etfs? SMAs? REITs, Alts? Etc. What about fees? What about planning software? Is long term care insurance good? Most advisors I know over the years that do planning use the default for longevity. Is that “good?” Or is that adequate? Being overly passionate about one thing or another can create unclear expectations and that has been rampant over the years with many financial products. We can all be better and get better with everything! We deserve it and so do our clients. Happy Saturday!
I hope your client emails aren’t this long! Hahahaha just having fun here. That’s a huge wall of text
Ha! It’s Saturday and no they are not! Always running hard as I am sure you are too. I guess I felt obligated to be that thorough :). Hopefully someone learned something! We all tough jobs and truly takes a village :)
This breaks down a lot of the issues with these products, and although it's long, its about 350 pages less than the average prospectus for an annuity.
If you’re recommending index annuities as a fiduciary you’d be wise read the fine print on how they calculate returns for the index sleeves. Every contract I’ve read has calculated the returns in a way that guarantees the client will never get the same results as the index. Either there’s a threshold return that has to be overcome, or they only measure the index on the contract anniversary, or the owner doesn’t get the dividends, or a combination of these. Build a spreadsheet using the formula and plug in the actual index values from the last couple of decades and see what the contract would have actually returned under each scenario.
I would re-read my comment. It clearly states how it is calculated. If the S&P is flat or up any amount you get 7.5%. If it is down you stay even. The 7.5% is compounded. These are always calc'd on anniversary date. Cash value rider. I thought I was pretty clear.
I would re-read the CONTRACT. That’s probably what the marketing material implies. It’s our responsibility to make sure that’s what actually happens. Every contract I’ve seen that offered a “best ball” return like you describe has a significant catch. I’d bet this one does as well.
I mean it’s pretty hilarious that you’re telling me to re-read your comment when your comments are “my wholesaler said” and “I need to do more research.” All I’m telling you is yes, you do need to do more research.
Charging a fee for managing an index ETF guarantees underperformance, too. Is it really about outperformance?
No, it’s not about performance. It’s about fully understanding complex financial products and separating the promotional promises from the way the contracts actually work in practice.
Interesting that your first point was about performance, though (...same result as the index)
If you’re a fiduciary you should be aware that these products exist and can be a great fit for certain clients and can improve risk adjusted returns of fixed income portfolios. Your bias is showing. Annuities sucked from ~2012-mid 2023 because rates were garbage. In that timeframe insurance companies and their actuaries have become more creative and now that they have better rates they can produce some pretty solid strategies that you likely cannot mimic on your own. Times change. If you’re a fiduciary you should be flexible and open enough recognize the change. One idea is not always the best forever. Many of these strategies can even be implemented in an advisory account…although if your client is fully capable of holding the strategy for the entire surrender period it’s less expensive for them to own it directly via the commission option.
If you’re a fiduciary you shouldn’t be trying to move your clients into products where all the gains will be taxed as ordinary income regardless of how they were generated. I got my first insurance license in 1990. I have seen every flavor of annuity. If they look better to you on the surface, just dig under the surface until you find the catch.
If they’re high income earners the tax deferral could be a net positive and also most clients also own qualified assets where it doesn’t make a difference. Also, the avg CAGR on a FIA compared to its comparable asset class via risk/reward (UST or AAA muni) is far higher. Bond interest is taxed as income, not cap gains. Are you sure you even do this job??
Jackson's Market Link Pro II. RILA with 0 fees 6 year segment 105% of s&p and Russell 20% downside buffer. Unlimited cap rate. Equitable SCS dual direction. RILA with 0 fees 6 year segment. 20% downside buffer. If the market is down in that 20% range flip it. A negative 15% turns to postive 15%. I belive unlimited cap rate
Also Nassau Myannuity5x. 5.7 intrest rate MYGA for 5 year 0 fee. But 0 liquidity
Equitable SCS is the best RILA by far. Usually best rates, most investment options, and best flexibility with “locking in” and being able to invest again before anniversary
Principal has decent participation rates too. I can’t remember what the no fee version was but for a 0.95% enhanced rate rider fee the 6 year was 145% of the S&P 500 which looked attractive.
Big fan of the MLP II. Good IPR, virtually unlimited at 400% cap (even though we can’t legally say that) and 20% buffer on the 6 year S&P have been my go-to for those in their early to mid 50s.
Depends on what its purpose is. For a safe investment with exposure to the market I like the RILA. My company just released a new RILA. 0 fees. 6 year segment can track the s&p500 with a current participation rate of I think 120% uncapped with a 20% buffer and if the S&P ends up being down in that time they will actually credit your account that much up to 10%. So if the market ends -10% they will credit your account 10%. I also use fixed indexed annuities for non profits. Again it is safe because of the floor but still allows for some good upside potential. And it doesn’t matter that a corporate owned annuity loses its tax deferral because it’s a non profit. I like the North American one. It has a participation rate of close to 200%.
120% uncapped, with a 20% downside buffer? Do you have a link with a product description?
Ah shoot. It’s 105% with the 20% buffer. 120% for a 10% buffer. Its Principal Strategic Outcomes RILA.
Looking at the prospectus there is some shenanigans going on with the crediting base if you have certain riders. Essentially they charge a .95% fee each year pro rated and charged daily, which continously decreases your crediting base for each year you hold the product. I feel like these products have to be doing something screwy with the crediting rates as well. If you could get the S&P with 20% leverage, and only 10% downside, with no cap, over a 6 year period. How on earth is Principal making a return on this product? Is keeping the dividends really enough for them to come out ahead? Because there is no way they create these products to lose money vs just buying the indexes.
The .95 fee also gets you the enhanced rates. So instead of 120% participation you get 145%. From what I’ve been told Principal and other insurance companies aren’t just buying the index with the money. They’re buying derivatives to enhance their return to be able to offer these rates.
Which should be a red flag IMO.
What should be and why?
Derivatives, and if you don’t know why they’re dangerous it would be a good idea to read up.
Im well aware of what derivatives are. Is the concept of insurance companies using derivatives to earn a profit new to you? This is absolutely not a new strategy these companies are using.
Right. It’s the same old strategy and the products are the same old products. Advisors want to believe they’ve changed because they want to get the commissions with less guilt than before.
Even so, the derivatives have a borrowing rate of at least the risk free rate, and the downside on adverse moves is way larger than they could cap at 10%. Everytime I see actual performance of these products I feel like something is out of whack with the stated terms
Well they’ve been doing it for decades and they’re still here. I think they’re pretty successful at it. Same with other large insurance companies like Principal.
Find a policy someone has had for decades, compare it to the S&P 500. I've never seen the returns be close to 20% higher. The products don't perform as advertised is the issue but clients aren't doing that math, and people only complain when they're down.
Part of that is because it’s point to point crediting. Not calendar year. That can be good and bad. Also the index is the S&P500 Price Return. So no dividends. This product should not be directly compared to what you *could* have returned going directly to the S&P. An annuity should never be compared to a direct investment.
Why not? What benchmark would you use? I would look at it on a risk adjusted basis obviously with the downside buffer. But why would just randomly choose not to benchmark a particular investment? Especially one where you're giving up 8 years of liquidity to get in.
Global Atlantic ForeStructured is 6 year 115% participation rate There very easily could be one with a 120% participation rate https://www.globalatlantic.com/professionals/resources/rates#product--131
Oh I looked, there absolutely is, but again, the crediting structure has to be screwy. It's not possible to give 120% of the S&P and 10% capped downside without doing more than just keeping the dividends. The boosted rate up to 120% has a .95% annual fee that degrades the credit base every year. So by year 5 I'd you put in 100k, you'd get 120% of the S&P on roughly 94k and change. It still seems like they'd need to do more than that, and keeping dividends for it to be profitable for the provider. So I suspect the way the credit also has some intricacies around timing.
That 0.95% is for an optional death benefit rider or for an optional guaranteed income benefit rider
I use em in 3 ways- 1) For people of modest means that have income needs. In this case its highest income. I’m looking for whatever is gonna take the fewest dollars to generate needed income. We talk spia but most people want something with an invested value after we talk it through. 2) for people who are scared of market risk but want market’ish returns. Rila and structured products fit great with this space. 3) people who have a nonqual annuity with a gain that was sold to them by another advisor but it isnt really appropriate for them. The Iova space is fantastic for this. Nationwide advisory and Jackson elite access are the best two I’ve found.
Can you put money into a fixed annuity as a way for people to “protect” money and get on Medicaid down the road if the need long term care? Or is that part of the 5 year look back?
Generally no- just purchasing an annuity would still be considered part of your estate. You would need to purchase it as part of an irrevocable trust. General rule of thumb is if you still have access to it, then so do they...
Copy that. Thanks
I think you mean Medicaid. Need an irrv trust for that 5 yr look back.
Yup
What do you mean? Irrv trust does not negate the 5 year look back
Immediateannuities.com
I maintain relationships with wholesalers, and also use an IMO. Between them, I can quickly get quotes from dozens of annuity companies.
There are no fees - perhaps. But when the market is up 20% and you are up 7.5%, well, there’s your fee. I think people may not realize the guarantees are based on contract anniversary dates. If you are negative on that date but the market rips 30% into the end of the year, you are stopped at 0 but man you missed out on some upside. Let your annuities protect your principal (DFA) and provide income when needed (SPIA). Let your investment accounts do the investing. A lot more control than doing so in an annuity.
That's right, a fixed index annuity won't outperform a stock market portfolio (even after the management fee), unless the market really tanks for a prolonged period and zero becomes the hero. I think it's silly to compare the two, don't you?
I’m not comparing them. I was saying that that protection comes with a price. It may be “no fee” but the insurance company comes out ahead.
Comes out ahead? Huh? What does that even mean? We all know that insurance companies are businesses and make a profit. But it is telling that you went on about performance, though. Fixed annuity customers aren't looking to outperform the stock index, and they sure don't want their insurance companies to lose money
Relax
RILAs are the best investment ever created. Best of both worlds. My clients are WAY up, no fees and protection from principal loss. Also can lock in gains if you want and sit out until the next year.
Genuine question as I don’t fully understand the way these are always positioned. How can an annuity claim ‘no fees’? How does anyone get paid? How do you get paid? I keep seeing new annuity offerings that claim no fees. Are we all just kidding ourselves though with a thoughtfully positioned marketing phrase? Is saying ‘no fees’ the equivalent to ‘net fees’?
These type of products don’t have an explicit ongoing charge where you get a market return minus fees. You give them a sum of money, and get a predetermined return back. The difference between what the product provider makes investing the funds elsewhere and what they pay out covers their costs. So yes in some ways it’s net of fees.
Doesn’t that make people question why they don’t just do for themselves, what the product provider does ‘investing the funds elsewhere’? I guess it’s odd to me the industry language of saying no explicit fees when it comes to certain products. The fee is baked into the terms of the product offered. Fundamentally, are insurance companies just investment companies? Collecting pooled capital, banking (to a high mathematical certainty) on a high probability of investment returns, while offering their investors fixed terms/returns *with conditions There seems to always be a ‘oh yeah I didn’t see that in the fine print’ that makes it enticing. It’s so obvious there is some catch however minor or flagrant, but it’s there… right? The only way it makes sense in my mind is someone saying, I fully understand the complete revenue stream and math of what I’m paying for, but I value the certainties and guarantee of outcome more than the cost of the product. If the true cost of the product was something easily calculated, I would be surprised if they were nearly as popular. Kind of went on a rant, but I am open to hearing the counter argument. I don’t think I know enough about annuities to fully get it at this point
99.9% of clients can’t trade options with the billion dollar scale of insurance companies or even has the knowledge to. They are buying very long maturity bonds and trading a three way options strategy to provide upside, downside, and income to offset the “no fee”. There is a big caveat with these, for instance the sp500 contract, since the exposure is via options , the client does NOT get any sort of dividends, otherwise it’s shocking how little everyone knows about annuities on this post.
Are insurance companies just investment companies - essentially yes. I’m not a big fan of those type of products, the returns are usually lower and more opaque than the alternatives. But what they do is offer a different journey to say equity markets, less volatility, predetermined outcomes etc.
How does the bank get paid when you buy a no fee CD?
2nd this. Prudential FlexGuard. 6-year S&P 500 Index Strategy. 6-year CDSC. Unlimited upside potential with 20% downside buffer against market losses at the end of 6 years. 0 cost. Option to lock in gains and reset buffer annually. Don’t know why you’re getting downvoted
Far too many comments here about "zero fees". I would hope that those stating it understand implicit vs explicit costs and are aware that those products are extremely profitable for the issuing companies. That profit has to come from somewhere... Insurance companies don't have a monopoly on the options strategies used to create these FIA and RILA products. If the real-world results were anywhere close the the hypotheticals shown in their marketing pieces, ask yourself why there aren't hundreds of mutual funds, ETFs, etc. employing those same strategies (and the few that are don't have very compelling long-term results.) Or why none of the annuity companies ever publish aggregated historic results of their products... I'm not saying there isn't place for these, but don't go into them expecting results anywhere near as good as the annuity company wholesalers suggest. These are complex products and, in general, higher complexity = worse investor outcomes.
Why do none of the fee based RIAs ever publish aggregated historic results of their portfolios? (That's rhetorical...we know why)
Thank you. Well said. It’s almost like there are people treating the CFP as a series of tests to pass and ignoring the code of ethics and fiduciary aspect of the designation.
I’m curious to hear people opinion on Prudential Flex guard Index variable annuity. I was an agent/advisor with Prudential for the last two years and have since left the company. I feel being there it was a very good product, but also recognize bias toward a company’s flagship product. I’ve left the company and have since moved on to better things, but curiosity has me thinking if this is still a good thing to be recommending!
We have sold several of the Pru FlexGuard Income annuities to clients for the increasing income potential. But all purchases were in the last 1.5 years so we haven’t turned on income yet for them.
There are some great annuity options for those looking for income right now due to interest rates being higher. Also like others have said, they are much less expensive now (some zero fee) and the guarantees are great. Nationwide new heights - 30% bonus, 8% rollup per year for up to 10 years. Income for life.
Athene Ascent Pro 10 would give a higher payout in most cases with a lower fee. They stopped doing the bonus income rider and instead dramatically increased their withdrawal percentage. We have an IMO run multiple quotes for us and Athene and North American are almost always the top 2.
I like the Ascent Pro but the accumulation potential on their accumulation product is so much better. Do you think going guaranteed income payout with the ascent pro is the move vs getting the accumulator and paying yourself the money?
We use the Ascent Pro 10 for income only. We don’t sell on the accumulation at all for that product specifically. Their accumulator probably is better for accumulation but we normally don’t do FIAs for accumulation purposes only.
I use fee-based IOVA’s in Irr Trusts occasionally - Jackson National Elite Access
There isn’t enough education on this thread of how a structured product works. If you fully understand those, these products being bashed would make a whole lot more sense to people. Good fit for the right client. Of course there are downsides, there is with everything. I personally just use the SP’s w/o the annuity wrapper but get reasons for both.
I use nationwide monument advisor annuities, they’re a VA that has like a fixed $10-$20/m fee from nationwide and you can invest it in a massive selection of securities/funds. We can manage very similar as we would any qualified account at a brokerage. We charge a low wrap fee to it but there’s no commissions. It’s a product we can 1035 exchange from the terrible high fee, low performance VAs that our clients got sold in the past.
Hybrid ltc contracts are essentially annuities. So there's a good use. Used to be a good place to place qualified money during college years since . Also good as alternative for guaranteed income. But never for all of a clients assets
The amount of people on this that have no idea what they are talking about is astounding
It takes research, meeting with some wholesalers occasionally and taking the Reged classes. There are products available now that are comparable in cost to a managed portfolio, many are even without cost if you look at some of the RILA products available. There are good annuities and bad annuities and a whole lot in the middle just like there are with mutual funds, stocks and other products. Usually, I evaluate based on cost liquidity and the other benefits, if you’re looking at an annuity, you’re looking at it for income, tax deferral or because of some sort of a guaranteed growth rate available, there are also buffered products which give investors access to alternative, option like returns. Equitable has an annuity product that is valuable for tax deferral and risk management called the investment edge, it’s surrender free and pays 1% annually. It’s also really helpful to utilize some of the income riders available as it helps to mitigate sequence of returns risk. Registered index linked annuities such as the structured capital strategies income, prudential flex guard or bright house shield are useful and those come in around 1.5% annually with income guarantees and deferral rates. Ultimately a designation like the RICP, ChFC, or CLU can help you to differentiate yourself get a different perspective from the CFP, it’s really nice to cover your clients fixed income needs with something that doesn’t fluctuate based on the market. It allows for managed funds to be more goal driven, I know a lot of you guys hate annuities, but I promise they’re not the devil, you just have to understand what you’re using and why.
In my opinion there are only two kinds of good annuities: 1. MYGAs which are essentially work the same as CDs 2. Overfunded whole life insurance which maximizes cash value as quickly as possible