Acing annuities during Financial Literacy Awareness Month

When Financial Literacy Month comes around each April, financial professionals remind the clients they serve to brush up on their budgeting basics and stay sharp with their tax strategies. This turns out to be a great educational exercise, with investors seeking tips and tutorials and clients scheduling family meetings to bring kids into money conversations. All of this leads to more productive discussions around goals and planning.

With the financial professional toolkits constantly evolving and new products popping up on the scene, April is a good time for advisors to refresh and educate themselves on the strategies most beneficial to their clients. Planning for a secure retirement requires a personalized approach, so it is important for financial professionals and their clients to consider savings vehicles that can provide growth and protection for both present and future financial needs.

Becoming an expert on ChatGPT advice or the latest cryptocurrencies can feel daunting, so April is a great time to prioritize your understanding of products that have withstood varying economic cycles and remain compelling and beneficial to retirement savers, such as annuities. With clients asking questions about safe, growable investments and annuity sales on the rise, why not use April as a time to ace annuity literacy?

You’ll be glad you can build your annuity savvy to make smart recommendations to help clients find safety, tax benefits and growth potential in a challenging market environment.

The ‘why now’ for annuity education 

Although some people find annuities confusing, in reality, the value proposition of these products is resonating now more than ever. In fact, annuity sales hit an annual record in 2022, according to LIMRA data, with $310.6 billion in sales. Between the high interest rate environment, market volatility and recession fears, clients are flocking to annuities as a source of guaranteed income and protection from market volatility.

According to a recent survey from Athene, even though 23% of Americans do not know what an annuity is, the benefits of variable, fixed  and indexed annuities resonated with respondents. Guaranteed income (64%), favorable tax treatment (37%), and flexible features and benefits (37%) are the most important features that respondents seek in retirement savings products - and annuities offer all these features.

Among those saving for retirement, 75% of annuity owners reported feeling on track toward their retirement savings goals, marking a 26% increase in confidence over the general population’s confidence. When retirement saving confidence can seem out of reach for your clients, an annuity might be worth considering.

Beyond the basics: Customization with indices

While the basic product features of annuities clearly resonate with retirement savers, additional aspects of these vehicles might be worth an extra study session, including custom indices for fixed indexed annuities. As innovation continues in the annuity space, more client needs will be addressed.

You may hear the word “index” and immediately associate FIAs with direct exposure to equities. In reality, these products are insurance contracts, not investments in stocks and the initial premium won’t be lost due to market activity. With a FIA, growth is benchmarked to a stock market index such as the S&P 500. One of the biggest misunderstandings is that if the contract owner elects to have a portion of their premiums allocated to the S&P 500 annual point-to-point index, that their premiums are invested directly in the equities that comprise the S&P 500, which is not the case.

Moreover, the rise of custom indices has created more options for retirement savers inside of their annuity. To best serve your clients’ needs, financial professionals must understand how the features of custom indices can impact performance in fixed indexed annuities. Historically, most strategies have been tied to the performance of the S&P 500, but recent years have seen an explosion of alternative indices offered to clients looking for additional diversification.

Custom indices can be a valuable part of a holistic strategy and can increase the potential for positive outcomes inside of a FIA. They also offer protection from market unpredictability, with volatility control features that help enable higher and more stable participation in a positive market. Plus, they’re generating client interest.

Today, nearly 40% of fixed indexed annuity premium is allocated to interest crediting strategies that track hybrid or alternative indices in an effort to provide more value to customers and differentiate products in the marketplace. For example, instead of monitoring the S&P 500, a strategy might track an index made up of a custom blend of asset classes or global markets. Another might track an index that’s negatively correlated with the S&P 500, offering the potential for upside when traditional equity indices are down.

Trusted annuity advice moves the needle

On the other hand, survey respondents who have not purchased an annuity would be more inclined to own one if they had greater knowledge and education about the products (37%), if lower upfront costs were involved (32%), and if a financial professional or a trusted source recommended one (26%). These are all areas where a trusted financial professional can make a difference.

As in all retirement planning, one size doesn’t fit all. When considering annuities for clients and their portfolios, it is crucial to understand your clients’ goals, accumulated assets, and other sources of guaranteed lifetime income, such as Social Security benefits, pensions, real estate income or income from other assets.

As a financial professional, you may need support to fully understand and explain the features and benefits of annuities to your clients, but you don’t have to do it alone! As you brush up on annuity 101 this April, consider how these products can help clients retire with confidence and find safety and comfort in an otherwise stressful market environment.

Rod Mims is senior vice president and national sales manager at Athene USA. He may be contacted at [email protected].

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