Choosing the scenic route: Why diversification matters

Last summer, I took a road trip on Route 66. I could have chosen the interstate — a faster, more direct route; instead, I opted for the dusty, beaten-up “Old Route 66.” It wasn’t the quickest way to my destination, yet it was by far the most rewarding. Along Route 66, I discovered incredible attractions I would have missed on the highway: quirky roadside diners, historic landmarks and breathtaking views. The journey itself became as valuable as the destination.

Annuities remind me of that trip.

On the surface, annuities may seem like a straightforward, one-lane highway to reaching a financial goal such as retirement income or stability. But if you take a closer look, you’ll find opportunities to explore new paths through internal diversification. Allocating premium to model blends within a fixed index annuity is like choosing the scenic route on the financial journey — it opens up options that can improve the experience and help clients arrive at their goals sooner, potentially with more “gas” in the tank.

What are model blends?

Model blends are like preset navigation systems for an annuity. They combine various allocation paths — such as equities, fixed income and alternatives — into one well-planned route. Each blend can be tailored to different preferences or risk levels.

Why diversify within an annuity?

Diversifying within an annuity is like mapping multiple routes for the trip. It helps clients stay on course, no matter what surprises the market throws their way.

Lower risk: Allocating across different asset classes within the annuity could reduce the impact of any single roadblock. For example, during a stock market downturn, a blend with both equity and diversifier indices might lose less value compared to an all-equity allocation.

More growth opportunities: Model blends can open new paths to growth by including a variety of indices. This ensures clients don’t miss out on opportunities that could speed up their journey to financial goals.

Better fit for the overall plan: The right model blend helps align the annuity with the client’s broader financial map. For instance, a client with an overall financial portfolio focused on safety might choose an aggressive blend inside the annuity for added growth potential, or a client with a stock-heavy portfolio might prefer a conservative blend within their annuity to provide even greater balance and stability.

Ease of management: Model blends work like a GPS that automatically updates as conditions change. They’re professionally managed and may rebalance automatically, saving you time and keeping the strategy on track.

Common misconceptions about model blends

Just as travelers might hesitate to trust a GPS, some advisors may be unsure about model blends due to misconceptions. Let’s clear up a few myths.

Myth 1: Model blends are too rigid. 

Truth: Many blends allow for changes along the way and can be adapted as a client’s needs evolve.

Myth 2: Diversifying inside an annuity adds unnecessary complexity. 

Truth: Model blends can simplify the process by bundling different allocation options into a single, straightforward solution.

Myth 3: Smaller annuities don’t need internal diversification. 

Truth: Even a small allocation can benefit from being spread across multiple options. Every road trip can benefit from knowing an alternate route, no matter how short the journey.

Applying a model blend

Information and awareness are powerful in planning to meet a client’s retirement needs. The best way to use a model blend includes understanding: 

1. Your client’s goals. Start by identifying the client’s financial destination. Is the client looking for growth, steady income or protection? How much risk are they comfortable taking?

2. How to choose the right blend. Pick a blend that fits the client’s journey. For example: A retiree who values stability might prefer a conservative blend, while a younger client with time to recover from market ups and downs might benefit from a balanced or an aggressive blend.

3. When to communicate the benefits. Help clients see why this strategy works. Use simple visuals, such as a road map or timeline, to show how diversification reduces risk and smooths the ride.

4. A plan to review and adjust as needed. Clients’ needs and the markets change over time. Regular reviews ensure the selected blend remains the best route. Many annuities allow for reallocations, keeping you in control of the journey.

Like in any adventure, search for hidden gems

My Route 66 trip showed me there’s more to a journey than getting from Point A to Point B. Likewise, exploring the options within an annuity can reveal unexpected opportunities. Diversifying with model blends can offer clients a smoother, more rewarding financial ride. It can help ensure their annuity is more than just a vehicle — it’s a well-planned route with flexibility and hidden gems along the way.

The next time you’re working with a client’s annuity, think about taking the scenic route. Don’t just focus on the destination; explore the roads within to uncover options that can make all the difference in their financial journey.