FIAs ‘at a sweet spot right now,’ Security Benefit exec says

The Federal Reserve made headlines in September by slashing its benchmark interest rate by a half-point. That direction of lowering interest rates makes it a good time for clients to lock in rates on investments such as fixed annuities before rates go down even further.

David Byrnes, senior vice president and chief distribution officer at Security Benefit, told InsuranceNewsNet that fixed income assets such as fixed annuities and fixed indexed annuities play an important role in an individual’s retirement planning. This is particularly true in light of a recent Nationwide survey that showed 72% of adults worry that the Social Security system will run out of money during their lifetime.

“The majority of our clients are either saving for retirement or are already in retirement and are looking for investments that have fixed returns and safety of principal,” he said. “So, it’s kind of a sweet spot for us if you look at opportunities right now.”

High interest rates over the past three years resulted in a favorable environment for fixed annuities and multiyear guaranteed annuities, Byrnes said.

“It created an opportunity to put a portion of a client’s portfolio in a product or an investment that has competitive rates and guarantees safety of principal,” he said. “Providing safety and offering the ability to grow their money on a tax-deferred basis is an ideal situation for clients.”

If interest rates continue to go down, there are still opportunities to present fixed annuities as a good investment, Byrnes said.

“Historically, lower interest rates have had an inverse relationship with equity market performance,” he said. “So in a given year, if we see multiple rate cuts, that normally has been favorable to equity returns. If you look at fixed indexed annuities, they participate in equity returns through crediting strategies that are aligned to the performance of an index – let’s say the S&P – so they can give you further upside there. Also, with high cap rates associated with higher interest rates right now, you have the ability to lock those in the short term of having higher caps tied to the S&P for example. This is a good option for periods of time when we might move into a favorable or continued favorable market for equity returns.”

Byrnes noted that stock market volatility – like interest rates – has an inverse relationship with equity rates.

“When you have high volatility, you have lousy performance,” he said. “It’s a nice comfort to nice comfort to have something that's guaranteed or something that's tied to equity performance, but also guaranteed where you can't lose money on the downside and also offers upside with competitive cap rates and a double-digit range tied to the S&P.”

Byrnes said Security Benefit is seeing steady growth in equity markets and competitive fixed income.

“It's a perfect environment for advisors to offer value to their clients by giving them sound investment advice for where they may want to participate with upside tied to equity performance, but also offer guarantees with competitive rates, depending on which fixed income instrument you use.

Record annuity sales show that FAs and FIAs are good options for clients seeking safety and growth amid economic and political uncertainty, Byrnes said. “The proof is in the pudding,” he said of annuity sales records.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].