Monday, May 01, 2017

Selling FIAs in an Uncooperative Environment

By Heath Waddington, Senior Vice President of Sales & Marketing

Beware the Ides of March! For just the third time since the Great Recession the Federal Reserve raised interest rates. The Fed increased the overnight rate from 0.75% to 1.00%, which had been widely anticipated. The U.S. Ten-Year Treasury Note has risen from 1.783% just prior to the presidential election to just north of 2.50% at the time of this writing.[1] This represents the first of what many predict will be multiple increases over the next two years as the Fed continues to operate under its statutory mandate of maximum employment and price stability. With inflation running, “somewhat below 2%”,[2] it is likely that the Fed will look to continue raising rates.

Rising interest rates can make fixed and fixed index annuity sales tough.
As the rates at the longer end of the curve start to rise, many clients are reluctant to move their money into a longer-term contract for fear of missing out on even higher rates in the future. This becomes an all-too-familiar objection from clients and is one of the main reasons that sales are harder to come by when rates increase. The question is, how much interest are they potentially missing out on?

Consider this: Let’s assume you were able to find an annuity that would pay 2% a year guaranteed for 10 years. This is an easy assumption, given that 10-year annuities have rates of over 3% in many cases right now. You take this 2% annuity to your client and they have reservations because they feel that interest rates are going to rise. Assuming your client was waiting for rates to double to 4% and that took 6 years, the 2% annuity would outperform waiting by over 4%. Furthermore, you would need to earn 5.1% the final 4 years to match the 2% annuity over 10 years. We don’t know what interest rates will do in the coming year. Will they rise, fall, or stay the same? What we do know is that your clients can be subject to a significant cost if they choose to wait on the sidelines.

Hypothetical example and not intended to predict or project results of any specific financial product, and does not take into account product fees, expenses, or taxes.

FIA sales historically become tougher when the stock market is performing well. In March of 2009 during the Great Recession, the S&P 500 bottomed out at 676.53.[3] In the years since, it has more than tripled in value. Clients that have money invested in the market may have already forgotten the feeling they had back in 2009. After all, Americans have very short memories. It is often very difficult to talk to a client about lowering the amount of their retirement savings they have at risk when they have seen their values rising for more than eight years!

Consider changing the conversation to retirement income. FIAs cannot compete with market returns. They were not designed to provide the high potential returns that can be had in an investment product. The fact that the upside potential is limited is what gives FIAs the ability to protect principal from a market loss. As your clients approach retirement, return of principal often becomes just as important as return on principal.

This is where the true potential of an FIA product can be shown. It allows you to show your client the importance of a guaranteed income they cannot outlive. We have detailed in a recent article the crisis in retirement confidence that many retirees are experiencing. Clients have a desire for what annuities provide but need the guidance of a financial professional to help them prepare for what could be 30+ years in retirement. An FIA with some type of lifetime income benefit, usually through an additional cost rider, can make a lot of sense for many people. It can be used to supplement their Social Security income to cover basic expenses in retirement.

It is no surprise that selling fixed products in a low interest-rate environment is more difficult, especially one where the stock market is at all-time highs. Moving the conversation to income has allowed many producers to isolate a portion of their client’s portfolio for use in covering basic expenses and to help protect them from outliving their income. Please feel free to call us at 800.321.3924  for ideas on how to position such products in the current climate.

Heath Waddington | Senior Vice President of Sales & Marketing
Ann Arbor Annuity Exchange
Ph: 800.321.3924 x140 | Dir: 734.786.6140

Annuities are subject to surrender charge schedules or other early withdrawal penalties, so your clients could lose money if they surrender their contract early. Additionally, it is possible for an FIA to earn zero interest. Different financial products have different purposes and risk levels. Please analyze client goals prior to making a recommendation regarding any financial product. 

Any distribution form annuities are subject to ordinary income tax and, if taken prior to age 59 ½, an additional 10% federal tax. 

Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance carrier. 

[1] 10 Year Treasury Note (CBOE Interest Rate 10 Year T No ˆTNX). Yahoo Finance. Web. Accessed 16 Mar 2017 at
[2] “Federal Reserve issues FOMC Statement” Board of Governors of the Federal Reserve System. Web. 15 Mar 2017. Accessed 15 Mar 2017 at
[3] S&P 500 (^GSPC). Yahoo Finance. Web. Accessed 21 Mar 2017 at 

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