I’d like to discuss FIA income riders. Guarantees are great… when they’re great. Clients and advisors both love guarantees. They are generally simple for the advisor to explain and simple for the client to understand. But, guarantees are also incredibly expensive. What do I mean? Two points…
First, guarantees are expensive for the insurance company who has to back them for a long time. Bond rates continue to languish, but insurance companies use bonds to back their guarantees. Did you ever wonder why FIA’s with high guaranteed roll-up rates have zero accumulation potential? That’s a trade-off. The insurance company has to pull one lever or another to price for that high guarantee. They raise fees, reduce payout factors, drop commissions, cut caps, etc. Sure, your client got a guarantee, but at what price?
This brings me to my second point: Guarantees are expensive for your clients. FIA’s with high guaranteed roll-up rates have very little else going for them. The guarantee is not just the worst your client can do. It’s also the best they’ll ever do! Guarantees usually come at the expense of flexibility. Think about a case design where we find you the highest guaranteed income in 7 years because a client of yours plans to retire then. What if she retires a year early? Oops, that would have been a different product. What about a year later? Oops, that would have been a third product. What if it turns out she didn’t need the guaranteed income at all? Oops, that’s a fourth product.
Many income riders still have a guaranteed roll up rate for a defined period of time, but the real innovation that has occurred is FIA’s, which have lowered the guarantee and given your clients income upside potential. With the really good ones, it’s not going to take much interest crediting to blow the guaranteed competition right out of the water. Uncapped growth designs have translated into uncapped income designs.
The big problem you face is in trying to figure out which uncapped FIA combined with which uncapped income rider combined with which newly launched index option gives your clients the best chance of beating those guarantees.
Is that a conversation you’re 100% certain your existing wholesaler can handle? Your clients’ retirement security hangs in the balance!