Annuity FYI Blog

The FINRA Investor Education Foundation has redesigned their website helping consumers who are at risk of fraud, according to a FINRA News Release.  Their Save and Invest website is not only geared towards the military and their families, but also other investors likely to experience fraud.  The website helps military families manage their money and offers a multitude of online tools, such as variable annuity reviews.  There is also an entire area dedicated to help all consumers avoid fraud and check the background of financial professionals.  One part of the Fraud Center helps consumers by listing popular scams to avoid when it comes to your finances.

There are lots of simple tools and a wealth of information available with this website, SaveAndInvest.org.  The Military Center section of the website helps military families obtain their FICO score and pairs them with military financial professionals.  This section also helps families prepare a budget and deal with changes related to deployment or permanent relocation.  With the many tools available, consumers can calculate retirement needs, research different investment options like annuities, analyze different funds, and check out brokers you are looking to use.  With the website redesign, the FINRA Foundation is confident they will be able to help many more military families and other consumers.

Written by Rachel Summit

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The new generation of fixed index annuity products offer excellent guarantees with market downside protection, and they also have lower fees.  Annuity FYI’s article “Fixed Index Annuities Getting a Fresh Look,” says that last year’s sales of $31.4 billion broke sales records for the second year in a row.  Fixed indexed annuity products are very complex and while they are an excellent investment for many people, you definitely need to research the underlying index, the formula which credits interest, the guaranteed minimum return, the participation rate, the spread fee, any cap, bonus possibilities, and the type of indexing method that will be used.

A fixed index annuity is a hybrid of a traditional fixed annuity product.  Investors are guaranteed that they won’t lose any of their original investment because they are guaranteed that their rate of return will always be above zero.  What makes fixed indexed annuities different from fixed rate of return annuities is that the rate of return varies based on a specific equities market.  You will usually have a guaranteed minimum interest rate that can increase based on the performance of the index on which the FIA is based.  FIA’s are an investment somewhere in between a fixed annuity and a variable annuity.  FINRA says that while you will have more risk and more potential return than a fixed annuity, you will have less risk and less potential return than a variable annuity.

The fixed index annuity is worth a look because the newest products have lower fees and better lifetime income guarantees than previous FIAs.  You also get the tax-deferred growth that is so popular with all annuities, shorter surrender periods, walkaway options, choice of an index, and a waiver of annuitization.  The Wharton school found that fixed index annuities have performed better than many alternative investments.  They have been competitive with many of the most popular and safest investments and have even performed better than some variable annuities and mutual funds.  FIA’s are best for investors nearing retirement who want to protect their money, especially after the past couple of market collapses.

The FINRA Investor Education Foundation recently published a news release aimed at helping investors better understand their finances during this tax season.  “FINRA Foundation Issues Take Control of Your Financial Future: Tips to Think About at Tax Time and Beyond” recommends learning about your finances, including your annuity rates and spending habits.  They want to help Americans make sure that their finances are on track and empower them to take charge of their own financial future by learning the necessities.

In a recent survey they conducted, FINRA found that only 16% of their respondents were happy with their finances and the future they have mapped out financially.  Tax season is traditionally a time of year when people take stock of what is going on in their lives financially and make some changes.  In order to make the right changes though, you have to be educated on what will work for your financial future so FINRA is trying to help with that.

Take charge of your finances and find a way to spend less and save more.  Whether you save for an immediate annuity to help in your retirement or a rainy day fund, make sure that you can cover your monthly bills and put money away.  That might require cutting out some expenses or finding a way to earn more income.  Work to reduce your debt.  Forty percent of those surveyed are only paying the minimum on their credit cards and 56% carry a balance month to month which they pay interest on.  Plan not only for known future expenses like retirement but also for unknown expenses like job loss or an emergency.  Shop around for the best credit card deals, annuity rates, and other product offers before purchasing.  Make a commitment to know your finances and continue learning about them into the future.

There is a small battle going on in the insurance industry over what to call equity indexed annuities, according to Statesman.com.  Scott Burns’ article “An equity-indexed annuity by any other name is still an equity-indexed annuity” highlights the disagreement between journalists and those in the insurance profession.  Equity indexed annuities have been called such since they came about.  They are annuities linked to a credit index where investors receive a yield based on the appreciation of a certain credit index.  They are popular products because investors receive a portion of the capital appreciation without any risk of losing money on their investment.  The trade-off is that you relinquish any dividend income and a portion of the appreciation.

While equity indexed annuities are still the same product that they always have been, some in the insurance industry prefer that they be called fixed indexed annuities now.  It really is just about marketing because after two large declines in the equities markets, the term equity has lost some appeal.  Organizations like the SEC and FINRA still refer to the annuities as equity indexed annuities, probably because they don’t have anything to gain if more or less of the product is sold.  Insurance companies and brokers want to sell more product, so of course they want them to be seen as some of the best annuities when investors are making their decisions.  Wording can make a big difference in how products are viewed, not only in the insurance and finance industry.

Insurance News Net’s article “Indexed Annuities Post Record 3Q Sales” summarizes annuity sales information collected from LIMRA’s annuity research department.  With indexed annuity sales of $8.7 billion, this safe investment product is seeing quite the surge in popularity.  The third quarter sales were an increase over last year’s third quarter of 16%, and an increase of 6% over the second quarter of this year.  A LIMRA spokesperson credits the increased demand for indexed annuity products to a volatile equities market and lower fixed annuity rates.  He says that indexed annuities now account for 41% of the entire fixed annuity market.  Some conservative investors are opting for the indexed annuity now over the traditional fixed annuity they may have bought a few years ago.

Annuity sales overall increased by 1% from last years’ third quarter, but went down 2% from the second quarter of this year to total $56.1 billion.  Variable annuity sales followed the same trend with a 2% decrease from the second quarter, but a 9% increase in sales from the third quarter of 2009 to equal $34.9 billion.  Fixed annuity sales have decreased 31% this year to date, but that is following a record sales year in 2009.  Their third quarter sales decreased 1% from last quarter and 10% from the third quarter of 2009 to $21.2 billion.  Overall, annuity sales have remained steady this year, even with a still volatile marketplace.  As investors looking for lower risk opt more for indexed annuity products, the insurance companies selling annuities will shift their focus a bit as well.