Thanks to the DOL fiduciary rule that was finalized earlier this year, fixed indexed annuity products are changing. Stan “The Annuity Man” Haithcock says that the industry will change and go back to where it was when indexed annuities were first introduced back in 1995. He hasn’t been a fan of the indexed annuities that have been adapted from those first versions which were made to compete with CDs and MYGAs because of the increased complexity and fees that have come with them. In the Marketwatch article “The Department of Labor’s version of an indexed annuity has arrived,” Haithcock introduces us to the new fixed indexed annuity concept after seeing some of the upcoming versions that insurance companies are soon to release.
These products are meant to be pro-consumer, at least that’s what the DOL intends. The days of indexed annuities being sold because of the incentives offered to their advisors should be coming to an end. Every indexed annuity product wasn’t sold that way, but Haithcock says that far too many were. Right now there are more than 40 indexes and 700 index call options to choose from in the indexed annuity market. Unfortunately, too many advisors selling these products don’t even fully understand what they are selling. The new DOL fixed indexed annuities will be introduced during the third and fourth quarters of this year. The plan is that they are easier to understand, simpler and built around consumer needs rather than advisor wants. The world of unethical marketing and advisors who only sell high commission indexed annuity products will no longer exist, which is a win for the good guys in the FIA industry.
New indexed annuities will be as close to no-load as these products can get. The products will continue to offer complete principal protection and be based like a fixed annuity. They will also have a call option that is usually one year long. This call option will offer the potential for market gains that beat those of CD returns. Although the caps, participation rates, and spreads will be higher with new fixed indexed annuity products, they will still exist. You still can’t get full market returns, but that is the trade-off for a product that protects all of your principal from down markets. Each contract anniversary date will allow you to lock in any index option gains through the one-year call option. You won’t lose any money if the markets go down, even if the call option for that year is worthless.
These new indexed annuity products will not be promoting large up front bonuses like many of their predecessors. They will also scale back on some of the income riders, riders that may not seem as attractive when you first see them. Accumulation strategies through the one-year call option will be the focus of the newer fixed indexed annuities. You will also have the option to get your money back sooner if you change your mind about the annuity. Fixed indexed annuity products still have income riders and should be used to contractually guarantee a future income stream. Haithcock has never used indexed annuities for their growth, so he says that it will be some time before he starts that if the products truly are consumer based. Insurance companies are rolling out new, consumer-focused versions of fixed indexed indexed annuity products to meet the DOL fiduciary rule guidelines.
Written by Rachel Summit