May 22, 2014
Indexed Annuity Leadership Council Open Letter to the Editor of AARP Magazine
We recently read the financial planning article by Allan Roth in your March/April issue and were disappointed to see factual inaccuracies, as well as open-ended questions, that could lead to confusion among readers regarding fixed indexed annuities (FIAs).
FIAs are a type of fixed annuity that earns interest on the premium, based on positive changes in a market index. The interest rate is guaranteed to never be less than zero, even if the market goes down. That is because the index is used as a benchmark only and an index annuity policy owner is not actually invested in the market. This offers balance and protection, so once interest is credited it can never be lost, even during market downturns.
For more details on the basics of fixed indexed annuities, we have created this educational video.
We acknowledge that FIAs are not for everyone and shouldn’t be viewed as an individual’s sole retirement vehicle. In fact, issuing companies are required in most states to evaluate every indexed annuity sale for suitability based on the customer’s age, financial situation and goals.
As such, in 2010 the National Association of Insurance Commissioners (NAIC) enhanced the regulatory framework that holds insurers responsible with suitability compliance. Within this framework producers must have ‘reasonable grounds’ to believe that the annuity recommendation is suitable based on 12 areas of ‘suitability information’ disclosed by the consumer. The model regulation further provides FIAs can only be sold by licensed insurance professionals who are mandated to receive product-specific training.
Mr. Roth questions the validity of FIA guarantees in the article- let’s look back to 2008 and 2009 when Americans lost an unprecedented amount of retirement savings because of stock market volatility. Those who had fixed indexed annuities lost nothing due to market downturns. FIAs have minimum guarantees and are backed by some of the world’s largest, most reputable insurance companies.
Insurance companies must show they have the financial capacity and ability to make these guarantees and their products have been reviewed and approved by state insurance regulators. In addition, insurance companies are continually audited by these same regulators and must comply with stringent requirements to ensure they have the ongoing ability to meet these commitments.
The article also questions fees and how FIAs can deliver market-like returns without risk. While agents are paid commission, no sales compensation is ever deducted from the annuity’s principal. Fixed indexed annuities are a safe retirement vehicle that protects a consumer’s nest egg and are guaranteed by the issuing insurance company.
The author’s final question asks about disclosure documents – the Indexed Annuity Leadership Council (IALC) advocates for the consumer and on behalf of insurance companies for full transparency and disclosure. In addition to state required disclosures about the specific product, an agent should help a client read through the content and answer any and all questions before the customer signs on the dotted line. Further, insurance products have Right to Examine or ‘free-look’ periods mandated by state law in which a customer may, for any reason, return their contract for a full refund of the premium within that timeframe. If a customer isn’t sure what questions to ask about FIAs, we offer educational resources.
On behalf of the IALC, if AARP is looking for additional resources or experts I am happy to be a part of the next story on retirement financial planning to ensure readers are given a comprehensive review of savings options to help them navigate this important topic.
Indexed Annuity Leadership Council