I am sure many of you have received emails from many IMOs over the past few weeks about a “new FIA” to hit the marketplace that everyone has been getting excited about. This “new FIA” touts features such as a 7% bonus, 8% commission, and a 13% cap. It sounds good, but the question is whether it’s better than what’s currently available in the marketplace.
It seems like a simple enough question to answer by doing a comparison of what else is in the marketplace. Below are the specifications from this “new FIA” (Product A) and another annuity currently available in the marketplace (Product B).
To me the answer is simple, the “new FIA” may be new, but it’s not better than what’s currently available already. If that’s true, why are IMOs pushing this “new FIA?” Probably the same reason IMOs push BYOB, Section 79 plans, and IRA rescue using life insurance, i.e. agents don’t know any better and IMOs make more money pushing certain products over others.
As I say over and over, it is my opinion that most IMOs in this industry could care less about agents or their clients. They are interested in pushing certain products or concepts so the IMO can make the most money. It’s one of the biggest problems in our industry too (undereducated agents who rely on IMOs that do not look out for clients or agents).
Now let’s get to the comparison.
- B-Rated carrier
- 12-year surrender
- Minimum on the Roll-up can go as low as 1%
- The 7% Bonus doesn’t fully vest for 12 years
- The Roll-up is 3.5% minimum currently, plus index gains (which can change annually)
- There is an annual pt-t-pt cap of 13 (FOR INCOME ONLY). The account value only grows at .50 BPS (very low)
- This product is not available in 22 States! It is not available in AK AL CA CT DE IL IN LA MA MN MO MS NJ NY OH OR PA PR SC VI VT WA
- A-Rated carrier
- 10-Year surrender
- Minimum on the Roll-Up is 7% compound
- The Bonus is 5% and fully vests in year one
- The Roll-up is not contingent upon indexing, it is guaranteed to roll up at 7%
- There is an uncapped strategy with a spread of 3 that has averaged 4.7% to give you growth in the account value as well
If I was going to choose a product that relies heavily on index returns, I would choose an A-rated carrier like Product B who has a good renewal history and actually publishes it. When you look at a carrier like Product A who does not publish their renewal history, there’s a concern of what it looks like when the client signs the app vs. what it looks like when they get their annual statement.
The product may look great up front, but it’s important to read the product disclosure and see how low they can go with their caps (in this case, 1% is the lowest I’ve seen).
- Commission 8%-this is why agents and IMOs want to sell this “new FIA.” It pays big commissions. But as you know, there is only so much money to go around in these products and if the commission is abnormally high, that means the product design is usually inferior to a product that pays less commission.
Bottom line, Product A smells like a bait-and-switch product that looks good today but is not priced to be a good or competitive product years down the road. Only time will tell. The question is whether that’s the type of product you want to sell to your clients.
Because I know many agents like the shiny new toy that comes out (especially when it pays abnormally high commissions), I wanted to put out a cautionary article about this “new FIA.” Hopefully this article will make advisors think critically about this new product and the IMOs that are pushing it.
Roccy DeFrancesco, JD, CWPP™, CAPP™, CMP™
Founder, The Wealth Preservation Institute
144 Grand Blvd
Benton Harbor, MI 49022