Has Hell Frozen Over Again? Prudential Now Rolls Out an FIA!
In October last year I ran a newsletter titled: Has Hell Frozen Over? Mass Mutual Rolls Out an FIA. It got a big open rate because people were surprised and wanted to know if the product was any good. To read that newsletter click on the following link:
Well….when I saw that Prudential just rolled out a new Fixed Indexed Annuity (FIA), I thought another email with a product overview and comparison should be sent.
Why would Prudential roll out an FIA?
1) Because their agents have to be getting tired of competing against FIAs.
2) Because they have a captive sales force to sell the product (whether it’s good or bad).
What are the specs of the FIA? It’s a simple product. There is NO income for life rider.
-Four different measuring indexes to choose from (S&P, MSCI EAFE Index, Dow Jones Real Estate Index, Bloomberg Commodity Index)
-Five- and seven-year surrender options
-Higher caps for larger premiums
-1-, 3-, and 5-year point-to-point crediting methods
Comparison– the best way to get a feel for whether this product is any good is to do a comparison. I’ll compare the Prudential FIA to what I call the “Best FIA IMOs Won’t Tell You About.”
To sign up for more information on the Best FIA IMOs Won’t Tell You About, click on the following link:
I’ll use the S&P 500 index using the annual point-to-point cap with both products I’ll use the seven year surrender charge version. I’ll back test both products using the OnPointe Risk program that has an FIA illustrated and embedded within.
Let’s start with a $50,000 premium and back test what it would have done over the last 10 years.
-Prudential account value $69,442 (3.36% average return)
–Best FIA account value $73,217 (3.92% average return)
Next let’s look at a $100,000 premium and back test what it would have done over the last 10 years (the cap on the Prudential product increases by a point when the premium is $100,000+).
-Prudential account value $145,467 (3.85% average return)
–Best FIA account value $146,436 (3.92% average return
What you’ll notice about the $100,000 product is that the cap rate is competitive.
50% Participation rate product-I thought it would be interesting to compare the Prudential product to the Best FIA’s 50% par product. I’ll use a $100,000 premium so as to use the higher cap FIA with Prudential.
-Prudential account value $145,467 (3,85% average return)
–Best FIA account value $176,983 (5.99% average return)
Giving good advice to clients is about knowing “all” the products in the market and being able to offer them the best ones.
Even though the seven year $100,000+ premium product isn’t bad, it does NOT have an income for life rider, it’s not a flex product, and it doesn’t have a return of premium option (all things the best FIA IMOs won’t offer has).
What about the three- and five-year caps?
I am NOT a fan of multi-year caps. I recently did a newsletter titled: New FIA Index Outperforms Both Athene and Nationwide Indexes. That newsletter compared the Best FIA IMOs wont’ tell you about which has an annual -point-to-point cap vs. Athene and Nationwide. Athene has a two-year point-to-point and Nationwide’s product has a three-year point-to-point.
Multi-year caps are dangerous. What happens if the market tanks near or at the end of a two- or three-year bucket? It can wipe out all the gains. Prudential has three- and five-year point-to-point options and while they look good on paper, they are very dangerous.
Why offer three and five year options? It’s simple, the caps on their annual point-to-point is not very good for under $100,000 in premium, they don’t have a participation rate product, and to make their product look better, they have the longer buckets which on paper can look better but, again, are very dangerous for the consumer (I’d much rather have a 50% par product that locks in the gains annually).
Bottom line-for premiums under $100,000, the Prudential product isn’t very good. For over $100,000 the S&P 500 cap isn’t bad, but it lacks an income rider and several other features that other FIAs in the marketplace have.
In short, I really have no use for this product and don’t think agents in the independent marketplace will either.
Roccy DeFrancesco, JD