Have Indexed Annuities Jumped the Shark?
December 20, 2016 by Barron's
Indexed annuities’ design has grown unnecessarily complex, and that’s not good for advisors or clients, InvestmentNews reports.
The publication points to “the uptick in new, ‘exotic’ indices used by insurers, as well as a broad number of mechanisms used to determine the interest credited to an investor.”
The exotic “hybrid” indexes behind the new crop of annuities have proliferated quickly, to 47 today from six three years ago. They’re now the second-most popular index choice on index annuities sold.
Hybrid indexes tend to have volatility-management or multi-asset characteristics. But their value over conventional indexes isn’t apparent. And use of the indexes adds an unnecessary layer of fees, InvestmentNews says. For those reasons, advisors may be hard pressed to defend the use of these products under the DOL fiduciary rule.
Then there’s the product manufacturers’ “market upside with no downside” pitch. “From a marketing point of view, if you can say your strategy is uncapped, doesn’t that sound better?” Raymond James executive Scott Stolz tells InvestmentNews. “In reality, they put enough restrictions on it that it’s not formally capped, but it really is.”
Wink’s Note: Sheryl J. Moore will be providing additional commentary on hybrid indices in indexed annuities, stay tuned HERE