Case Design #1
FIAs vs. VA’s and RILAs
The following is an actual email sent by Daniel McDonald to an agent who submitted he needed help with (name of client changed).
I’m familiar with the structured VA’s / RILA (Registered Index-Linked Annuity)products. I was part of the initial marketing efforts for Great American and Athene’s hybrid VA products back in 2017. I’ve been actively marketing them as recently as April of this year. They are each a little different but I come to the same conclusion with all of them. Attached is the (company one info, company two info, and company three info (company names intentionally omitted).
6-Year product, 0.95% annual fee, 3 crediting options
1) S&P 500 1Yr point-to-point: 18% cap with -10% buffer
a) Earn up to 18% annually and participate in all loses after the first 10% (annually for six years).
2) S&P 500 1Yr point-to-point: 14% cap with -10% floor
a) Earn up to 14% annually and participate in loses up to the first 10% (annually for six years).
3) S&P 500 6Yr point-to-point: 140% participation with -20% buffer
a) Earn 1.4%x S&P 500 returns and participate in loses after the first 20% (one-time after six years).
I believe all 3 of these options are superior to the Lincoln product you sent but I’m still a proponent to using an FIA or investing in the market. When you try to do both the product becomes inefficient. At the end of the day when you run the hypos your average rate of return is 4%-6% just like with a well-priced FIA. It’s really just a different way to get to the same place usually and, to Roccy’s point, the upside caps can come down based on future pricing. So your downside exposure can’t change but your upside can go down. Similar to the flaws of the monthly cap methodology in an FIA.
It is my opinion and experience that if you’re going to place $400,000 in a RILA / structured VA it is a better use of the funds to place $200,000 into an FIA designed for accumulation and the other $200,000 into an aggressive tactical investment option with the RIA you work with.
It’s best to find something that is the best at what it does instead of settling for a product that does a little bit of everything. This is why the 222 is the most sold product in the industry- it does a lot of things but in turn for doing many things it doesn’t do any of them very well.
I think a 200k position with one of the two products we’ve discussed complimented with an tactical but aggressive investment with a solid asset manager is the best approach vs. a RILA. This approach is more suitable and should provide better returns.
I’m familiar with any FIA, RILA, IVA, VA, etc., so feel free to call and pick my brain anytime. Seen them all sold but I am definately partial to FIA’s especially after the market downturn we just experienced. If you’re going to limit upside at all it is my position that we need to eliminate downside completely for that particular sleeve of money.
Daniel W. McDonald