The #1 crediting method in our monthly Top 15 chart
The #1 crediting method in our monthly Top 15 chart (See page 6 in our March newsletter) produces a whopping 9.42% annualized average return, when back-tested against actual historical index performance over the past 10 YEARS. Wow! Holy Cow! Sell this annuity to EVERYONE!!! Right?
Not so fast…
This crediting method is found in Athene’s “Performance Elite 10” index annuity, and—yes—9.42% is an impressive annual return. And—yes—Athene is one of our Gold Star Carriers, because they have shown a proven history of keeping their renewal rates very high throughout the entire surrender periods in their annuities. But, there is another factor to consider; this crediting method comes with an annual 1.75% fee that gets deducted even if the index is down and there is no crediting applied to the account. On top of that, this fee comes out annually, while the crediting method credits every two years. So every other year the statement is going to show “loss” of 1.75% to the accumulation value. We have to be careful when considering using crediting methods with fees built in, because a few bumpy years in the economy could add up to a lot of LOSS in the accumulation account, and we need to make sure we have prepared our clients for this potential outcome.
So, is this crediting method worth the risk?
That depends on the individual client. We suggest that you explain the extremely high reward potential, and the downside of the fee, and then suggest putting only a portion of the money into this crediting method—maybe 20% or 25%. There are plenty of other crediting methods to choose from in this annuity—and each has a non-fee option. This will help the client experience what it is like to pay fees, without having to pay them on the entire cash value. Then you can re-visit the crediting strategies selected at the each annual review meeting.
The more financially sophisticated clients will get it, and they will have very clear opinions on whether or not they want to “risk” utilizing crediting methods with fees. The less sophisticated clients will need more guidance to make a decision.
“Hi Sally, it’s tax time again.”
Tax season is the perfect time to reach out to your existing clients to set the stage for new annuity and life sales. Why?...Because annuities and life policies earn interest without a tax hit every year. Here are a couple of ways to start the conversation…
“Hey Dave, I know it’s tax time again and just wanted to remind you that you don’t have to claim any of the interest gains in your annuities and life policies this year. All $17,824.91 you made in interest is tax-free this year, and will continue to compound tax-deferred until years from now when you start taking it out”.
Or try this, “Hi Donna, I am just calling to remind you that even though your index annuity money is growing tax-deferred, you will not have to include it in your RMD calculations—because it is not IRA money…it just grows like your IRA funds. And, by the way, we might want to look at some of your other accounts and see if it makes sense to change them to tax-deferred growth too.”
Give us a call. We can help. Happy Tax Season!
~ Greg Skogsberg