The Nationwide New Heights is not a new product but certainly needs more attention. The New Heights can accomplish quite a bit. Accumulation, Safety, Income, and Legacy. While many of us may already be familiar with the accumulation potential, I will still discuss some recent stats and information on the accumulation. However, I really would like to point out the income story the product provides and make sure none of us are missing opportunities by not adding the New Heights High Point 365 income rider.
On January 15, 2018, Nationwide increased the participation rates by 5% on the JP Morgan Mozaic II index. The JP Morgan Mozaic II index replaced the JP Morgan Mozaic I last year and performed just as well over the two-year period since the New Heights 12 has been available. The JP Morgan Mozaic II 2017 return was 9.02% on New Heights 12 contracts, and the two-year return would have been 24.32%. The index is designed to provide consistent and reasonable rates of return in any market condition. We often use the baseball analogy when we refer to the Mozaic II calling it the “single and doubles” hitter versus the homerun hitter. Let me explain, in the year 2000 through 2002, the index itself (without increased participation that we currently and have had on the product) would have returns of 6.30%, 2.37%, and 6.74% respectively. (LINK TO JP MORGAN MOZAIC II Performance – https://jpmorganindices.com) In 2008 when we saw losses of 40% in the S&P 500 the JP Morgan Mozaic II index would have returned 4.27%. Likewise, in 2013 when we saw substantial growth upward of 30% in the S&P 500, the JP Morgan Mozaic II would have had a return of 7.65%. Why is this important? We’re trying to compete with securities based product returns, but with our markets at all-time highs why would you not allocate a significant portion of a client’s portfolio to a product that can continue to provide reliable and reasonable returns with much less volatility and risk. Click here for the Nationwide New Heights 12 year rates or click here for the Nationwide New Heights 9 year rates.
See the JP Morgan Mozaic Index II brochure here to learn about the index and understand why and how it provides these consistent returns.
For those of you who have heard of Roger Ibbotson, his ZEBRA Edge NYSE index (the only FIA index branded on the NYSE) is also on the Nationwide New Heights with as high as a 135% participation and 1% spread.
The ZEBRA index gives you much more exposure to US Equities than the JP Morgan Mozaic II index would. The NYSE ZEBRA picks from US equities balancing into “cool stocks” versus “Hot stocks.” The index evaluates all 500 of the most significant publicly traded companies in the US every quarter and removes the most popular and volatile ones. The index selects an average of 197 stocks, at which point the NYSE applies a risk control methodology that makes daily adjustments to these stocks, US Treasuries, and cash.
The actual return to the Nationwide New Heights last year using this strategy was 19.55%, and the two-year return was 26.06%.
Click here to learn more about the Zebra Index Brochure, and to read an informational whitepaper authored by Roger Ibbotson and Zebra capital.
Once you understand the New Heights income rider, you will also appreciate the death benefit rider. At Asset Marketing Systems, we have had a low percentage of Nationwide New Heights contracts issued with their High Point 365 Income rider, which has a cost of 0.95% per year. We are seeing that many advisors are using the product as an accumulation and safety product only, and would prefer not to have the rider fee. We’re not trying to compete with securities based product returns, but with our markets at all-time highs, why would you not allocate a significant portion of a client’s portfolio to a product that can continue to provide reliable and reasonable returns with less volatility and risk.
It’s often easier to sell a product that has an income rider without a fee, but that product typically “charges” the client in the form of a lower cap or higher spread, which often results in lower accumulation potential. I would imagine if the Nationwide New Heights had a 100% participation with no spread or fee, but gave you the income rider for free, you would be very interested in the income rider, right?
The Nationwide High Point 365 rider has a five-year deferral requirement before activating income. The withdrawal factors increase, and the income base continues to increase even when taking free withdrawals. Your client can take free withdrawals from the contract years 2-5 to get to that guaranteed income in year six.
As many of us know, this product can track values daily, allowing them to lock in your income value at that highest daily value. Your income base is the highest point on any given day of the entire contract period before you trigger your income.
How big of a deal is this? Well to give you an idea, just last year in 2017, the JP Morgan Mozaic II index had 57 different high points! That means 57 times last year you had a reason to call your client and let them know their income guarantee just went up 57 times! While we all know this is not going to happen every year, it is an incredible story.
What rate of return are you comfortable assuming on this contract in the first five years? Is it 2%? Perhaps 4%? Maybe 6 or 7%? Whatever that number is and whatever you are comfortable with, consider the highest daily value in that number and consider what the income would be even if you did assume an extremely conservative ROR during deferral before income. If we do a little math with conservative assumptions, we will quickly understand why this could be the best income rider in the business.
Nationwide uses this highest daily value to calculate your income amount. They also use a very fast and annually increasing payout factor. For those of you familiar with the Allianz 360 income factors, it is similar to those. Click here to see the income factors at each age and deferral. For case studies, click here.
The Nationwide High Point Death benefit rider is calculated the same way as the income value. Using the same method, they find the highest daily value, which becomes your death benefit. Furthermore, Nationwide has the only product on the market that allows a first to die feature (for no cost) and allows a first to die rider on a single owned annuity (even qualified money). There are many strategies and unique planning options around the first to die feature, which will only help your clients.
Lastly, you should consider the fact that this product is offered through an A+ Mutual carrier. To this date, I’m not aware of a mutual carrier who offers a fixed indexed annuity that can come close to competing with this product.