Rates Have Dropped…
Now What?

Kurt Metcalfe – Sr. Annuity Sales Consultant
(Asset Marketing Systems)

The 10-year treasury has gone from 3.2% in November 2018 to the current 2.1% (as of 6/4/19). Of course, this is not the only measurement used by carriers in determining interest rates, but it’s a good guide. It’s clear to see how a 33% decrease can lead to lower caps and higher spreads. So how do we handle this? My simple response… “This changes nothing.”

It’s important to remember what we’re trying to accomplish for your annuity clients. Whether your client is looking for income, growth, or death benefit; the collective key to an FIA sale is safety. Consistent, sustainable income is best created using fixed annuities as their living benefits are stronger than VA counterparts. Rate decreases have left most income riders unaffected and therefore has not changed this sale. You can sit across from a client and tell them exactly how much income they will receive in retirement AND they will never outlive it.

In the past two weeks, I have heard a repeated question that has surprised me, “do we have anything out there that is still good for growth?” My response is always very simple, “Why wouldn’t we?” Sometimes we get stuck in this trap remembering how interest rates were 20-30% higher looking back six months ago. Is it true that those past clients are in a better spot than current/prospective buyers are today? Yes, probably. How does that help your current client? You are working as their advisor at this moment, not the past. We have no idea when interest rates will turn back around and increase. Your client can’t afford to sit on the sidelines and wait. S&P 500 is down 7% in the last month, is that better? If we stick to the basics and fulfill client needs with our best current tools, we are doing the best job. FIAs are not designed to outpace the equities market. I point to Roger Ibbotson’s whitepaper talking about how uncapped FIAs are your bond alternative. With this portion of your client’s money, are they ok with 3.5% – 5.5% per year, net of fees? People that tell them otherwise are promising something that will be difficult to deliver. If your client wants more, they will have to take more risk.

FIAs will not lose a dime of their money. FIAs can create an income stream that clients will not outlive. Those two facts remain the same, regardless of the interest rate environment.

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