Do FIAs Still Have A Place In A High Rate Environment? | 7 Figure Annuity Sales Podcast | Ep. 272

I want to talk about the important question is, do FIAs or fixed indexed annuities still have a place in a high interest rate environment? And my answer to that is simply absolutely. I mean there's a hard thing to get past people when they say, well, we got a migrate, five year migrate of, you know, whatever it is, 5.5, 5.6, whatever it is at the time. Why would I ever put anybody into an FIA versus a myga? And it's real simple. I mean here's. And I know you're going to have questions for this and I know you and I have actually had some pretty good discussions about this because you're like, well, if I can get a 6% interest rate for 10 years, why wouldn't I just do that? I guess it all comes down to a couple things. Number one, what is the fixed one year fixed rate on the fia? What is the rate integrity of the company and what is the historical returns if you halved the participation rates? You know, that's really what I look at when I'm looking, I'm not looking at the, you know, crazy participation rates that are going on right now. I'm like, what would have they been if we had 60% of the participation rate, would have it still done well, would have it performed. And most the companies I use, I would say it will. And then also the thing I look at with MyGas is because 90% of my clients are income riders, the MYGA doesn't meet the need.

Right.

So yeah, yeah, that's good.

Well, I like it. A good FIA gonna average. And when I say a good fia, I'm not talking about a good index strategy, a single single index strategy in a product from a carrier that has poor rate integrity. I'm talking about a mixture of index strategies with collectively good rates from an insurance company that's financially stable, has good customer service, good rate integrity. I'm talking about a well rounded product. A good FIA is going to average somewhere between 5 and 7% over the long term of the policy. Right. I've talked with carriers about this reality. I've talked with index providers about this reality. That is a reasonable expectation for an indexed annuity, a good indexed annuity over the long term. We have MyGas right now that are between 5 and 6% guaranteed from anywhere from 3 to 10 years. Right? Guaranteed.

So which we also have to look at. What's, what's the withdrawal rate on that though? Because the ones that have the highest only allow interest. Only withdrawals or no withdrawals.

Correct, Correct. And then you check the death benefit as well, make sure it's actually the full account value at death. Make sure they're not charging you some buy up. A lot of times what they'll do is sell carriers will have a high rate and then they'll have reduced benefits. And if you want these important benefits, you have to reduce the rate. And by the time you reduce the rate, it's lower than what other products are offering with those features already embedded.

So sounds like you know what you're doing here, Caleb.

I've seen the song and dance a time or two.

Yeah, it's been so much for a.

Little while for sure. But anyhow, this is really the challenge that we're up against is the mygas are paying really, really high and guaranteed and indexed annuities are going to average what they're expected to average over the long term, that 5 to 7% and they're not far off of each other. So when you're looking at the two from an accumulation perspective, I think there's a couple of considerations you need to ask. Number one, what's going to happen at the end of the MYGA Q guarantee period if you go and you sell a three year myga, then what? A five year myga, then what? A ten year myga, then what? Right, probably. And I say a ten, but seven probably you're going to end up in either another MYGA in the end of that period or they're going to go into CDs or they're going to liquidate to the bank or they're going to go into an fia. And so the question becomes what is the future in an FIA then you sure like the renewal rate. Integrity should be better during the surrender period. And then a lot of times, even with good carriers after the surrender period, the renewals may not be quite as strong, but it's liquid money at that point versus you buy a 5 year Myga and then a 10 year FIA and you've got illiquid money for 15 years instead of 10. So you elongate the surrender period by stacking those, those different types of products on top of each other. I'm looking at it from the standpoint of where do FIAs actually fit in to this high rate environment. And obviously number one is if income's needed, you've pretty much got two options there. If we're talking about guaranteed income, you can either annuitize or you can use an income rider. We know that annuitization is not typically in the client's best interest. Because they lose control of the money and they lose interest crediting. I guess there's technically an internal rate of return based on the excessive amount of income that they can receive versus the premium they pay into it. Great, we can argue that all day long, but they lose control nonetheless. Second one I was thinking about, I was like, well, shoot, if for some reason a bonus is needed, if they're trying to do a replacement or something like that, realistically migrates, there's a lot of scenarios where even the high migrates right now are not going to justify a replacement. And then any time you're dealing with long term planning, right, when you're actually dealing with trying to strategize this for a longer period of time, like you mentioned, chad, you've got one year fixed rates between 5 and 8%. And then the question, plus good index rates, right caps, high caps, high pars, low spreads. Then the question becomes all about renewals. But those are kind of, that's actually.

My, that's my biggest concern is that last one you talked about longevity planning. You know, I focus on longevity planning and a three or five year myga has nothing to do with longevity in my books. And when I say 90% of my clients are income riders, it is true. 80% of my business is, is income riders. Because I mean this year alone it's actually probably a little bit, it's actually probably a little bit higher of a percentage. Uh, I, I mean I've written quite a few in mygas this year I've probably written about 3 million or so in mygas. And so this year has been the exception. But it was almost always, I mean I ran into, and I never done this in a long time. I can't say never. I had two clients over 90 years old and they had plenty of money sitting on the side. And then they go, why do I got all this money sitting inside a bank doing nothing when I could get 5% or 5 and a half percent? And so, I mean everybody knows the commission on those things is virtually nothing. But what it did for my clients was huge. And the amount, the pain in the butt it was trying to get those issued because they're always with companies that just take forever. Both of them took over three months to get issued and it was just insane. But you say, well, was it worth the time and effort? Yes, because it wasn't about me. And what I wanted is about what was best for the client. In that scenario we have to look at longevity planning means you are generally geared towards using longer solutions to the problem. And once again we go to that question that nobody knows. The two questions nobody knows how long are you going to live for and where's the stock market going to be tomorrow, let alone five or ten years from now? MYGA cannot answer that question.

Right, Totally. I made a note, things to consider, purpose of the money and renewal rate integrity. Right. So number one, what's the purpose of the money? Is this a plan for living or is this a plan for dying? Somebody that comes to you and they say it's a plan for living. Okay. What we're looking at is something that maybe not even now but at some point is going to be used for income. The question is what's the time horizon there? Somebody's going to kick this down the road five years before they start deferring income. A lot of agents would make an argument for well let me go get them five and a half percent guaranteed for five years. Then at the end of that five year period we'll roll them into an FIA at the time. Time problem is, number one, we don't know what FIAs at the time are going to be.

So we don't know what FIAs, we don't know what income riders, we don't know what fees. We don't know any of that.

We don't know any of that.

We don't know if they're still going to be available.

Correct.

I mean there was a time in our industry where they were talking about having to totally adjust income riders because of some rules and laws that were coming around. And so we have to think about what is the best thing we can get a client into. Despite our that people's need or want for future business, what is going to be the best for the client.

Yeah. The other thing that I would make an argument toward is that even at our high migrant interest rates right now, they still pale in comparison to a ton of roll up rates. Whether it's a roll up rate that has a minute like a just a nice minimum, but it's stacked or a roll up rate that isn't stacked but it's a high guarantee. They're smoking MYGA rates. So you got to understand that if we're looking at a point, five, 10 years, whatever we're talking about, it's eventually going to be used for income. You almost always end up with a greater benefit base which equates to typically more income depending on the payout factor applied to it than you would if you just use a five year myga, then put them into an Income product and then they maybe or maybe don't get any kind of real crediting toward that benefit base. They may start with a higher account value which could go to help death benefit in the long term. But yeah, as far as the income side goes, if it's a plan for living, you'd be hard pressed to use a MYGA even for a short term deferral of that income and actually have them be money ahead in the future. Just like if you looking at an accumulation play when you've got a, I mean there's a product out there that's 6% guaranteed for 10 years compounded it's like that's a tough scenario to try and make an argument about an FIA in contrast for accumulation I think.

Yeah, but remember too we have to think about this. You know I've heard some agents give me a hard time because I do income riders and so many of my clients.

Policies. And once again we have to look at the logic behind about talk this, talk about this all the time. Once I write that income writer, there is no future business for me with that money. It's gone. So if I was truly looking out what's best for me, then why would I ever do that? Number two, a living plan. Catch what I'm saying? I'm not saying income, I'm saying a living plan is a plan for living or a plan for dying. So living could be a vacation fund, it could be a you know, kids college fund, it could be a grandkid fund, it could be, I mean there's all. It could be a living legacy plan. There's all sorts of reasons why we put income riders. And I'm actually, I mean you guys know we, we own Retirement realize radio where we help agents become or go on the radio. It's an incredible information opportunity for clients, but it's an incredible lead source as well. And one of the scripts I'm writing is an income rider is not just about income. It's money that you want coming in no matter what for property taxes, for there's whatever it is, you know. You know there's so many things you could do or purpose that money for that an income income rider benefits. And I'll hear agents say that all the time. Well my client doesn't need income. Well I bet you if I met with them, I bet you they probably would. But what is the purpose? It's a living plan. So find something they need to count on money for for the rest of their life that may not even have to do with income but it has to do with paying for something they want to do.

So that's where MYGA doesn't come into play. And you can't put those type of things on MyGas.

Yeah, I think the chip right. For any kind of lifetime guarantee.

Correct.

The way I would, the way I would look at a myga in the realm of quote unquote income would be essentially a period certain. If you got a five year myga and you're going to scrape the interest off each year, say you got $100,000 Myga, let's ease of number, let's just call it a million dollar Myga. It'll look, it'll, it'll sound nicer. You get a five and a half percent interest rate for five years, but you draw 55,000 in income and then you get your million dollars back. Okay, that's great.

Yeah, but, and there's times where that comes, that comes into play and that's important.

Absolutely, absolutely. But to your point, there's not, that's not a lifetime benefit. So you have to understand what's the time horizon that we're trying to plan this for?

Correct.

But yeah, correct. MyGas versus FIAs. Most definitely still a place for FIAs. What were you going to say, Chad?

And, and once again we, I, I've been doing this for almost 20 years. I mean we have not seen MYGA rates this, I don't even recall the last time I saw myga rates this high. But I also haven't seen the one year fixed rate this high either. I haven't seen caps, participation rates and spreads as high as they have been. So while caps, participation rates and then spreads obviously is low, I don't even have hardly any products to use anymore with spreads. But you know, mine's participation rates and caps. But if I can get an S and p capped at 10.5% and with good rate integrity, that's an important thing because just because somebody has a 14% cap on their S and P doesn't mean next year is going to be that. And so I think we just need to, it goes back to everything we talk about all the time. It's the way we ask questions and what our personal beliefs are. And if you think a MYGA is the way to go, then guess what, every client you meet with is going to be a Myga. If I think FIAs are the way to go, then every client I'm going to be as a myga. I don't think of anything that I go through. The fact finder I find out what the purpose of the money is, what do they want it to do for them? What do they need it to do for them? We talked about this last week. Not what they want. It's what they need. And then we find the best product for that solution.

That's right. That's right. And it could be an fia. Even in a high interest rate environment, it could be a myga for sure. But the point is, depending on the purpose of the money, there is still a place for both.

Correct. Okay, well, that wraps it up, as always. As always. Happy selling.

Oh, you're asking me happy selling?

Yeah.

No.

Yeah, always happy. So. Okay. Have a good day.

Ra.