These are annuities that should always be offered by the Broker Dealer because in 50% of the cases, this is the most appropriate investment vehicle for most clients I have seen. When the Broker Dealer withholds information on Fixed Indexed Annuities, they are basically forcing the advisor to violate fiduciary duties by not making these products available to the client.

Fixed Index Annuity Benefits

Your nest egg will never go negative due to market fluctuations when using an Fixed Index Annuity. The annuity will always receive growth in the stock market until a cap is reached, but the gains that are created will never be lost due to stock market swings. Some of the products will have guaranteed riders while others have a free long-term care benefit.

Example of How Fiduciary Responsibilities are Breached

Suppose that a 50 year old has $500,000 in an IRA. The goal for this individual would be to accumulate wealth in a way that did not expose him to unnecessary market risks, but that offered a way to maximize his returns as much as possible for retirement at 70.

In this particular case, what would a typical “handcuffed” licensed financial consultant suggest for the client?

1. In most cases, the financial consultant will suggest that the client use a proportionate blend of stocks, bonds and mutual funds. The goal is for these to grow over time and generate wealth for retirement.
2. The financial consultant will also likely suggest that the client make use of a variable annuity that has a GIB rider.

So what are the real problems with these options? They probably sound good to many novices. It is important to examine why offering only these options could be a violation of the fiduciary responsibility of the financial consultant.

1. Since the client stated clearly that they wanted to growth the wealth in a way that did not expose him to unnecessary market risks, offering stocks and bonds is not in the best interest of the client. These portfolio models that would be used will assume that there is a certain rate of return each year. However, if they do not generate those rates, the client could lose because the account will go to zero.
2. If the client is willing to sacrifice better guarantees, Variable Annuities that include an income rider could be a reasonable choice. However, Fixed Indexed Annuities, in general, with a GIB rider will be more beneficial than Variable Annuities.

Fixed Index Annuity Example

Based on the example, should the client choose to purchase a FIA with a GIB rider, the client would provide the following results based on today’s estimated numbers:

Accumulation value at age 70	$2,563,526
Annual Lifelong Guaranteed income	$153,812

Fiduciary Responsibility Violation

Wouldn’t you concur that if an advisor presented this option to a client if it were available, they would want to know about it? However, this does not always happen, which is a reason for concern.

People still wonder why financial consultants typically don’t provide advice on Fixed Indexed Annuities. The reason is simple. The advisors are prohibited from doing so by their Broker Dealer.

The following quote is from an employee at Mass Mutual questioned on whether he could offer Equity Indexed Universal Life policies or Fixed Index Annuities to clients:

“To answer your questions we are licensed to sell [Fixed Indexed Annuities] but we are not allowed to sell them under our agent’s contract, Mass [Mutual] does not have a FIA in its product line and we would be terminated if we sell the product. Even our outside brokerage operation will not allow us to sell any indexed products.”

Is this really beneficial for any client? Of course not.

If the client instead bought a balanced mix of equities, mutual funds, and bonds that earned 5% each year; they could generate $153,812 for the time between 71 and 82 years of age. However, by the time the client reached 82, they would have no money.

In the industry, many financial consultants who are bound by the rules of a BD are not the best person to be speaking to because of their limitations. This does not necessarily mean that all financial consultants working for BDs are bad, but there is a strong argument regarding the violation of their responsibilities. If financial consultants are not fully disclosing good options to clients, they are violating their fiduciary obligation.

Fixed Indexed Annuities and Equity Indexed Universal Life policies are prohibitive by which Broker Dealers?

As mentioned above, Mass Mutual does not allow advisors to even sell them. Calls have been placed to Northwestern Mutual, Allstate, Met Life and State Farm. State Farm and Mass Mutual have completely refused to divulge any information on this topic and responses have not yet been received from the others in question.