Indexed Annuities Can Move the Volatility Out of the Client's Hair

An advisor with a client, using a tablet to go over charts.

But Fortier said that it’s also easy for advisors who are focusing on maximizing clients’ return on investment to lose track of the need to help clients cope with risk.

Now that interest rates are higher, issuers of registered index-linked annuities and non-variable indexed annuities can offer clients more attractive terms, Fortier said.

“We use these tools to help craft an asymmetrical risk reward for clients by retaining upside but transferring the downside risk,” Fortier added.

What the Big Players Are Doing

When your retail client transfers investment risk to an insurer, that’s the purchase of an annuity contract.

In the world of employer-sponsored pension plans, that’s a pension risk transfer.

An issuer survey from LIMRA, a nonprofit life insurance and financial services research organization, shows that pension risk transfer volume increased to $6.3 billion in the first quarter of this year, which ended March 31, from $2.7 billion in the first quarter of 2021.

LIMRA is predicting that pension risk transfer volume will be strong this year, in part because pension yields are up, making the amount of value that can be locked in through a pension risk transfer more attractive.

If individual clients nearing retirement age can buy annuities and set a floor under nest egg value at a time when the investment value rollercoaster is at a high point, that could make IRA risk transfers and 401(k) account risk transfers as appealing to individual clients as pension risk transfers are to the giant corporations of the world.

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