Don’t Let the Number Fool You

There have been some articles written lately, where comparisons have been made between the potential returns with variable annuities as opposed to indexed annuities. The articles impressively show numbers, when, using a particular fund’s historic returns within a variable annuity, compared to an indexed annuity, which, simply uses the S&P 500 index variations, the client would have had a greater return in the variable annuity. The writer of one article attributes a big part of that difference to the lack of dividends being included in the indexes used to calculate indexed annuity interest credits. Of course, the author of that article is an agent who sells variable annuities, so his bias is very evident. I have done some comparisons myself in historical performances, and I am aware, that, for as many instances as you can find to support the return of variable accounts or mutual funds being superior, you can also come up with at least an equal number of situations that are reversed, and favor the indexed annuity. I have studied the difference that even the purchase date can have upon the potential return on anything tied to the market, including indexed annuities. Since the market moves constantly, having a purchase date on Monday can, over the life of the contract, have a different resulting return, than a purchase date of Thursday that same week. But the important point here is to remind those agents, who are recommending indexed annuities, NOT to get pulled into this kind of trickery, and don’t allow yourselves to fall into the trap, set by your competition, to attempt to equate variable and indexed annuities and thus, fight on their turf, under their terms. Remember, that indexed annuities are, first and foremost, “savings vehicles.” If you choose to take the perspective that they are intended to provide an alternative to the safety and security of bank CDs or government bonds, but with the potential of gaining a significantly greater return than those products, then you can free yourself from the arguments about performance comparisons to securities products. Every time you sell indexed annuities as an “investment” alternative, you set yourself, and your client, up for bottom line comparisons. And since we know that “figures fool and fools figure,” the competition will come up with some set of numbers that will try to discredit the value of your recommendation, if you are playing defense. Indexed annuities are a powerful and unique product, and when sold from an affirmative position of what they WILL provide a client who needs security with a respectable return, the consideration of securities products won’t even become an issue.