Dear readers, like you we are concerned for the longevity of small businesses across the country and are eager to receive the Payment Protection Program (PPP) loans and EIDL grants that hundreds of thousands of small business owners have applied for across the US. Seemingly everyone who has applied is frustrated and confused because of all the issues that the SBA, lenders, and the government are having in issuing the loans. We know thousands of financial advisors are also small business owners and have applied for these loans. Because of this, we have started a site – covidloantracker.com – to track the application and issuance of PPP and other loans. This will help business owners understand when and how many loans are actually being paid and will hold media and the government accountable to provide the aid they have promised. Our aim to is to share this site with as many small business owners as possible and then share results with the media on a daily basis as a way to track what percentage of applicants have received their loans.
Please visit covidloantracker.com and fill out the 60 second form.
Advisors need to be careful of how they market and sell annuities to clients. The market is rife with annuities demand as the big losses and volatility of the last month have sent many looking for guaranteed retirement income. That said, advisors need to make sure they walk a fine line in selling annuities. In particular, be mindful of wording you use. Particularly, avoid fear-based selling tactics, and even the word “crisis”—though that could be appropriate in some circumstances. Also, don’t only focus on one aspect of the annuity you are selling, as that can easily be misconstrued as misleading selling.
FINSUM: Some selling techniques are always wrong, but in this scary environment, even the most disciplined advisors could accidentally overstep the line in their approach.
Many brokers were hoping that the SEC might grant an extension of the deadline to be in compliance with the forthcoming Regulation Best Interest. Advisors must be in compliance with the rule by June 30th, a previously set date that SEC chief Jay Clayton just reiterated last week. The only reprieve the SEC granted was that the regulator would take “good faith efforts” into account in the initial phase.
FINSUM: Many hoped this deadline would be pushed back into the Fall, but the SEC is dead set on June 30th.
Advisors who are receiving inbound interest from clients about annuities might be interested in browsing a list of top recent providers. AIG, John Hancock, Lincoln Financial Group, Pacific Life, and Prudential regularly figure among the top players in the space. That said, data from 2019 has highlighted a new leader of the back—Jackson. “Jackson has dominated the variable annuity market for the past 7 years. In 2019, Jackson diversified its annuity sales to focus on growing its fixed annuity market share, which propelled its overall growth in 2019”, according to an annuities strategist.
FINSUM: One thing that is interesting is that the annuities industry is actually getting a little less consolidated (which stands in contrast to other product sectors, e.g. ETFs). The top three providers only account for 22% market share, down from 25% in 2014.
Fixed index annuities, like other annuities, have developed somewhat of a bad reputation for poor sales practices over the years. Many agents sell fixed index annuities by saying things like “7% annual gains, no downside”, which in reality is a gross misrepresentation of how income riders work. So why should one buy annuities, and how in turn should they be sold responsibly? The reality is that fixed index annuities are best bought for what they guarantee, not what they might offer. That means CD-like returns with full principal protection. Any upside gains are a bonus, but should not be the core reason for buying the annuity, or the principal way they are pitched.
FINSUM: This will obviously be second nature to those experienced with annuities, but there are plenty of advisors whose clients are starting to ask them about the product (given the environment), so this is just a reminder for those dealing with unfamiliar inbound requests.
The term “hybrid annuity” gets thrown around in casual conversation all the time, unfortunately including in sales pitches to clients. However, one would be better off calling it what it is—a fixed index annuity. “Hybrid annuity” gives a false sense of the product, lending the impression that there is full principal protection AND unlimited upside. The reality, of course is that while principal protection full exists, there is quite limited upside that is constrained by the annuity contract.
FINSUM: A contractually limited 4% max annual upside via an option contract on an index is not unlimited upside.