Interest rates are low, but the markets are showing sign of a rebound, creating an ideal climate for EIAs

Last year, the Advantage Group, an EIA research firm, reported that just 7 percent of advisors offered EIAs to their clients. Although that number has increased slightly in the past 12 months, it is still remarkably low. This may change, however, considering that today's financial environment is an ideal place to cultivate EIA sales; Interest rates are low but the markets are showing signs of a rebound creating an ideal climate for a product that offers fixed-rate guarantees with an opportunity for market gains.

Record Sales
Between the second and third quarter of 2003, EIA sales fell by 11 percent, according to jack Marion, president of the Advantage Group. Marion attributes a portion of the drop in third-quarter sales to Allianz, which replaced two popular products with new versions offering lower minimum guarantees. Low interest rates may also be to blame, as they dissuade consumers from parking money in products with fixed accounts. For this reason, some advisors avoid selling EIAs when rates are low. Despite this decline, the product is still experiencing a record year. Sales of EIAs for the first nine months of 2003 were up 22 percent compared to the same period last year. And for the past five years, EIAs have provided a higher total return than variable annuities, mutual funds, CDs and the average bond fund, according to Marion. Many agents have recently re-filed EIAs at a lower minimum guaranteed rate. Marion sees this as a positive step. "It frees up more money to do what EIAs are supposed to do," he says.

Ideal Environment
Now is a good time EIAs. With the markets showing promise, people want to ride that up, but maintain security. Indeed, the mentality of today's consumer is ideal for EIA sales. The most significant change in the last three years is what has happened to the public. Even though seniors probably knew better, they were more diversified that they should have been. They go whacked, lost gains and lost principal. Now, scarred but smarter, clients are more apt to sacrifice some potential gains in exchange for added security. Today's EIA-friendly environment would seem to make selling EIAs a no-brainer. However, many advisors still aren't offering these products to their clients. There is not nearly the market saturations that there should be.

Why Some Advisors are Avoiding EIAs
Marion believes that many advisors refuse to sell equity indexed annuities because they don't understand them. Being creatures of habit, they don't want to take time to understand them, either. "They have a comfort level selling truly fixed-rte products," he says. "or they have a comfort level selling truly variable products." When EIAs first introduced to the annuity market less than a decade ago, many people didn't know what to make of them. Advisors were confused and thought that EIAs were tied to the stock market. They didn't know how to explain them comfortably. Today, discomfort and misconceptions persist, to the detriment of advisors and clients. Most advisors make selling EIAs way too complicated. They forget it's just a fixed annuity and that it offers a real bonus to a client because of its link to indices that can increase their returns. Despite concerns held by advisors and clients, the future for EIAs holds huge potential. Traditional fixed annuities are paying some of the lowest rates we've seen in 40 years. Clients who buy traditional fixed annuities - with rates guaranteed for three, five, seven, or 10 years - are literally putting a cap on their future growth. You don't want to lock in your interest rate at a market bottom.

Take Advantage of the EIA Market
Advisors who remain leery of EIAs, but think their clients can benefit from the product, might consider seeking a marketing company that specializes in equity indexed products. A strong candidate would be a company that provides sales training and workshops, trained consultants for advisors and what policies to avoid. Stay away from contracts that have a lot of "trust me" language regarding minimum guarantees on participation rates. There are also contracts that require you to annuitize in order to get out. These products aren't good for everybody. You have to know where they fit in and where they don't. A truly consumer-oriented product, on the other hand, will offer liquidity, solid minimum guarantees, and the flexibility to allow consumers to change crediting methods.

A Safe Ride
A current trend among many financial planners is to put a portions of a client's income in a guaranteed-income instrument and invest the rest in different equity vehicles based on the client's risk tolerance. This financial planning concept is as solid as it is basic because it addresses the mentality of today's market-weary senior client. Clients are looking for a rock solid guarantee on their money. Any time you can provide the safety and comfort of a fixed annuity, as well as tax-deferred growth, you have a win-win situation.

source: Senior Market Advisor; January 2004