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Selecting The Most Suitable Income Rider For Your Client

Most advisors have two or three favorite quality annuity carriers to choose from when it comes to selecting a fixed indexed annuity with lifetime income benefit rider for their clients. But is this really the most suitable recommendation? And what about the risk of a complaint against the agent if a “suitability”-based recommendation becomes an issue?

The complexity of a lifetime income benefit rider, or LIBR, benefit crediting can create the illusion of a better FIA income product. Although the annuity LIBR with the highest bonus or highest rollup rate, doubler or other bells and whistles gives the appearance of being the most suitable, the real test of suitability is this: Does the FIA LIBR provide the best payout for your client when they want to start receiving income? Maybe not! To cut through all the hocus pocus, avoid hypothetical illustrations and consider only the guaranteed income payout rates to better determine annuity product suitability for your clients. The following story will help illustrate the product suitability issue.

Dan has made a good living since the 1990s selling fixed equity index annuities with LIBRs to his conservative clients for their future income needs. He usually turns to one of his favorite, quality carriers when he needs products with good commission and service. His clients are happy with his service and the guaranteed lifetime income they are receiving. He has never received a client complaint — until now!

He just received a complaint from the Department of Insurance, which came from the attorney representing the children of one of Dan’s retired clients. The children question the guaranteed income their parents will receive, and they want to know on what basis Dan selected the carrier he recommended. The children are also asking for a full refund of their parent’s annuity premium deposit plus interest since this annuity does not appear to be the most suitable indexed annuity with LIBR for their conservative parent’s future income needs.

The basis of Dan’s recommendation was the proposal he gave his clients from one of his choice insurance companies. Reading the complaint, Dan is not too concerned about a premium refund since he sold an annuity from a quality carrier. And he knows that the Department of Labor fiduciary rule — including  the language for “Best Interest” and all that it requires — is no longer applicable.

What Dan does not know is that the attorney is aware of the National Association of Insurance Commissioners’ tentative annuity transactions model law. In brief, the law opts for a sales standard of “Suitability Plus” as opposed to “Best Interest.” Meaning: A suitable sale requires “reasonable competence, trustworthiness, fair dealing, diligence, care and skill by the producer.” In addition, any recommendation “shall be made without placing the financial or other interests of the producer ahead of the consumer’s interests as known from the consumer’s suitability information.” In addition, the standard states, “A producer shall at the time of the recommendation or sale, make a record of any recommendations and grounds for the recommendations.”

Dan could be in for a difficult time. Although he can provide a sales proposal from a quality carrier, he may not walk away from this complaint unscathed.

Dan could have better, and probably successfully, answered this complaint if he had used a detailed guaranteed payout software program that is able to list the dollar amount of the LIBR minimum guaranteed lifetime income payout from the universe of most fixed indexed annuities.

This software, based on each client’s profile and needs, ranks income payouts from best to worst, from the time the client wants income to be turned on, plus cumulative amounts after 10 years and at age 95. Granted, the ranking may not include one of Dan’s favorite carriers, or pay the best commission, but it does provide a detailed list of fair recommendations for his clients.

Had Dan offered his client two or three of the top performers on this list, he would have soundly answered the attorney’s challenge about which product would be the most suitable for his client’s future income needs using the LIBR of a fixed indexed annuity.


Jim Pedigo, CLU, ChFC, CASL, is an investment advisor representative, retirement income planning specialist and trainer with Financial Rate Watcher$ in Lake Mary, Fla. Jim may be contacted at [email protected]

Jim Pedigo, CLU, ChFC, CASL, is a retirement planning advisor with Financial Rate Watcher$ Inc. in Lake Mary, Fla. Jim may be contacted at [email protected] [email protected].

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