The index annuity sales model for the last decade was to offer consumers the hope of earning a much higher return than they could get from CDs. If expectations weren't met, the old annuity was exchanged for a new one, with any surrender charges "covered" by the new premium bonus. And with high commissions, even marginal producers could earn a living. That model is dying.
One reason is tougher regulation. This has translated into shorter surrender periods pushing commissions lower, greater scrutiny of annuity exchanges and more attention paid to all annuity sales and sales practices. However, the major reason is lower yield.
As recently as 2008, my compendium composite bond index showed 7 percent yields. By the end of last year, they were under 5 percent and yields could drop even lower in 2011. What this means is it will be more difficult to sell on rate, more difficult to do annuity exchanges and more sales will be needed to earn a living. Producers need to evolve to succeed.
Sell benefits, not rate
If I earn $1,000 in CD interest, I will have to pay taxes on that interest, even if I don't need use it. If that $1,000 is in an annuity, I decide whether to pay taxes this year or not. Owning an annuity means I control my taxes–not the IRS.
