The stock market just had a correction, which is a 10% drop in stocks from their last peak. Since just January 26, the S&P 500 and the Dow have fallen over 10%.
Credit: Yahoo! Finance in partnership with ChartIQ
While most people are not very happy right now, you should see this is as an opportunity.
Even though you don’t deal with the stock market, your clients still see you as a financial expert. When the market takes a dip, it’s the perfect time to give your clients an alternate option – a way to protect their hard-earned cash from corrections and crashes.
I think you know where I’m going with this… I’m talking about fixed annuities. Specifically MYGAs and FIAs.
While there are intricacies to both, it’s your job to make this as simple to understand as possible.
So, let’s have a quick refresher on MYGAs and FIAs, and I’ll help you explain these to your bummed out clients who just lost 10% of their savings in the stock market.
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Quick refresher on fixed annuities
For a quick refresher, there are 3 types of fixed annuities.
- Traditional Fixed: You have a guaranteed rate of return each year. You will not get more or less than that rate.
- MYGA (Multi-Year Guaranteed Annuity): You have a guaranteed rate for an entire surrender charge period. (Common MYGAs are 3, 5, or 10 years long)
- FIA (Fixed Index Annuities): You have the choice of adding “interest crediting strategies.” With FIAs, you might get 0% returns, but you have the potential of earning higher returns based on how the stock market performs. You never experience the losses, but you can safely experience the gains.
MYGAs and FIAs are of particular interest right now, and they’re the most popular types of annuities we sell.
So, how do you explain MYGAs and FIAs in a way that your client will understand?
We’re going for head nods, oohs and ahhs, and smiles here – not wide eyes and furrowed brows.
Step 1: Explain what a fixed annuity is.
Obviously, you first need to find out if your client has money in the stock market. If they do, this is the PERFECT time to give them a safe alternative. If they don’t, find out if they have any money in savings or CDs. That’s also a great way to introduce a better interest rate.
So, here’s how you simply explain a fixed annuity.
“A fixed annuity is a way to grow your savings without taking any hits from the stock market. In short, you make interest on your money with zero risk.”
Short, simple, and to the point.
Step 2: Explain what MYGAs are.
You’re introducing 2 recommendations here, so first, we’ll start with the MYGA.
It’s the most popular annuity with seniors, with about 8 in 10 choosing it. (That figure is from our internal experience – the rest of the market might differ.)
Break down the acronym for your client – it’ll help the term stick.
“Multi-Year means that the annuity lasts for a set number of years – the most common is 5 years.”
“Guaranteed simply means that you are guaranteed a set interest rate for those 5 years. It’s usually a little better than 3%.”
Then, go right into the emotional benefits. “Most people choose a MYGA, because it’s predictable. You know how much interest you’ve made after 30 days, 1 year, 2 years, and so on. Every night, you go to bed knowing that your money is steadily growing.”
You can also throw in a bit of pride, too: “Everyone who just lost 10% of their savings due to this market correction are feeling pretty bummed right now, but those with a MYGA aren’t phased at all.”
Step 3: Explain what FIAs are.
Same thing here – you’re introducing a second option.
“FIA stands for Fixed Index Annuity. This is a way to participate in the stock market gains without participating in the losses. In order to do this, your gains are capped, but you can never actually go below 0% – the worst you can do is stay the same.”
Providing an example is the fastest way to get your client on the same page as you.
“For example, let’s say the stock market goes up 9%. You might have a cap at 6%. So you still experience the gain, but it’s at a cap.
Now, let’s say the stock market goes down 10% – which it just did.
You go down 0%. You lose nothing.”
Then, go right into some emotional benefits: “A lot of people like this strategy, because you still have the fun of stock market gains (you can party with your friends when it’s up), but you can sleep tight at night knowing that your hard-earned cash isn’t going to go down the drain.”
For your own knowledge, here's a brief overview on FIAs and how they work.
Step 4: Consider their personal situation.
Everyone’s situation is different, but there are a few ways to go about this.
If they’re around 65 years old, you ought to urge them to put some of their money into a fixed annuity. Having a large amount of money in the stock market at this point is putting your retirement at risk, and an annuity is one of the only ways to get a decent interest rate with zero risk.
If they’re younger, say around 50, they still have time to play with risk, but they shouldn’t have all their eggs in one basket. Talk about diversifying their risk, and putting perhaps half of their savings or investments into a fixed annuity.
If they have a 401(k), they can roll that into a fixed annuity when they retire. It’s tax exempt, and it starts earning money right away.
And there you have it!
To sum up, here are the super basic steps to take when talking to someone who just experienced the stock market correction:
- Explain what a fixed annuity is.
- Explain what MYGAs are.
- Explain what FIAs are.
- Consider their personal situation.
As always, lead with education – not selling. They’re probably feeling a bit vulnerable when talking about their money, so make sure you’re taking a genuine, education-first approach.