Mike Tripses, President, Comments on Wharton Study Findings

November 5, 2009 | Download the Wharton Study | Read National Underwriter's article

When I and a handful of others pioneered the indexed annuity concept in 1994, it was for the purpose of attracting more safe money to principal-protected products by adding the appeal and benefit of indexed interest linkage. Distribution responded very slowly in climbing the S-curve of innovation. Throughout the ’00 decade, in numerous articles and road shows with my colleague, Steve Phillips, we taught the value proposition of upside indexed interest potential; some upside, no downside, a greater than average chance at a greater than average return. Now a quarter of the entire fixed annuity market is FIAs. We predicted this surge, the evolution of the fixed annuity product and the proliferation of different allocation methods (we created a few ourselves).

We defended the indexing concept from ignorant “100% securities for retirement” advocates. We predicted the attempt by securities regulators to first marginalize the product then co-opt it by regulatory fiat.

Now the SEC wants to regulate the product into a different, more risky securities form. I wonder if they attempted it a decade ago whether it would have sent sales rocketing much earlier. Well, now is our opportunity to resolve the issue once and for all and create a tsunami of interest and sales in FIAs.

A newly published paper called “Real World Index Annuity Returns”, by Messrs. Marrion, VanderPal and Babbel through the Wharton Financial Institutions Center, gives new credence to our missionary work over the last 14 years. Their study is based on actual interest crediting history since 1996. They conclude that FIAs “… returns have been competitive with alternative portfolios of stocks and bonds.” Five-year returns from 1996 through 2003 show index annuity results were better than the S&P 500® index 66% of the time, and better than a 50-50% combination of one year T-Bills and the S&P 500® Index 80% of the time.

We’ve been right all along. FIAs are a separate asset class, negatively correlated with equities and insure assets well, especially in periods like the last 13 years. That means fixed annuities with insured indexing are an excellent tool for diversification and asset allocation in a portfolio.

I’ll give you new prognostications. Rule 151a will be consigned to the dust heap of failed regulatory overreach. The indexed interest insured with guaranteed growth will proliferate via new registered and non-registered designs. The principal protected indexing concept will hit the big time in 401(k) retirement plans. Hold me to it, and enjoy the ride.

Study: Fixed Indexed Annuity Returns "Competitive" | National Underwriter

A new study on index annuity performance is countering some negative conclusions about this performance that have been circulating. The negative conclusions have appeared in both in theoretical academic papers and in articles in the popular press... >> READ MORE

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DOWNLOAD THE STUDY Wharton Financial Institutions Center Personal Finance Real World Index Annuity Returns