FIA

In today’s environment, many fiduciary advisors are turning to protection products such as fixed indexed annuities and fixed annuities to offset client portfolio risk.

That was one of the findings from Security Benefit’s Registered Investment Advisor Benchmark Study. The study looked into RIAs’ perspectives regarding client practices, economic sentiment, product diversification and the impact of the upcoming presidential election on the markets.

Security Benefit’s new research – conducted in partnership with Greenwald Research and DPL Financial Partners – uncovered the following key findings:

• RIAs’ views are largely mixed on the impact of upcoming elections on the investment climate. As volatility remains a constant for RIAs and their clients, the study found that 41% of RIAs predict a neutral impact on the investment environment, with a similar number (39%) foreseeing a net negative impact, and 20% expecting a net positive impact.
• Perceived investment satisfaction is high as RIAs shift allocations to equities and fixed instruments. A strong majority of RIAs (87%) believe their clients are satisfied (50%) or very satisfied (37%) with their investments. Only 13% of RIAs said that their clients are very or extremely concerned about a major equity downturn.

Equity allocations are on the rise more so than any other product allocation, with 51% of RIAs allocating more to equities in the last 12 months. Allocations to long duration fixed instruments (47%) and short duration fixed instruments (45%) also saw strong increases.

• RIAs are allocating at least 40% or more of retirees’ assets to fixed income products, with annuities gaining favor.More than half of respondents (55%) said that they are either using fixed annuities or plan to use them in the next six months, and 45% said the same for FIAs.
• RIAs see an opportunity to attract client money currently in bank savings products. Half of RIAs (52%) said that a quarter of their clients have at least $100,000 in a bank savings account, and 82% of these RIAs believe they would be able to attract a significant portion of that money if they were able to offer an innovative investment with competitive interest rates for a guaranteed period.

“An anticipated decline in interest rates coupled with the election in the latter half of the year may keep volatility high, however, RIAs are considering solutions with guarantees to weather this storm of uncertainty and build confidence among clients,” said Mike Reidy, national sales manager, RIA Channel at Security Benefit.

RIAs are increasing allocations to annuities

As the Federal Reserve has pushed back expected interest rate cuts, RIAs are eyeing multi-year guaranteed annuities to lock in current rates. MYGAs offer attractive accumulation potential for clients by delivering a guaranteed interest rate that is non-correlated with equities. One-quarter of RIAs who responded to the study said they have increased their clients’ exposure to fixed annuities such as MYGAs in the past 12 months.

FIAs offer downside protection and a range of indices, allowing RIAs multiple ways to position client portfolios ahead of a potential equity downturn. FIAs provide accumulation in the form of interest credits that are not linked to current rates, but instead the performance of financial indices. Although 30% of RIAs said they do not use FIAs in their practice, one-third (34%) of RIAs said they actively use them and another 11% noted they are familiar with FIAs and intend to use them in the next six months.

“Clients are prioritizing risk protection more so than maximizing gains,” Reidy said. “That protection theme is a trend we’ve been seeing especially over the past two years.”

RIAs may have had some misconceptions about annuities in the past, Reidy said, and one of those misconceptions is that annuities are complicated products. “But the products we are offering in the RIA space are very straightforward. They don’t necessarily have all these bells and whistles. We try to keep the fees low.”

Security Benefit’s research also found that an increasing percentage of RIAs are concerned about the potential of geopolitical events affecting the financial markets in the second half of this year.

“That’s one of the reasons why I think that whole safety issue is on our side, because if something goes wrong, if inflation spikes again or maybe we don’t see interest rate cuts or if interest rates go up, advisors are listening to their clients’ concerns and telling them that risks are still out there but we do have products that can protect them,” Reidy said.

Growth strategies remain unchanged

While many RIAs were quick to adapt their practices to changing client needs during the COVID-19 pandemic, some things have largely stayed the same, including how RIAs attract new clients.

Asking for referrals remains the most important strategy to attract new clients, according to 52% of respondents. This was followed by networking at 19%, and specialized marketing to a specific niche client at 9%. In-person meetings have returned since the pandemic, with two-thirds of client meetings occurring in-person versus 40% of meetings held virtually.