(New York)

Very high stock market prices and the continual threat of major downturn has sent fixed index annuity sales surging lately. Fixed Index Annuity sales accounted for 57% of all annuities sales in 2019 and amounted to $74 bn. “The high number of fixed-index annuity sales are a response to investors observing that the market continues to go up and this is a strategy to put a safety net under their portfolio if the market fails”, says one advisor in Pittsburgh. Fixed Index Annuities guarantee your principal while still offering limited upside, so they present a compelling case for people worried about a big downturn who need the peace of mind of principal protection and a steady income stream.

FINSUM: This is a perfect market for FIAs because of sky high prices and falling bond yields (which sap income). Just make sure you completely understand the contracts.

(Boston)

Advisors will have likely noticed that Massachusetts has just introduced a new fiduciary rule. The rule, announced on Friday, makes Massachusetts the first state to adopt a best interest standard since courts struck down the DOL’s fiduciary rule. The rule is under the usual attacks from industry trade groups, but more surprisingly, it is also being attacked by fiduciary rule advocates. Such advocates had initially praised the rule’s first draft, but now say the state made too many changes before implementation. According to the Consumer Federation of America “What’s left is a modest improvement on Regulation Best Interest but not the kind of tough standard needed to protect investors from conflicted advice.”

FINSUM: The changes to the rule were significant, such as not applying to insurance product sales and not applying to brokers unless “account monitoring” was specifically specified in the customer contract. The rule takes effect March 6th.

(San Francisco)

Apple’s stock has suffered significantly last week since it announced that it would likely miss its revenue targets because of the virus outbreak in China. The stock is down 7% since the announcement and there is increasing speculation the damage may not be transient. The whole incident calls into question whether the country is too reliant on China for production (and also for sales). Many Wall Street analysts have pushed lost revenue for this quarter into other quarters, but it is not at all inconceivable to think that some of the sales may be lost permanently as consumers could have bought rival products, or just won’t switch at all (especially those in China).

FINSUM: Apple should probably work to adjust its supply chain as a reaction to this, but that seems unlikely. Hard to tell how this plays out; it depends on the news cycle.

(New York)

The bond market looks primed for a big correction, says a top asset manager. Bonds have been surging in price as yields fall because of fears over coronavirus, but they seem likely to have a sharp pullback once the news cycle focusing on the virus moves on. That is the argument coming out of asset manager WisdomTree. According to the firm’s head of Fixed Income Strategy, if we have a sharp “V” shaped recovery, then bonds might see yields jump sharply (and prices fall sharply).

FINSUM: WisdomTree made one other excellent point that is not as obvious. US companies are starting to seek alternative suppliers away from China. As this happens, there is likely to be a transitory pickup in inflation since prices are probably going to be higher from suppliers outside of China. Accordingly, bond markets might also react sharply to a rise in inflation.

(New York)

Fixed Index Annuities have suffered from some bad selling practices over the years, and resultantly, bad publicity. However, they can serve some very important roles in a portfolio. There are a few things to remember about them. Firstly, they were designed to compete with CD-like returns while giving complete principal protection. Don’t think of them as a market growth product, they are a life insurance product. Additionally, they are a very good vehicle for income rider guarantees, or contractually agreed guaranteed income. This latter point is especially relevant given that 10,000 Baby Boomers are reaching retirement age every day and we live in a near pension-less world.

FINSUM: When carefully considered and utilized, FIAs can be excellent products that provide steady income and peace of mind.