Put Investing Fundamentals to Work With the Help of a RILA
Help make client conversations more effective when talking about long-term investing during market volatility.
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Questions This Article Can Help You Answer
- How can talking about the value of focusing on the long term when investing help clients better understand registered index-linked annuities (RILAs)?
- During volatile markets, how can a RILA help keep clients’ plans on track?
- How can conversations with clients about evaluating risk help them determine if a RILA is suitable for their portfolio?
It can be challenging to keep clients focused on the benefits of a long-term strategy when they see a financial statement that shows account balances decreasing. Discussing investing fundamentals is one of the most important conversations financial professionals can have with clients. While these types of discussions start with understanding each client’s goals and risk tolerance, you may find that talking to clients about annuities can help you demonstrate your expertise, which can build trust and make these conversations easier. In particular, the benefits of registered index-linked annuities (RILAs) – also known as buffered annuities – could be worth discussing with clients when talking about topics such as how to remain focused on long-term goals, why staying invested is important, and how to manage emotions during market volatility.
RILAs allow clients to track a market index or indices for a selected term (the amount of time the crediting strategy is in effect). This type of annuity provides market growth opportunities combined with a level of downside protection. The issuing insurance company absorbs a portion of loss up to a certain percentage, after which the contract owner assumes any additional loss.1 For definitions of many key words and phrases related to RILAs, view our RILA dictionary.
Discussing investing fundamentals can provide clients with additional perspective on their financial strategy and help you build trust with them. Here are a few ways RILAs can be a part of that conversation.
1. Staying Invested for the Long Term
Due to market volatility, clients may struggle to see the value of staying the course with their investment plan. This may result in clients reactively seeking to adjust their strategy to optimize gains and limit losses. However, studies have shown that trying to time the market typically results in less optimal outcomes. For example, if an investor missed the 10 best trading days of the S&P 500® IndexA between 2004 and 2023, their overall return would have been reduced by 64%.2
To counter this, financial professionals can point to how the term may help alleviate some of the concerns about market volatility. Because the performance of a RILA is measured based on the change in value of the tracked index from the beginning of the term to the end of the term, the contract owner can take comfort in knowing that even if the index is down during the term, there may be time for the index to bounce back. Additionally, RILAs provide a level of protection that can give the contract owner some confidence during market downturns. One example of downside protection with a RILA is through a buffer. With a buffer, the annuity contract owner assumes any negative performance that exceeds a certain percentage at the end of the term.
Historical context could also be an effective method to help keep clients focused on long-term value. For example, looking at historical 6-year price returns on a rolling monthly basis from January 1957 to December 2023 of the S&P 500 Index, a RILA with a 15% buffer and a 6-year term would have avoided losses 97.8% of the time.3 Although past performance does not guarantee future results, these types of historical comparisons can help investors better understand how the product functions.
“The RILA is an investment strategy that provides growth opportunities, a level of protection when the markets decline, and doesn’t have an annual fee in many instances,” explains Chris Bunting, Vice President, Divisional Sales Manager, and Advisor to Product Development at Brighthouse Financial. “So it’s a strategy that allows clients not only to get invested, but to stay invested with some confidence.”
Investors Tend to Make Moves and Seek Some Protection When Portfolios Decline
Even though having a long-term investing strategy may be important, it can be hard for investors to stay focused on the long term during challenging markets.
Source: Investor behavior changes in face of increasing market volatility as demand shifts to active investments and FinTech. EY, April 24, 2023.
2. Having a Plan During Down or Volatile Markets
One way to help build trust with clients is to be up front about the fact that markets can be volatile and that all investments come with risk. In a 2023 survey, 74% of workers said they were concerned that the markets would become more volatile and unpredictable, while 65% said they feared that the stock market would go down in the next 12 months.4 With increased volatility in recent years, and inflation and interest rates also in flux, some clients may be looking for ways to diversify their portfolios and have some protection while still having the opportunity for higher gains than what other products would provide.
“RILAs help financial professionals pre-emptively and proactively have conversations with clients about what happens during periods of market decline, which helps prepare clients and set expectations,” Chris notes. Financial professionals can talk to clients about how RILAs offer the opportunity for growth with a level of downside protection. That combination may be attractive because not all investors want to solely protect their assets during times of volatility.
“RILAs offer flexibility and balance – allowing clients to select the amount of downside protection that fits their risk profile while still participating in market growth opportunities and staying aligned with their overall strategy,” adds Amethyst Vargas, Chief Marketing Officer at Brighthouse Financial.
3. Help Provide Confidence With Built-In Balance
More than half of investors who changed financial professionals said they did so because they expected better investment performance with a different firm.5 For financial professionals, informing a client about how their portfolio performed – especially compared with other market scenarios – and how you may make adjustments for current market conditions can be an important part of keeping a client satisfied.
For clients whose main goal is growth, financial professionals can explain how adding a RILA to their portfolio offers index-linked growth opportunities as well as a level of protection for a portion of their portfolio, which can give clients some confidence in volatile markets.1
Along with growth opportunities and a level of protection, guaranteed income is another important feature of a RILA with an income rider. A guaranteed source of income in addition to Social Security benefits can provide clients with flexibility in managing distributions from other retirement accounts. “We’ve found that discussing RILAs can help financial professionals facilitate clearer and more impactful conversations about foundational investment principles,” Chris says.
Communication Helps Show Value
Having conversations about goals, risk tolerance, and market volatility can help you determine whether a RILA may be a suitable strategy for a portion of a client’s portfolio. By discussing the benefits of a RILA and how it can play an important role in a portfolio, you can show the value you bring to clients, which could also make a difference in client acquisition and retention.
A The S&P 500® is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by Brighthouse Financial, Inc. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Brighthouse Financial, Inc. Brighthouse Financial products are not sponsored, endorsed, sold, or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates; and none of such parties make any representation regarding the advisability of investing in such products, nor do they have any liability for any errors, omissions, or interruptions of the S&P 500®.
1 There could be a substantial loss if the index declines more than the level of protection.
2 Data from January 1, 2004, through December 31, 2023. Franklin Templeton, January 2024.
3 This data reflects the historical 6-year price return of the S&P 500 Index on a rolling monthly basis. Rolling monthly periods include returns in overlapping cycles starting the last day of each month. For example, Jan. 31, 2018 through Jan. 31, 2019, followed by Feb. 28, 2018 through Feb. 28, 2019, are overlapping 1-year rolling periods.
4 2023 Retirement Confidence Survey. Employee Benefit Research Institute, April 27, 2023.
5 Leading reasons why investors change financial advisor worldwide in 2021. Statista, November 2021.
This material is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, accounting, investment, or fiduciary advice. Brighthouse Financial and its affiliates did not consider any individual’s circumstances in preparing this information. Clients should confer with their tax, legal, and accounting professionals in addition to consulting with a financial professional.
Annuities are issued by, and product guarantees are solely the responsibility of, Brighthouse Life Insurance Company, Charlotte, NC 28277 and, in New York only, by Brighthouse Life Insurance Company of NY, New York, NY 10017 (“Brighthouse Financial”). Variable products are distributed by Brighthouse Securities, LLC (member FINRA). All are Brighthouse Financial affiliated companies. Annuities are long-term investments designed for retirement purposes. The contract prospectuses and contracts contain information about each contract’s features, risks, charges, expenses, exclusions, limitations, termination provisions, and terms for keeping the contract in force. Prospectuses and complete details about each contract are available from a financial professional and should be read carefully. Product availability and features may vary by state or firm.
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