It’s time for me to pick on a couple different products that have proved to not be worth the hype. About once a month, on average, I get an email touting the incredible opportunity of some new contract or index. I look at all of them just to see if the claim merits me adding something else to my list of recommendations. Most things that gain traction with other advisors don’t immediately get my attention but when I start seeing a change in sales trends, I keep track so I can compare performance.
Just like when a first-round draft pick never makes an all-star team, plenty of these past ideas have not lived up to the hype. I have more inside knowledge than other because I service several contracts that I never sold in the first place, which suggests the agent didn’t stick around to explain the lack of performance. That’s why I feel I’ve earned the right to label some contracts at overrated.
Two companies come to mind since both have been popping up a lot lately. I’m going to specifically explain why I don’t like the New Heights products from Nationwide and speak more generally about why Athene seems to be pushed harder than it should. Each of these companies has products that many agents claim to be the absolute best opportunity so I’m calling that out and will show you why.
Six or seven years ago, Nationwide got into the index annuity business with the New Heights line of products and to this day they don’t have much else. This is a good company and the products are safe but the growth potential was tied to the JP Morgan Mosaic Index and according to sales literature the index had never returned less than 8% in a single year. Agents clamored to sell the contract using illustrations that would turn Warren Buffet’s head and I just kind of sat there and watched it.
The problem? I will always be hesitant to push something that does 8% every single year but whether that was true or not, the contracts required a three-year reset on all options. That means you had to wait three years to see if you made any money. Longer resets come with higher participation rates so the illustrations looked outstanding but the longer resets also bring about a lot of risk. And that’s exactly what happened. The index never did quite as good as promised and at a few key points the market cratered and several people went three years while making little or nothing. That puts a whole lot of pressure on the next period since one could theoretically go a whole six years without earning interest. One quarter of retirement could be gone and you only have two chances to lock in money. I don’t recommend it.
Athene was a B rated company back in 2013 when it acquired the US operations of Aviva, a major British insurer with roots going back to the 18th century. It’s not often that a small company buys a big one but it’s beyond my pay grade to explain that one. Since then, Athene has been growing rapidly and at times is creating new products faster than they process applications. To me it seems like this company has too many things going on at once. When another agent says this is the best opportunity available, it really depends on which contract. Athene has 21 index annuities up for grabs.
This is one that I hear about nearly as much as Allianz and that’s because of the distribution structure. Athene is paying marketing organizations a lot of money to push the products so you have a really good chance of running into one of them when someone solicits you. It’s hard to pick one specific product but if we’re talking growth, just about all of the 21 have the same index options so it’s easy to lump them all together.
The index options are just OK but participation rates are not very high right now so I think most of them will do well to yield 3% on average. That wouldn’t be the worst result but it’s not that exciting and that’s not my problem with Athene. All contracts offer a blend of one and two-year resents. Again as above with Nationwide, longer resets come with higher participation and more risk of not making any money.
It’s fine if you want to pursue that strategy but agents are pushing it mainly for one reason. It’s not because it’s best for you, just that it is the only way they can make an illustration look good. My experience from the past suggests you are better off sticking with the consistency of one-year resets. You have to think about more than the potential of an index and right now is not the time to enter a long crediting period. The market is down from the historic top but up about 5% over the past year.
Again we have an overvalued market and an absolutely miserable economic outlook. Going long on an extended market run right now makes no sense to me. Go short and reevaluate next year. If you have a Nationwide contract you may not have much choice and the agents for Athene are more interested in making a sale than giving good advice. Maybe they should switch to or at least branch out to other companies to provide more opportunity for clients.
The best contract is partially a matter of opinion. Certain things can be verified but in the end it comes down to what you like and who you trust. Beyond any opinion, Nationwide and Athene do not have the best contracts. As I was writing this I realized I should have done more detail on each individually because there’s a lot more to it so comment below or send me an email if you’d like me to work on the extended version.
Enjoy your weekend!