So, what's a smart sales approach in today's annuity market? It has three parts:

1. Reach prospects and clients before the banks do.
2. Educate them on "bonuses" and their costs.
3. Educate them on all their choices, and offer objective advice in evaluating them.

The Catch in Bonuses

A typical bonus offer goes like this: "Mr. or Mrs. Client, if you put $10,000 into our annuity today, we'll start your account with $10,200. We'll add a $200 (2%) bonus to make you feel great about the decision."

But of course, there's a catch. Bonus contracts usually give the insurance company a way of earning back the bonus in higher fees – either the contingent deferred sales charge or the mortality and expense risk charge (or both).

The Securities and Exchange Commission (SEC) has specifically targeted bonuses as one area in which "caveat emptor" applies in annuity sales practices. Specifically, they have advised consumers that "bonus credits may carry a downside – higher expenses that can outweigh the benefit of the bonus credit offered."

Since the SEC only regulates variable annuities, not fixed, it has issued this warning in an online consumer brochure called Variable Annuities: What You Should Know. Your clients can read the entire brochure online at http://www.sec.gov/investor/pubs/varannty.htm.

Why shouldn't you be the educator who calls their attention to this important consumer information about how to buy annuities?

A Better Choice for Many Buyers

The truth is that many people the banks are luring into fixed annuities shouldn't be buying these products at all. Why not? They have a better choice that offers more choices – and that is today's "new-generation" variable annuity (VA).

In these VAs, the buyer gets all the benefits of a fixed annuity through a fixed account choice that guarantees principal and rate. But the client and financial advisor also have many other options. They include investment options, retirement income (annuitization) options, and ways to take risk now while protecting retirement income later (i.e., a guarantee minimum income benefits). Some new VAs offer better guaranteed-rate choices than most fixed annuities.

The best new VA designs allow clients and their advisors to work together in crafting customized programs that meet personal needs. To illustrate, let's use a new-generation VA contract issued by Nationwide called America's Future Annuity in their Best of America series.

• In addition to a fixed account, the contract offers "Guaranteed Term Options" in which principal and interest rate are guaranteed for a period of years (up to 10 in some states).
• Two guaranteed minimum income benefit options are available, at add-on costs to the mortality and expense risk charge. If an option is chosen, the future stream of retirement income (annuity payments) has a floor, even if investment experience is poor.
• An optional dollar cost averaging program allows amounts to systematically move from the fixed account into separate account funds. This feature can help today's scared investors regain confidence in the market gradually.

But what about that pesky "bonus rate" the bank is dangling? The contract addresses that by offering a choice called the "Extra Value Option." For an additional asset-based charge of .45%, Nationwide credits an extra 3% bonus to any deposits made during the first 12 months.

In effect, Nationwide and other innovative insurance companies have "unbundled" the VA contract, giving clients flexibility to choose which features they want based on cost-benefit analysis. "You want a bonus? Fine, and here's what it will cost you." In effect, the new VA designs meet the SEC's concerns head-on by turning questionable annuity benefits into attractive options supported by objective advice.

An Important Role for You

In a few years, banks have done a great job training thousands of tellers and "platform people" to sell fixed annuities. But there is a reason they haven't had equal success with VAs – namely, today's new-generation VAs require high-level professional advice and analysis to help clients tailor programs to personal needs. It takes in-depth client fact-finding plus a CLU or CFP (or the equivalent) to understand and analyze all the options embedded in today's new VA contracts.

Here's another important option: New-generation VA contracts give professionals the choice of receiving their compensation as asset-based trails. If you're moving away from commissions, toward fee-based relationships, they will help you!

Don't let your clients and prospects reach for the ring of a bonus rate that yields 2 to 3% more than their CD or current fixed annuity. It's a brass ring, not gold. Show them better and more choices now.