If you did not have record annuity sales in 2009, your business plan is in need of review along with a reassessment of the marketing company you’re using. The credibility of banks, along with the interest rates they’re offering, is at all-time lows. The retirement-minded fleeing to the safety of FDIC coverage find CD rates below expected inflation. The longer they keep money under the FDIC umbrella, the less it will buy. What’s more, those living on fixed incomes funded by interest earnings are now dipping into principal to support their lifestyles. Those relying on bonds – government or otherwise – also find low rates combined with default risk unless they opted for U.S. Treasury issues. The question on everyone’s mind: where will interest rates go from here?

The stock market was in free-fall from late 2007 until early 2009. It opened 2009 with the DJIA at 9034.69 and bottomed out at 6547.05 on March 9, 2009. The 2007-09 downward spiral witnessed a 54% loss and left many with inadequate savings to support their retirement. Since March the DJIA has advanced in a zigzag pattern and is currently slightly over 10,000 – a gain of 57% from the March low that leaves the market at about half-way back to the October 2007 high. Note: it will take a 116% gain from the March low to erase the 54% loss from the ’07 previous peak to the ’09 trough. Is the current rally a “dead cat” bounce and a sucker’s rally? Has the stimulus-induced recovery stalled and now poised for another decline, or will the recovery catch a second wind and climb higher?

The answers to the interest rate and market questions will determine your annuity sales in 2010. Bearing in mind that no one can forecast these two economic metrics, what is the consensus opinion? The Federal Reserve has acknowledged that very low rates are the needed fuel for an economic recovery. It appears prudent to expect the current interest rate structure until at least mid-2010, and this should drive safety-conscious savers toward fixed and index-linked annuities as they simply cannot subsist on the low rates being paid by banks. The interest rate outlook is cloudy beyond mid-year and complicated by the escalating federal deficit, out-sized trade imbalance and inflationary expectations. Several developments could prompt a change in the direction of interest rates, but historically low rates should prevail through mid-2010 and that will be good for your annuity sales. Expect rates to trend higher once the economic recovery is pronounced sustainable.

The direction of the stock market from here is dicey. Corporate profits have been propped up by cutting expenses and trimming employment. This cannot be continued indefinitely and a reversal of corporate fortunes will signal market declines. Consumers’ attitude about spending and savings can also impact the market. To date, consumer spending and willingness to take on new debt has been artificially influenced by “cash for clunkers” and “tax credit” for home buyers. If consumers’ down-scale holiday spending and/or boost their saving rate, expect the market to decline. If not an outright decline, it seems prudent to expect a slower pace of market recovery given the uncertain macro-economic outlook. An ambivalent market and/or continued volatility augur well for annuity sales in 2010, and this outlook is precisely the consensus opinion.

Riding on top of the interest rate and market unknowns is the general uncertainty of 151(A), carriers’ capacity and a host of other variables that can advance or retard annuity sales. But, after all the tea leaves are read, charts consulted and cross-currents taken into account, 2010 should be an especially good year for fixed and index-linked annuities. Savers are still concerned about outliving their money, Ponzi schemes, market risks, taxes, and safety of principal, and these are all addressed with fixed annuities. Icing on the cake will be the avalanche of tax-free Roth IRA conversions in response to the income limit suspension and the attractiveness of a guaranteed tax-free lifetime income available only from annuities. Your challenge will continue the same: favorably meeting qualified prospects that want and need your help. BHC has the experience, qualified leads programs, sales tools and professional image-builders to assure your success in 2010 and beyond. Why not give us a call today and let us add value to your practice in 2010? We’re committed to making your 2010 a record, or another record, annuity year.

Shelby J. Smith, Ph.D.
December 2009
 

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