Managing fixed index annuities in Kwanti
16 November 2021

Are you one of the nearly 70% of RIA firms considering adding annuities to your clients’ portfolios in the near future?

That high of a number might come as a shock if not. One of the largest RIAs in the country, Fisher Investments, built an entire career out of the phrase “I hate annuities.”

But as advisors pay more attention to managing risk and looking outside the traditional stock and bond portfolio, annuities are increasingly gaining attention, even if only 25% of advisors currently invest in them for clients.

At Kwanti, we’re adding support for a specific type of annuity—fixed index annuities—and in this blog you’ll learn how to make the best use of this new functionality to support your firm if annuities are on your radar.

Why are advisors turning to fixed index annuities?

Although gains can be limited when investing in an annuity, the downside protection they offer and (in some cases) the known income they’ll generate make them an attractive option for retired investors.

And with the advent of fee-only annuities offered by companies like Jackson National, the stigma of annuities being associated with high commissions and antithetical to fiduciary responsibility isn’t a concern any more. 

In the case of fixed index annuities, returns are based on an underlying index—like the S&P 500—which make it easy for advisors to communicate its purpose and expectations to clients.

How to Manage Fixed Index Annuities in Kwanti

Fixed index annuities can be managed just like any other asset holdings that you maintain in the system, making it an ideal way to track an investment that’s often difficult to track.

Given the flexible and varied nature of these types of investments, fixed index annuities are considered manual assets in Kwanti that are updated by an advisor rather than via a custodial data feed. 

So, what will you be responsible for maintaining? Take a look and then let’s break down each field you’ll use. 

Description: Let’s start things off with the easy part. You can name these custom assets however you want to be sure it’s descriptive and intuitive when your clients see it on a report.

Model: This field allows you to select the type of custom asset you want to track. In this case, you’ll simply set it to Indexed Annuity.

Cap Rate and Participation Rate: Both of these fields are fully editable by an advisor and do much of the heavy lifting in our optimization modeling of a portfolio.  Cap Rate is the upper limit on the annuity’s return, while Participation Rate tracks the total index gain the annuity policy can allocate.

Index: Here you’ll select the index you want to benchmark against. Currently you can select the S&P 500, with more indexes to be added soon.

Method: You have two choices: Point to point monthly or annual. This setting calculates the upside and resets on either a monthly or annual interval to provide you a payout expectation.

Getting Started

Because fixed index annuities are considered custom assets in Kwanti, they operate as a proxy to the real asset that your client may hold. 

We also will use global assumptions for anniversary dates (January 1) and payout dates (December 31) when providing calculations for each. 

This feature is one of our most requested from Kwanti advisors, and we’re thrilled to be able to bring it to you. The functionality is available at no extra cost.

Soon, you’ll be able to accurately reflect how a fixed index annuity can affect a client portfolio’s risk, upside potential, and overall performance over time (including backtesting). 

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