Bringing MYGAs into your practice

The combination of guaranteed principal protection, attractive risk-adjusted returns, and tax efficiency make multi-year guaranteed annuities (MYGAs) a compelling addition to advisory portfolios and for investors seeking fixed-income alternatives.^{††^^}

Although many independent RIAs are unfamiliar with MYGAs, these products merit consideration for modern RIAs, both to solve individual client challenges and for potential model portfolio allocations. While MYGAs may be a fit for many clients, through our research and conversations with advisors, we've identified four client profiles that may be a particularly good fit for MYGAs. If you are thinking about adding MYGAs to your practice, it may be helpful to think through your book to identify clients who fit one or more of these profiles.

If you'd like to talk through whether MYGAs may be a fit for any individual client, simply email annuities@flourish.com — we'd be happy to discuss.

1. Clients in or approaching retirement

The ability to lock in attractive rates for periods of 2-7 years with guaranteed principal protection can help mitigate sequence of return risk for clients in the critical years straddling retirement — as well as offer a powerful behavioral benefit at a time when clients may be most nervous about their financial plan. Additionally, MYGAs provide tax deferral, so clients who are on the verge of retirement may be able to defer taxes until they are in a lower tax bracket. At the same time, like many tax-deferred instruments, withdrawals from MYGAs face tax penalties before age 59 1⁄2, and so are commonly purchased by investors age 50+.^‡‡

The combination of guaranteed principal protection, tax deferral, and attractive, fixed rates makes for an especially powerful combination for clients in or approaching retirement. When considering how to introduce MYGAs into your practice, thinking through clients who are 5-10 years pre-retirement may be the perfect place to start.

2. Clients with annuities that are not be meeting their current financial needs

Many clients in or near retirement have annuity contracts that no longer align to their current portfolio strategy. Existing annuities purchased from commissioned sales reps may have higher fees and may earn lower rates than is available today. Rather than surrendering an annuity, which may result in early withdrawal charges or tax penalties, you can consider helping your clients replace the existing contract with a MYGA that offers the latest terms and rates. This is also known as a 1035 exchange, which allows individuals to replace an annuity without triggering a taxable event on the gains from the original contract. 

The competitive rates and guaranteed returns offered by MYGAs can give your clients peace of mind that their portfolio is protected during market downturns. 

3. Individuals who have strong, negative emotional reactions to portfolio drawdowns

Virtually every advisor has experience with clients who are prone to panic at the smallest drop in their portfolios — particularly when that drop happens in the fixed-income side of the portfolio, where investments are primarily held for stability. Unless funds are withdrawn early, MYGAs will never decrease in value in response to interest rate or market movements, which can offer clients peace of mind.

If you work with clients who have strong, negative emotional reactions to portfolio drawdowns, consider whether replacing a portion of their fixed-income portfolio with MYGAs may provide that client with tremendous peace of mind, as they'll know that whatever happens in the market, at least one portion of their fixed income portfolio will always be stable. This peace of mind may in turn help clients stay the course across the rest of their investments — and may just cut down the number of worried phone calls you will field from that client over the next 2-7 years.

4. Clients looking for greater tax optimization

MYGAs act as a tax-deferred vehicle in non-qualified space, opening up additional opportunities for tax planning and potential optimization. This may be an especially powerful fit for clients approaching retirement, as detailed above, but may also be a fit for any client in a high tax bracket, and especially for high income clients who exhaust their available tax deferred space each and are looking to effectively create additional tax deferred space for their fixed income positions.^{^^} 

Read how Curt Stowers, President of F5 Financial Planning, is using MYGAs from Flourish Annuities^* to help solve client challenges.