Series 65: Suitability

Suitability

When recommending a fixed annuity versus a variable annuity to a client, the representative needs to evaluate the amount of risk the client is willing to take. A fixed annuity investor values dependable payments for life over a high rate of return. A variable annuity is for those who are willing to endure greater risk for the possibility of higher earnings.

Because annuities often have long surrender periods, they should never be sold to older clients who may need to withdraw their money before the surrender period is over. Annuities may be appropriate for clients who want to be assured of a death benefit. In addition, they allow earnings to grow tax-free, so annuities can be good retirement vehicles. That said, IRAs and 401(k)s often offer tax deductions that most annuities do not, so a representative should make sure that a client has reached the maximum amount that can be put into an IRA or 401(k) before investing in an annuity. Because both IRAs and annuities provide similar tax benefits, an annuity should never be put inside an IRA.

If a client needs money in the near future, she should consider only an immediate annuity, never a deferred annuity.

Since you're reading about Series 65: Suitability, you might also be interested in: