How can financial professionals help diversify a client’s portfolio with a RILA?

Will inflation, the employment outlook and an uncertain political climate create even more market volatility in the coming months and years?There’s no way to know, but uncertain times are often cause for concern among investors. Diversification has long been a strategy leveraged by financial professionals to help mitigate market extremes, and a Registered Index-Linked Annuity (RILA) may provide benefits your risk-averse clients are looking for.   

Why consider RILAs?

Before we get into potential strategies, let’s cover a few reasons a financial professional might recommend RILAs to help diversify a portfolio.

Measure of downside protection with growth potential. RILAs help provide a level of protection against market downturns while still allowing clients to participate in the market’s upside potential. 

Tax-deferred growth. Participants won’t pay taxes on their earnings until they begin taking withdrawals.

Potential wealth transfer benefits. RILAs can be structured to include death benefits, allowing participants to enhance their estate planning and legacy goals in a tax-efficient manner.

Alignment with risk tolerances. Because RILAs allow for a degree of flexibility and customization, investments can be tailored to align with a client’s risk tolerance and financial goals, providing a potential buffer against turbulent markets.

Tips for including RILAs in a portfolio

While RILAs can be beneficial for some investors, they’re not for everyone. It can be helpful to assess the following factors to determine whether to incorporate RILAs into a client’s portfolio.

Conduct a client risk assessment

Over time, a client’s risk tolerance may shift, especially as retirement draws closer. RILAs may be suitable for those in or nearing retirement who still want market exposure but fear a downturn, especially since they typically have less time to recover losses. Certain RILA products allow clients to decide how much risk they’re willing to take on, ensuring they can’t lose more than the limit they set. Help your client explore their risk tolerance to help ensure a RILA fits within their goals and income needs. 

Consider tax implications

Help your client understand the potential tax implications for when they plan to begin withdrawals. Since RILAs are tax-deferred, you’ll want to help clients evaluate their total potential future income to mitigate the risk of being bumped into a higher tax bracket and paying more to the IRS than anticipated. 

Evaluate the existing portfolio

Knowing what portion of a portfolio should be converted to a RILA requires a close examination of existing assets and fixed-income investments. Potential Social Security benefits and other income sources should also be factored into the mix. RILAs may be more suitable for replacing riskier parts of a portfolio rather than core holdings. Also, consider how much liquidity your client may need as RILAs may have potential surrender charges and often limit access to funds for a period of time.

Strategize implementation

There are many new annuity products on the market, making it difficult to parse through the field of choices and know which is most suitable for your clients. Consider a product’s features including index options, protection levels and cap rates. Selecting products that are easy to understand for both you and your client is a critical aspect as well. Work with a reputable wholesaler who is financially sound and has experienced individuals who can work with you to provide educational materials and guide you through the selection process.

View RILA option from TruStage™

Assess as time goes on

Circumstances may change. As part of your annual client review, be sure to explore whether their risk tolerance has evolved and any new developments that may impact their diversification strategy. Some RILAs are structured to allow clients the flexibility to adjust their comfort zone on an annual basis, meaning they can increase growth potential or further mitigate the risk of loss. From a financial professional’s perspective, you’ll also want to stay informed about potential regulatory changes affecting RILAs that may impact your client’s portfolio down the road.

While RILAs may offer unique advantages, it's crucial to consider them within the context of each client's overall financial picture. As noted, RILAs aren’t for everyone and each product is designed with different features that may be suitable for one client but not another. 

Our team can help. Explore the potential benefits of TruStage ZoneChoice and Zone Income annuities, underwritten by MEMBERS Life Insurance Company, and get valuable resources to help strengthen your client relationships. Contact the TruStage Annuities sales desk at 1.877.345.GROW (4769), option 1, or find your team to get started today.

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