Fixed indexed annuities are often pegged as a safer way to invest in the market. As such, many financial advisers spurn the product due to its perceived inefficiencies in growing wealth when compared to straightforward investment strategies.
This is based on a huge misconception of the FIA product, which many people incorrectly view as nothing more than a tax-advantaged wrapper that allows insurance companies to take a cut off the top when they’re actually just buying into the S&P or another underlying index security.
This is one of the biggest misconceptions that advisers have about the returns generated by the FIA. Most believe that the insurance company is keeping the difference between what the index generates and the cap. However, this isn’t how the product works. In reality, FIAs result in interest growth being credited to the account based on market returns without actually buying underlying securities in the account.
