Investments Held by Exchange Traded Funds
Course: Insurance Planning
Lesson 19: Immediate Annuities – A Tax-Advantaged Income Planning Tool
Student Question:
Hi-
The text on this page says the annuities don’t hold mutual funds or ETFs. What are they holding to provide an S&P “type return?” The text goes on to discuss components that sound a lot like ETFs (mid value, large global…).
Thanks!
Jody
Instructor Response:
Hi Jody,
The insurance company does not generally invest in equities but may invest in sub-investment grade (high-yield) fixed income securities. The interest rate paid in a fixed indexed annuity is not equal to the S & P return but is rather “linked” to the return. For example, the annuity owner may receive interest credits of 50% of the S&P 500 gain, subject to rate caps and other fees. Annuities invested in fixed income products are not considered “securities” by the SEC and a FINRA license is not required. While there’s no legal prohibition that would stop an insurance company from investing in equity ETFs, doing so would cause the annuity to become a “security” and therefore subject to FINRA licensing.
Onward and Upward,
Bruce
