Outcome-based ETFs and registered index-linked annuities with outcome-based elements have gained traction among financial professionals. These products seek to offer targeted growth potential and some measure of downside protection.
Advanced Outcomes Annuity (AOA) offers structured outcome funds in a variable annuity chassis. The chassis uses nine distinct strategies that seek upside potential while pursuing a level of downside protection. The strategies are used in individually available funds, which have new versions monthly and terms of six months to six years. The combination of these features offers unmatched flexibility in constructing a portfolio of defined outcome funds, in which multiple investing strategies in funds can be used to create a customized profile of potential upside market participation and downside protection targets. The chassis also contains a money market fund.1
Buffer — The defined maximum percentage of market losses the fund seeks protection from in a given term. For example, a 10% buffer may offer protection against the first 10% of losses in the S&P 500 index (price return, excludes dividends). If the S&P 500 price return index is down 5% at the end of the outcome period, the buffer would provide a measure of downside protection and the fund would experience no losses, before fees and expenses. If the index is down 15%, the fund may be down 5%, before fees and expenses.
Floor — The defined maximum percentage of market losses your client may experience over a given term. For example, if the underlying index is down 25% at the end of the outcome period, if the floor is 10%, the fund may dip by 15%, before fees and expenses.
Downside Participation Rate (Par Down) — The defined percentage of market losses you may participate in for a given term. For example, if the underlying index is down 20%, a 50% downside participation means the fund may be down 10% at the end of the investment term, before fees and expenses.
Stacker Cap — The defined performance cap for the return of the S&P 500 index (price return, excludes dividends), plus potential gains of either the Nasdaq-100, Russell 2000, or MSCI EAFE (price return, excludes dividends), up to the cap. For example, if the cap is 15%, it will be split between the two indexes: The S&P 500 and the second index will each have a cap of 7.5%. If the S&P 500 goes up by 10% and the other index by 2%, the fund may see a gain of 9.5%, before fees and expenses.
Spread —The initial defined percentage that is deducted from the index’s performance and used to calculate the fund’s return for the term. For example, if the spread is 1.5%, the underlying index must appreciate 1.5% before the fund sees any gains, over the outcome period. If the S&P 500 ends the outcome period up 12%, the fund would be up 10.5% (12% - 1.5%).
Upside Participation Rate (Par Up) — The defined percentage of market gains the fund participates in for a given term. For example, if the underlying index goes up by 10%, a fund with an upside participation rate of 80% may realize an 8% gain if held until the end of the outcome period.
AOA offers several industry-first combinations of upside potential and targeted levels of downside protection through outcome-based fund options overseen by Milliman FRM, a global leader in financial risk management. Contact your wholesaler to learn more about Advanced Outcomes Annuity and how it can help your client.
Advanced Outcomes Annuity offers structured outcome strategies with underlying funds that have characteristics unlike many other traditional investment products and may not be suitable for all investors. There is no guarantee that the outcomes for a specific fund term will be realized. For more information regarding whether an investment in these funds is right for you, please see the product and fund prospectuses.
1 Equity exposure is subject to a buffer, floor or participation rate in down markets and a spread, cap or participation rate in up markets.
2 Advanced Outcomes Annuity has a 6-year declining withdrawal charge. Please see product summary for complete withdrawal charge information.
3 Investment strategies terms pertain only to the fund term itself and not the annuity.
4 The funds available in the Advanced Outcomes Annuity are subject to market risk, including loss of principal.
5 Transfers into new portfolio offerings take place on the 10th of each month. Existing funds and Money Market portfolio available at any time, subject to market hours and transaction cutoff times–see prospectus for details.
Milliman Financial Risk Management (Milliman FRM) is a global leader in investment advisory and risk management services to the retirement savings industry. Established in 1998, the practice includes more than 200 professionals operating from four trading platforms around the world (Chicago, London, Sydney, and Amsterdam). Milliman FRM is a subsidiary of Milliman, Inc. AIG and its member companies are not affiliated with Milliman Financial Risk Management or Milliman, Inc.
Clients cannot invest in an index directly.
S&P 500® Index: Tracks the performance of 500 large U.S. companies. It is one of the most commonly followed equity indexes. The S&P 500® Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by American General Life Insurance Company (“AGL”) and affiliates. Standard & Poor’s,® S&P,® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by AGL and affiliates. AGL and affiliates’ products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of purchasing such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500® Index.
Russell 2000® Index: The structured variable annuity product to which this disclosure applies (the “Product”) has been developed solely by American General Life Insurance Company (“AGL”). The Product is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the Russell 2000® Index (the “Index”) vest in the relevant LSE Group company which owns the Index. Russell,® Russell 2000,® FTSE® Russell,® and FTSE Russell® are trade mark(s) of the relevant LSE Group companies and are used by any other LSE Group company under license. TMX® is a trademark of TSX, Inc. and used by the LSE Group under license. The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) the purchase of or operation of the Product. The LSE Group makes no claim, prediction, warranty or representation either as to the results to be obtained from the Product or the suitability of the Index for the purpose to which it is being put by AGL.
Nasdaq®: The Nasdaq,® Nasdaq-100,® Nasdaq-100 Index,® and QQQ,® are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use for certain purposes by American General Insurance Corporation and its wholly-owned subsidiaries and affiliates (collectively, “AIG”). The (“Product”) has not been passed on by the Corporations as to their legality or suitability. The Product is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).
MSCI EAFE: International stock market index that tracks performance in developed markets excluding the U.S. and Canada. The product referred to herein is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such product or any index on which such product is based. The contract contains a more detailed description of the limited relationship MSCI has with Licensee and any related product.
Structured Outcome Funds Risk: Underlying Funds may employ Strategies which seek to provide a ‘structured outcome’ investment experience. The upside capture parameters could limit the upside participation of these Underlying Funds. Conversely, downside protection parameters provide limited protection in the event of decreasing referenced index performance. There is no guarantee that these Underlying Funds will completely protect against referenced index price decreases. The parameters of the Underlying Funds are designed to attempt to achieve their objectives over the entirety of the Underlying Fund’s outcome period. If you invest in these Underlying Funds after its specified outcome period has already started, you risk your investment not experiencing the full effect of the parameters. The specified outcomes of these Underlying Funds may not be realized, and a degree of under or over performance is likely. For more information, please see the Underlying Funds’ prospectuses.
Investment strategies terms pertain only to the fund term itself and not the annuity. Advanced Outcomes Annuity is a 6-year product with a 6-year declining withdrawal charge schedule. Please see product summary or prospectus for complete withdrawal charge information.
The funds available in the Advanced Outcomes Annuity are subject to market risk, including loss of principal. Downside market protection options provide limited protection from market losses over the course of the fund term. The level of risk your client will experience and their potential investment performance will differ depending on the investments you choose.
Investors who make purchases in a fund after the beginning of the fund’s term or sell units before the end of the fund’s term will experience different outcomes than the stated parameters (growth potential and downside protection options) on the term start date. The specified outcomes of the fund may not be realized, and the investor risks losing some or all of their investment in the fund.
Additional risks associated with variable annuities
Variable annuities are long-term investments designed for retirement. Early withdrawals may be subject to withdrawal charges. Partial withdrawals may reduce benefits available under the contract, as well as the amount available upon a full surrender. Withdrawals of taxable amounts are subject to ordinary income tax and if taken prior to age 59½, an additional 10% federal tax may apply.
Variable Portfolio Risk: Amounts invested in the Variable Portfolios are subject to the risk of poor investment performance. You can gain or lose money if you invest in these Variable Portfolios. Each Variable Portfolio’s performance depends on the performance of its Underlying Fund. Each Underlying Fund has its own investment risks, and you are exposed to the Underlying Fund’s investment risks when you invest in a Variable Portfolio. For more information, please see the Underlying Funds’ prospectuses.
Variable annuities are subject to costs that include a separate account fee, expenses related to the operation of the variable portfolios and the costs associated with any optional features elected. Early withdrawals may be subject to withdrawal charges. Partial withdrawals may reduce benefits available under the contract, as well as the amount available upon a full surrender. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal tax may apply.
Investing involves risks. Loss of principal is possible. The Funds face numerous market risks, including: fixed income risk, active markets risk, participation rate change risk, capped upside return risk, correlation risk, liquidity risk, management risk, market risk, non-diversification risk, operation risk, options risk, options risk, trading issues risk, upside participation risk and valuation risk. For a detailed list of each Fund’s risks, see the Milliman Variable Insurance Trust Prospectus.
There is no guarantee the Funds utilizing each Strategy will achieve their investment objectives or a specific outcome. The Funds have characteristics unlike other traditional investment products and may not be suitable for all investors. Please see “investor suitability” in the prospectus. An investment may involve possible loss of principal. The contract, when redeemed, may be worth more or less than the total amount invested. Products and features may vary by state and may not be available in all states or firms.
Investors who make purchases in a portfolio after the beginning of the portfolio’s specified term or sell units before the end of a portfolio’s specified term will experience different outcomes than the portfolio seeks to provide.
All contract and optional benefit guarantees are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer from which this annuity is purchased.
This material is general in nature, was developed for educational use only, and is not intended to provide financial, legal, fiduciary, accounting or tax advice, nor is it intended to make any recommendations. Applicable laws and regulations are complex and subject to change. Please consult with your financial professional regarding your situation. For legal, accounting or tax advice consult the appropriate professional.
Advanced Outcomes Annuity is sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges, expenses and other information regarding the contract and underlying funds, which should be considered carefully before investing. A prospectus may be obtained by calling 1-877-445-1262. Investors should read the prospectus carefully before investing.
Advanced Outcomes Annuity is issued by American General Life Insurance Company (AGL), Houston, TX, in all states except New York. AGL does not solicit, issue or deliver policies or contracts in the state of New York. Distributed by AIG Capital Services, Inc. (ACS), member FINRA. AGL and ACS are members of American International Group, Inc. (AIG).