FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationRegulatory Fundamentals and General Product KnowledgeMedium
A client is considering purchasing a variable annuity and is primarily concerned with the potential for investment growth while also receiving a guaranteed minimum income stream in retirement. Which feature of a variable annuity would best address both of these client concerns?
- AThe surrender charge schedule, which dictates fees for early withdrawals.
- BThe ability to choose various subaccounts, allowing for market participation and growth.
- CA guaranteed minimum withdrawal benefit (GMWB) rider, offering income floor and investment upside.
- DThe death benefit, which ensures beneficiaries receive a payout upon the annuitant's death.
Show answer & explanationAnswer & explanation
Correct answer: C. A guaranteed minimum withdrawal benefit (GMWB) rider, offering income floor and investment upside.
A Guaranteed Minimum Withdrawal Benefit (GMWB) rider allows annuity holders to receive a guaranteed income stream for life, regardless of market performance, while still participating in market upside if subaccounts perform well. This directly addresses both concerns.
Why the other options are wrong
- A. Surrender charges relate to liquidity and fees, not investment growth or income guarantees.
- B. Subaccounts provide investment growth potential but do not guarantee a minimum income stream.
- D. The death benefit addresses legacy planning, not investment growth or guaranteed income for the annuitant.
Guaranteed Minimum Withdrawal Benefit (GMWB)
A GMWB is a rider on a variable annuity that guarantees the annuitant can withdraw a certain percentage of their initial investment (or a stepped-up value) each year for life, even if the account value drops to zero, while still allowing for market participation.
- Guarantees a minimum income stream for life.
- Allows participation in market upside.
- Often comes with an additional fee.
- Protects against market downturns during retirement.
Memory trick: Riders are like 'add-ons' to your annuity, giving you 'extra' protection or benefits.