If the efficient frontier was a map of the USA, today's RILAs may be a good vehicle for moving that frontier closer to rainy Seattle and further from sunny Miami.
When structured or buffered annuities - now known as registered index linked annuities, first hit the scene over a decade ago with AXA Structured Capital Strategies, they were positioned as a "tweener" product. Less upside than equities, more than fixed income. As such, they fit nicely on a risk/reward spectrum, but didn't necessarily make any wholesale improvements to risk-adjusted returns.
Innovation in the space has been rampant over the last few years, thanks to a stubbornly low interest rate environment and insurance companies wanting to pivot away from more interest sensitive products like fixed and fixed indexed annuities.
Consumers are the winners here in a big way. Now, one can invest in a range of RILA products, particularly those with longer point to point crediting periods (say six years or so), and seemingly give up little to nothing on the upside to comparable traditional alternatives like ETFs, but with downside protection those ETFs can't offer.
With many products offering high capped rates and uncapped participation rates over 100% in many cases (some with a fee), but attractive downside protection of up to 20% in a six-year period, it would appear that risk adjusted returns can be improved with these products.
For more perspective on this topic, please see my RAF Relative Value indices on my website and specifically the RAF RILA/ETF Relative Value Index.
