Financial advisors and financial planners have sought various programs to provide clients protection from systematic risk, also known as market risk. Various asset allocation strategies have been used with limited success when extreme market movements and “black swans” occur (Taleb, 2007). It has been known for close to 50 years that equity market returns do not conform to a Gaussian, or Normal (bell-shaped) probability distribution (Mandelbrot, 1963; Fama, 1963).i Rather, probability distributions of market returns are typically skewed positively or negatively and leptokurtic (fat-tailed – i.e., higher chances of extreme positive or negative returns than suggested by a bell-shaped distribution). When these leptokurtic events occur on the positive side of the distribution, clients are delighted, but the opposite is true when these events occur on the negative end of the two-tailed distribution.

As financial professionals, we are tasked with assisting our more risk-averse clients to protect themselves from black swans and many of us have a fiduciary responsibility. One of the significant developments for principal or asset preservation vehicles has been the fixed index annuity (VanderPal, 2004). During the past few years various articles have been written regarding the value in FIA’s and some people relying upon these studies have drawn misleading inferences from them.