Communicating The Risks and Benefits of Annuities | 7 Figure Annuity Sales Podcast | Ep. 287

It's so important when we're talking about annuities that we understand the risk and benefits and we convey that correctly to our, to our clients. And I don't care if it's someone that, you know, has $50,000 or they have $10 million. The. The ability to communicate the pros and cons of anything we're talking about needs to be foremost. Totally, absolutely.

Yeah. And you've got different. When you start looking at Indexed Annuities vs MyGas vs Variable Annuities vs Rylas. Like, my thought on this conversation is a little bit more in the vein of fixed indexed annuities and Mygas, talking about the risks and benefits of those, since that's primarily what we're dealing with is I think you look at variable annuities, you look at rilas, there's a whole different set of risks and potential benefits versus your indexed and your fixed side. It looks very different. I mean, the variable annuities or Rileys, you've obviously got the risk of actual loss in that. That's why they're securities. You're dealing with fixed, indexed, those types of products that are protected from volatility. That risk, yeah, that risk is eliminated, but there's other perceived risks involved.

Are we going to say you definitely got to know the Rylas and the variables? I mean, we go back into if you're not licensed, you do not make a recommendation, but you can do education. And I was just talking about this case I've been working on where I was going up against a Rylan. I thought I was going to lose that. I mean, I thought I was going to lose it to an indexed annuity. And I'm just sitting there in my mind, I'm going, how when you have a 20% buffer, when you have a year where the mark, the market lost 32%, and so that means you would lost 12%. But then you have a year where the market takes off and you can only get it what I think it was a 10% in a 10% cap. So that means if you lost 12%, even if you maxed out the next year of 10%, you're still not back to where you were. And I just could not fathom that. But I wasn't telling him what he should or shouldn't do. I'm just saying, hey, here's the facts. You have to make the decision. Here's what my product does. So you do have to know the risk and the benefits of that as well. The pros and the cons. You just can't make the recommendation. But I do agree in FIAs I have that question all the time. So what's the downsides to indexed annuities in mind? I immediately when they said none and like, well, what do you mean none? There's gotta be a downside. I said, no, if they're done right, if they're done the way they're designed, there is no downside to it because you can't say, well, you don't get all the gains. Well, you have money that you can put in variable accounts if you want. You can have something that has that risk side to it. Well, you get, you have your money tied up. Yeah. If this is designed for income for life, if it's designed to be a pension like product, then why does it matter how long it's tied up for? It's supposed to be income for life. Well, you don't have full accessibility money. That's why we leave money set aside for emergency funds and savings. So if to me, if an indexed annuity with an income rider or an indexed annuity is done right, there is no downside to it. And so you can honestly say that and adamantly right off the bat I always say none.

Right.

Well, there's got to be some catch. Well, there is. If we said, hey, we're going to put 100% of your money into an indexed annuity, which we know you can't ethically. But if you were sitting there saying that there's no downsides, there are no downsides if it's done right. You still need to let them know the risks and the benefits of it though.

Yeah. When I was mapping this out, I think that's probably why I categorized the, the quote unquote risks and the benefits as perceived risks and benefits. Because a lot of times until you've actually determined what the purpose of the money is, there are some things that a client would look at and think, oh man, that's, that's kind of, I don't like that, I don't maybe want that. You talk about potential liquidity issues which again structured the right way. The idea of having a 10% penalty free withdrawal instead of 100% liquidity is a. Not ish, is a non issue because you should have other money that's designed for emergency funds and savings anyways. Correct. But that's often a perceived risk is the liquidity. You look at potential fees. If you've got an income rider or something like that and you're looking at the fee. Okay, well, what is that thing Doing. What is that thing accomplishing? Is that. Is the guaranteed lifetime income that it's getting for you. Is that a necessary piece in your retirement portfolio? And if it is, then the fee is the cost of obtaining the necessary thing. So, again, it's. It's not necessarily a risk. It's maybe just a little bit of a bummer. But you're getting this other thing, and then you've got. Potentially.

I've never. I've never heard anybody explain an objection that way. The all bummer. The all bummer factor. It's like, okay, I'm gonna create something called the all bummer factor in. In honor of you. It's.

It's. And that's all it is. It's like. It's like, oh, would I love to be able to get this guaranteed lifetime income without a fee? Absolutely. Can I? Realistically, no. So it's a bummer, but it is what it is, and it creates something better.

Brought me coffee.

Oh, nice. Oh, how quick could she get to.

Texas, bring me one? Coffee is. Coffee's hot. But fortunately, I'm used to kissing her, so I'm used to touching hot things to my lips.

So, anyways, the next.

Hey, 30 years, man, I can still say that about my wife. Anybody on the podcast knows I will always say this. If you. If you have a successful career, but you have a not successful relationship with your wife, it's a failure. I mean, that's just it, because, you know, life is about relationships, and to me, if it's all about the money, I quit. You know, if it's all about the money, I quit. But, you know, I also say this, too, and I know this is completely off the subject, but if it wasn't for my wife in the. In the drive and the motivation and the encouragement that she's given me, I. There's no way. There's so many times I would have thrown. I. I would throw in the towel. I mean, I could. Honestly, I could probably be one of those people, the weird ones that live up in the mountains and just an RV and, you know, just. I really could. Because, I mean, it just. What are you gonna do today? I'm gonna go walk through the woods, man. Try and find me something kill to eat, you know, that's just. I could do that. But she drives me and helps me become a better person. I mean, she brings me coffee, man. Come on. How good is that?

Yeah, I'm glad for you, man. Coffee sounds okay.

Get back, man. That's so good.

Yeah. Thank you.

Okay.

Rubbing that In.

You know what?

But another one.

The fact that I have a wife, the fact that she's bringing me coffee. Which one?

Both Sounds great.

Thank you for that, too, by the way.

Caleb is free, you know.

1-8-1800 north. And he might.

That number goes. Not to me, I can assure you that.

We're gonna have a raffle for him. I'm gonna raffle off a date for you.

If you had people bidding on that, I would be honored.

That's true.

That's true. Never mind. That's that. We just talked about an impossibility. Okay. Oh, man.

Okay, so perceived risk number three. A lot of times, you know, people look at and they're like, oh, there's, you know, the odds of low returns, low gains. It's like, I'd rather get all the gains. Well, Chad, you made a point a second ago about, hey, we've got this other chunk of money that you can go into variable accounts and anything, you know, as well, my thought.

Money.

Sure. My thought is there is effectively nothing in which you actually get all the gains, period. And. And somebody come back and say, well, Caleb, I know I could go buy stock and get all the gains. It's like. Yes. And all those gains you get are immediately negated and reduced when the market falls.

Yep.

So the idea.

The concept of the only way to get all the gains is if you. Yeah, you would. That. The whole concept of you get all the gains is you would have to buy the stock from the very beginning and you would have to cash it out at the absolute high, and there's no way to ever know that. Yeah. So I've said that for years. You know, I want to get all the gains and. Okay, so then why are you in mutual funds? I mean, mutual funds all have limitations on how much gains you get, right? Well, I get all for that mutual fund. Yeah. Just like you get all the gains and 100 participation rate in an indexed annuity. So, I mean, it's all relative. That's a really good point. Man, I got to hit that harder.

Yeah.

Even if you're, you know, I really. I got to hit that hard.

And then you tack on top of that, if it's a managed account, you know, a brokerage. Brokerage account that's actually got broker fees involved. Okay.

Yeah.

There's still. I mean, that's just another layer of you not getting all of the gains because you're. You're paying for, quote unquote, all the gains. It's crazy to me that that kind.

Of thing market that way. Actually, I had someone tell me just recently. They're like, yeah, but I have full liquidity to it if I'm in the stock market. I said, do you really? I mean, you think about what happened 2007 to 2009. Shoot, even 2022, we had some massive drops that didn't recover the full year. And you say, well, you had full liquidity. No, you didn't. Why would it move to money market then? Why didn't you? You know, I mean, if you really knew how to time the market, you would be a billionaire.

Right?

You know, that's really what it comes down to. So when somebody sits there and says, I want all the gains, none the losses, I'm like, yeah, you know what? We all would like that. We'd always be billionaires. But the reality is you have to have, for example, if you want a super fast car, like you want to do the fastest, you know, quarter mile out there, you are not going to have a big vehicle. Sure. Unless you have that farm truck, you know, then, you know, but this, the point of that, though, is still you have a lighter vehicle, generally you. You correlate a heavier vehicle with safety. And a heavier vehicle. Vehicle is going to be slower, but, man, it's going to get there. And so when you look at the annuities, those are your armored vehicle. They're protected. You may not get there as fast, but you also are not going to swerve out and crash and kill everybody around you, you know, in that vehicle. So I. That's. I need to see. This is why these podcasts are so good. You know, I've been doing this for 20 years, but I forget some of the things I used to cover and hit really hard, and that's one of them. I need to hit a little more.

I would be curious, too. It inspires me to do a little research on percentage of people that liquidate portfolios when the market's dropped or dropping versus it's at its high. Right. Because this idea.

So here's a crazy thing though. You're too young for this because you were just barely out of elementary school, but 2007 to 2009, actually, I'm not too far off there. 2007 to 2009, a lot of people got talked from 2007 to 2008. They're like, okay, we've hit the bottom. And they got talked to going back into the market, and then 2008 to 2009 hit, and that's when they got hammered.

Right.

So that would be an interesting thing to dig into. There's no way to really figure that out though. I don't think there would be a way you could research.

I'm sure there's with the, in the digital, in the digital realm of things like when you've got everything, every transaction audited. I mean there's so many things that are going on behind the scenes to, to like track. Yeah, I bet you, I bet you there's some numbers out there that would indicate, you know, 75 of, of position liquidations, you know, take place when the market's fallen x percent or more. So then you're able to have a conversation, yeah, then you're able to have a conversation with your client about, hey, you say you have liquidity and, and you do, but what's the surrender penalty if the market falls? Because you ought to bear in mind X percentage of position liquidations take place after the market has fallen X percentage. So there is a quote unquote surrender penalty involved for X percent of people that liquidate their positions in, in those scenarios.

Yeah.

Anyways, that's a, I'm gonna, you know.

What'S interesting, talk about surrender charges. I found kind of interesting is now that I'm in Colorado, guess what, it's not a 1010 state, you know, so I have to look at the surrender schedules a little heavier going because some of the surrender schedules are higher than 10%. And I'm like, ah, but if you think about it, most market drops are way more than 10%.

Right.

I mean bear market is 20%. I mean you, you did that, that analysis showing how many bear markets I think it was every 4.3 years is a bear market.

Yep.

So I mean, it's just people have such short term memory, man, when you think about it, you know, they, we've had 2009 to 2020, with the exception of 2018 was a real significant long run. But you also had 9.7 trillion, trillion in printed money. So therefore when you look at it, you're going, that's what caused the market to go up. I don't care what anybody says, I don't care what any analysis and all that. That is what caused the market to go.

Right?

Which when you look at that amount of money that was printed, so many companies were sitting on cash making, even if they're only making 2% poor. You, you made 2% off of $6 billion sitting in cash. You know, I mean, I would love to be in that situation. So you know, when you have that, well, then you had the COVID drop and that drop, that was 32% drop. And then what you had, you had Trump print a trillion and Biden print 3.7 trillion. It costed shoot back up. You know what's interesting now though is when you look at, you know, the risk and the, the benefits and all that of annuities right now, at least we know with an annuity, even if you had the surrender charge, you know what that's going to be. But you have no idea what the market's going to do. I mean anybody with half of a brain right now knows that the market should not be going up right now. Everybody knows that. So when you're talking about risk and benefits, I'll take safety and security all day long over risk and benefit or the risk of any sort of variable account.

Yeah. Not to mention MVA is a real thing that's on these products that can go to benefit the client based on, based on subsequent years of rates. Okay.

And if it position hit hard now though.

Well, yeah, but I've seen positions where a client had a, call it a 6, 7% surrender penalty in the year that they were trying to surrender their policy, but because of nva, they got out with no surrender penalty. And then, and then you've got the flip side too where they've got a 5% surrender penalty, but because of NVA, it's going to charge them 10 if they want to, want to get out of it. You know, so it goes both directions. But you got to consider that as a real piece. And you, when you look at the liquidity, the fees and then the perceived reduced gains, those three things tend to be kind of the perceived risks in these products and then the benefits, downside, protection, upside potential and then guaranteed income. To me it comes back to something that Chad and I hit like a, like a drum. I feel like all the time we're talking about the purpose of the money is, at the end of the day, the, the purpose of the money is what covers the perceived risks and enhances the perceived benefits. So if you don't know what the purpose of the money is, your ability to make a case for the benefits in contrast to the perceived risks is non existent because you don't know what the heck it's supposed to do.

100%.

So get to the purpose of the.

Money and let go.

What?

Yeah, purpose of money is everything. You know, why risk something that you want guarantees on? That's what it comes down to. Yeah.

And then ask them those questions. Well, ask them. Are you willing to lose all your money, some of your money or none of your money.

Boy, you've heard that a few thousand times.

Yes. Ask them how long you're gonna. They're gonna live. What's the stock market gonna do tomorrow, let alone five or ten years from now?

They don't know what type of.

I'm getting fired up, literally. You're a parrot. You're a parrot, man. That's what you are. You're just repeating what I talk. Do you have any longevity insurance?

Yeah.

Well, what's longevity insurance? Do you have anything in insurance you'll never run out of your income? Well, no. Well, that's longevity insurance.

Yeah, and it's the number one concern of retirees is outliving their money.

Oh. Hands down. Hands down. Well, I think we beat this one to death, so I hope so. As always, Happy selling.

Sam.