How Clients are Affected by the Market | 7 Figure Annuity Sales Podcast | Ep. 187

Today we're going to talk about index allocations and mygas.

Hey everyone. Welcome back to this week's episode. I am Chad Owen, the annuity sales coach. And here is Boy Wonder to my side. Back to Boy Wonder. Because I can't figure out something else. Man, you guys have been following us for quite a while. He's been boy Wonder for a while. Then he was the creepy mustache guy with a white van and no windows and then now he's back to Boy Wonder.

I had an agent try to name me the go to guy.

No, that's definitely not the case because if his go to the guy, I'd have grandkids by now.

Yeah, okay.

I mean, that's reality. I've been trying to go to you for grandkids for a while and it's still not working.

You can keep waiting.

Oh, that's. How are we, how am I supposed to do this and be depressed at the same time?

Well, we're going to talk about index allocations and my guess today, Yay over grandkids.

Can you imagine the pressure? You know, he works with me every single day and every single day I'm like, when am I going to hear about grandkids? It's just unbearable.

It's, you know, the pressure is virtually non existent.

You made Leilani cry the other night. She doesn't have grandkids.

Oh my gosh. Whatever.

Actually, it is true. She did get teary eyed, but anyway. That's funny. Well, we gotta stop watching those dumb Hallmark channels where the grandparents have grandkids and. Yeah. Anyway. Okay.

You're looking forward to relating with clients.

I guess I am.

Yeah.

You know, honestly, that's something that is really neat about my business. And what I get to do is because you do have clients that kind of think the same way I think in a way where they're going. Yeah. I want to make sure I have money for my kids, my grandkids. And it's almost always the grandkids over the kids. I don't want it for my kids kids. But my grandkids on the other hand, and that's. You know, I just got off the phone with a client and actually not a client, someone that was a potential lead and they're 64 and 65 years old. They have $20,000 in their IRA and.

No savings and no 401k, nothing.

That's it. $20. Totally. $20,000 totally to their name. And you could tell just by the conversation that we had. That's very defeating.

Yeah.

Because there's there's no way you can come out of that. I mean, we can talk about indexes and mygas, but if they have no money, there's nothing there to do.

You can't do anything.

And, you know, a lot of agents would say, wow, I can take ten grand of that and put it into annuity. And then 10 grand for, you know, emergency funds. I'm like, no, that's. If you're 64 and 65 and you only have 20 grand to your name, there's gonna be cars that are gonna break Dane down. There's gonna be refrigerators that are gonna break. I mean, whatever. You're gonna need that money accessible. No kidding.

Wow. Well, and that's. And that's only if there's a company that would deem, you know, determine their suitability percentage. But I've talked with some carrier suitability, that they determine it off of how many months of living expenses.

Yeah, they could. But the reality is most. I mean, there's a few out there that have real stringent suitability, and then there's some that they just take the agent's word for it.

They kind of understand a little.

Yeah. And so, you know, when I'm. I've gotten some crazy cases approved through suitability that, you know, most people wouldn't, but I looked at their income, I looked at. I had a complete fact finder. I was able to send them everything. And, you know, they look at it too, and they go, wow, this guy really did his due diligence on this one. You said you would think we were talking about. Yeah, suitability, but we're not. We're not. Yeah. Okay, so go ahead.

Well, I mean, index allocations in my gas. So the market's down, which directly. Yeah, way down. Which directly means that most indexes are down. There are still, I think, a few volatility control indexes that may still be positive for the year, but by very fractional amounts.

Sure.

But rates are up. And so this is an interesting thing because it's enticing when you see increased PAR rates to start thinking, oh, man, these index allocations. Because on paper, they still look really good, but we know that the current market conditions are not very good. And there's kind of two schools of thought here, Chad. I want you to address both. And one school of thought says, okay, market's already down a fair amount. My clients that I get right now, I want to put them into an index allocation. And hopefully they. They kind of recapture some of the rebound. If the rebound happens over the Next year or two years. We don't know what to spell. The other side of the coin is, well, the market is down. We don't know how long this is going to last. So I'm going to use the fixed account, I'm going to use the fixed rate of return. So you kind of have the two schools of thought, two sides.

What are your thoughts on those two lately? Now I'm very clear with communication with my clients. I say he, we are going to do the fixed account. Like I have a fixed account right now in an indexed annuity that pays 2.65%. Yeah. And I'm like, that's, that's a phenomenal one year return. I didn't tell them, be sure, month 11, you give me a call when you get your index allocation statement and we can revisit that again. If in a year we think the market's still going down again, well then guess what, we're going to stay in the one year point to point on that for the fixed rate. And so, you know, the reality is, what do you think the market's going to do? Now back to our original thing we always talk about is nobody can time the market right. Nobody can. So that's why if there's even a remote hint of an income need, I always provide an income rider on that. And I go back into, and I know this is a little bit off topic, but I just talked to a client today. She's worried about her husband passing away first and then she doesn't have enough income because $5,000 of their income goes away, which is half of it. And I go, oh, but REM and his annuity, we attached an income rider to that. And here's the value now, which is five years later, of what that income account value. And she's like, you know what? That gives me a big peace of mind. I don't have to worry about it. It's like, no, you don't have to, you know, you're taking care of in that scenario. So you know, when you're looking at index allocations, that really is obviously important for some of those annuities that have some really good growth in combination of the income rider. But here's, I'm going to get pretty direct. You know, a lot of times people, you know, agents only want to do the 7 year or the 10 year indexed annuity and they don't want to do the income rider. And a lot of times it's because they know if they do the seven year or the 10 year they've got guaranteed repeat business in seven or 10 years potentially. If I do an income rider, I've pretty much sealed the chances of them ever moving that money ever again. Because to this day I've never moved an existing client in almost 18 years, never moved one that's had an income rider on a product that I wrote. Right. And it's because I know I picked the best thing and the income values are going to far surpass any sort of index growth. So that provides a really good income amount. Now if we're talking straight indexed annuity, because last year probably, I don't know, 15 to 20% of my annuities were written with straight indexed annuities. And it's because I ended up running into some pretty well to do clients last year that didn't need income.

Right.

But that's so rare and I don't know where people are getting their leads or anything because the reality is most my clients, when you do, when you do a complete fact finder looking, worst case scenario, yes. If the one of the two spouses pass away, they do not have enough income to live off of. Well, I can take that and I can put that money into an annuity in five years. If there's a death, you don't have the income rider, but you have the index value that's available. But what if we run into three years where the index made nothing? And so, you know, the reality is you need to really know the index strategies.

Right.

I mean, I know we have software that compares all of them in one shot. Yeah. And we can tell you who the top is. But it's important not to chase the top every single year because the chances of last year's top being this year's top.

Right.

Is pretty slim.

Right.

And the other beauty of index allocations in general is we want the market to tank.

Right.

That's the reality. We want the marks to be super high and we want it to go down because the reality is that creates the okay, great, great, great, okay. Fixed rate, fixed rate and then maybe fixed rate again. Now you're the market's down again. But great, great, great. You don't have to worry about trying to time the market right now. The other thing people need to know about index allocations is it is all based off of what month did you get into the market. Yeah. So there can be, for example, in 2020, if you got in the beginning of 2020 and you got one year later, you didn't have that great of a return. But if you got in March of 2020.

Right.

To March of the next year, you did phenomenal.

Right.

You just can't time it right.

And looking at, you know, one year time stamps on that index to get an accurate representation is really challenging because you can't because you do have clients every month all throughout the year. So you're not, you're not getting an accurate representation. But there are a couple of things that you look for when you're making index allocation decisions and it's to try to provide the highest chance for repeated success. So the two things are, number one, you got to have good renewal rates with the company you're using.

Rate integrity.

Yeah, yeah.

You need to have companies that have high rate integrity. They're not going to get you into some introductory rate and then next year renewal, they drop at a half. That's just.

Yeah. And then the other thing you're you're looking for is no more than a 2% difference between the best 10 year average and the worst 10 year average.

So, you know, there's a lot of indices out there that you look at. And the best it's ever performed is, let's say 12%. The worst it's ever performed is 2%. That's a 10% spread.

Right?

That's crazy.

Yeah, that's. That.

Yeah, that's a good recipe. So what I do is I make sure the best and the worst have at least the maximum of a 2% spread in there. So what that means the worst it's ever performed is 5%. The best it's ever performed is 7%. Right. That's what I try and do is just keep it in that range.

And this is a good opportunity to plug episode number 167 titled Selecting Index Strategies and Renewal Rates. I recommend you go back and find that episode.

We did something on that.

We did. We talked about selecting index strategies and renewal rates, the importance of renewal rates, and then how to properly select your index strategies. And I totally plug that episode because that's. That was a fun one. I nerd out over the index stuff.

I know you do. You nerd out. Anything to do with spreadsheets and numbers and all that, which is. I really love. I honestly do.

So fun.

I mean, you're weird, but yeah, that's a whole. For. That's. For many reasons, but that's one of them.

I literally was talking to. Oh gosh. I remember who I think it might have been one of the agents I was working with, talking about. I genuinely love studying product. I love studying product.

I don't but I love what it does when I do. So I mean, I know when I go to an appointment, I know I have the best product based off of historicals, based off of rate integrity. Customer service. Like I cannot stand companies that have poor customer service. It just, if they're going to treat me bad, what are they going to do to my clients?

Right.

And that's just so important. So yeah, I would, I would say. And then when you look at mygas, I mean, yeah, the 10 year treasury is going up, which is, causes the MYGA rates to go up, which is still. I mean I have not found a five year myga that was beat by any cd. Yeah, but you have to look at is what is the purpose of the money.

That's exactly right.

And so mygas are something I don't use that often because if they say why I only want a five year annuity, well a lot of times they confuse that to where they want access within the five years. And that happens all the time. Well, can I get a five year annuity? I'm like, well, what's the purpose of that? Why want to draw income? Oh, well, a lot of these annuities you can draw income right away or you can wait a year, two years, three years, five years. You can do that. You don't have to pick that right now they're like, oh, I thought when you got an annuity you couldn't touch anything while it was in there. And that's where a very good explanation on how indexed annuities works can I.

Say that's why it's so important to ask good questions and not just take what the client says and then just fill in order.

Well, I was actually talking with one of our inner circle agents and inner circle, you know, we have a few of those spots open and that is where you get one on one training with me. So you pay some for it. You know what? One $300,000 annuity covers an entire year for inner circle. And I'm talking with his inner circle agent and he goes, you know, it's kind of funny because your average case size is over 400,000, my average case size is only over 200,000. So I actually did a role play with him and I said, hey, do a fact finder with me. And within the first just asking income, I had to stop them. And I say, hey, you are not setting up for the future. You are not getting this going on from here. And so I said, you know what I'll do is I'll just Do a fact finder with you and you be the client. And by the time I was done with that, they're going, that's why you get the big sales. It's. I know how to ask the questions. That really dials in what, the purpose of the money, where they have it, and literally what's at risk, what's not. You know, do you want something that can lose all your money, some of your money, none of your money? I mean, it really comes down to the purpose of the money, where it is, what taxable rate it's at, as far as if it's an ira, Roth IRA or non qualified. I mean, I go over all of it.

Yeah.

And I think as agents, you know, I'm part of this group and on multiple groups, on Facebook and LinkedIn, some of the questions people ask, I'm not knocking someone being brand new to the industry. What I'm knocking is practicing your knowledge and trying to learn things when you're helping clients. And I see some of these questions, I'm going, you shouldn't even be talking to a client about annuities till you know that answer to that question.

Right.

You know, what are the different types of annuities? That's something you should know.

Oh, yeah. Before you even talk, be able to create understandable and educated distinction between them because you will have clients say, oh, I hate annuities. Well, what do you hate about them?

Yeah.

Right.

But you know what, though? But I've gotten people that give me massive flack for that and they, well, you got to learn somewhere. Okay, you know what? Next time you have surgery, I want you to go to the guy who's just literally opened up the medical book and they're going to operate on you.

Right.

They're going to test out on you.

Right?

Yeah, you, you.

Every surgeon has a first surgery. Every annuity agent will have a first sale.

But they went through 10 years of training to be able to do that first surgery.

Right. It's so important to learn.

Yeah. You've got to know what you're doing there. You've got to do the right thing.

Yeah. Well, let's hit. I've got just a couple of. Last question. I know we got just a couple of minutes here. When do you know and how do you determine when to use the fixed account or an index strategy? Right now, when the market is down and the fixed accounts are pretty compact, I mean, you know, 2.6, 5.5%.

Find me anything else out there that pays 2.65 guaranteed for one year. No, in a bank. Oh, at a money market anywhere.

I thought you were talking about a fixed account in an FIA.

Me. Any other outside of the FIA. Find me any other account that guarantees for one year 2.65%. I mean now if you don't know what product I'm talking about. You guys know retirement realized financial. We're our own fmo. We more than happy to share that with you. It is a.

And it is a good product.

It's a doozy right now and it's actually accounted for a lot of my business. Now I've already stated if they changed what they do and how they do it.

Yeah.

I do not become ever committed to one company.

Right.

It's multiple companies, it's multiple products. It's always based off of how old are you? When do you want to retire? Are you married? Are you single? When do you want to draw income? That's what picks the company. So not what one. I mean product funneling drives me nuts.

It's true.

Yeah.

So you're literally just having conversation with the client about the fixed account. Yes. And the index strategies and allocate according to the conversation. And then the last one is when I mean my goes right now we've got five years that are paying over 3%. Yeah. That's a tempting thing. When the market's down. I got to think there's potentially some easy sales there. How should agents know when they should.

Be five years still a long time. It is five years. I go back to the purpose of the money. This is literally money that you just don't plan on touching. There's no purpose for. It's literally a pass on to errors. You don't want to tie it up for a long period of time. That's when a MYGA comes into play. If you ever want anything to do with higher index possibilities. If you want, I mean once again, 2.65% for one year versus 3.05% for a five year.

Right.

But what's.

You can't do any better than that. Than that three. Whatever percent you're talking about, you could do better in future years. If you allocate to a good fixed account. You can change that with your annual statements and go into an index if the market starts.

Exactly. Better if you do that right even close to rights. And when I'm saying close, you got a 75% chance of kind of knowing when the bottom is. I mean most people kind of know when the bottom is. From the standpoint of you're within 15 to 20% of the bottom. I mean, I know that sounds like a lot, but there's some things I remember. 2007 to 2008, people thought we were at the bottom. 2008. Then 2008, 2009 hit, and it was even worse.

Found a new bottle.

Yeah, you just can't time these things. But you can know approximately, like I could have told you a year and a half ago that we were. We were approaching the top of a market right now that still went up quite a bit. But the point is, is I am not a variable guy. I will not tell you when to get in. I don't care what the product is. I will not tell you when to get out.

Right.

I will tell you. Here's what's available for you for safety and security. Security. If you want to protect your money, that is your decision. You need to make the decision, and you need to liquidate the funds however you feel appropriate, because that's not my decision.

Right.

And I'm not telling you to do it or not to do it. Here's the facts. You make the decision.

Yeah.

Yep.

So good. Well, that's a wrap for today.

Okay, perfect. I appreciate your time, and, of course, happy selling.

Ra.