Selling Annuities in a Rate Drop Environment | 7 Figure Annuity Sales Podcast | Ep. 282

Today we're talking about selling annuities in a rate drop environment. So how do you actually approach the annuity sale when annuity rates are declining after they've been exceptionally high, Some record highs over the last few decades, we've recently seen, but they're coming down. And how do you actually approach that? How do you navigate that with clients? We're going to talk about that today. It is just me today. Caleb north here with seven figure annuity sales. Chad is in Colorado right now actively unpacking boxes in his new home. So he is not able to join us today. But I'm excited for this one. I've actually talked with Chad about this topic specifically. I picked his brain, so to speak a little bit on it. And he said what I anticipated and expected him to say about it. But I want to give you some history and then I'll tease you with that and then I'll share with you guys how we're approaching the annuity rates falling. But basically you go back to the end of October and Treasury rates start falling, bonds start falling. So we've seen, we've seen treasury bonds coming down every, basically every week since the end of October of 2023. And we just recently actually as of January 31st, the Fed announced that they were changing kind of the, I guess what you would call the target range. Yeah, it's the target range for the federal funds rate at five and a quarter to five and a half percent that is down from the target range prior. But the effective federal funds rate is still at the 5.33%. So we've not actually seen the Fed rate fall, the effective rate of it. We've seen the target range be announced that it's coming down. And they have announced that over the course of 2024, they are going to be dropping that rate. But what they're wanting to see is inflation getting closer to that 2% target before they, before they start dropping that rate too much, too fast. So they're being cautious with that rate drop. But when you mix the announcement that the Fed rate's going to come down, we're going to see interest rates come down. You mix that announcement with the fact that Treasuries, bonds, all those have come down over the last basically three months as well. Annuity rates are falling. You've seen it already, I'm certain if you've compared migrates, even over the last month or so, month of January, we saw migrates coming down. We're going to continue to see that happen. We're going to see index rates coming down, we're going to see fixed rates on indexed annuities coming down. We're going to see par rates, caps coming down. We're going to see our spreads going back up on those index products. That's just the nature of the beast. That's, that's part of, of where we're at in this current environment. So it begs the question then, how are you going to actually sell annuities when rates are falling? And the way that I was thinking about this is a little bit in contrast. Like, what's the opposite alternative? Right. Well, if rates are falling, the opposite of falling is going up. And what happens when rates are going up? Well, you've probably heard it before with clients. When rates are going up, they seem to be less eager to move the last year, okay, we're talking September, October. I specifically remember having conversations with agents working with clients, and they were looking at MyGas and rates were as high as we'd seen them in years. And yet because the trend was that the rates were going up, clients wanted to wait to see if the rates would keep going up. And they happened too little bit longer.

But that's kind of the nature of people. And the way that they operate is like when things are trending positively, they trend to wait, or they tend to wait to see, how much can I get out of this thing? And the reality is eventually you have to just take a jump. There's a point where it reaches a ceiling and it starts coming down. And we are in the coming down right now. We've passed the ceiling. We're on the downhill, the backhill slope of the rates in the annuity world here in the 2020s. So the opposite of rates going up is going down. And in theory, it should create a little bit more natural urgency if you're talking with clients. And let's just keep using the myga example, even though I think we're going to start seeing more people using indexed products, because the upside potential is going to exceed what mygas are actually offering, guaranteed. But if we're dealing, keep running with that same example of Mygas. When you seen rates at 5.75, 5.8, 5.9, 6%, and now, and we still have rates that are up there in certain carriers in certain time frames. But eventually we're going to get to where your, your top rates, four and a half percent, 4.7, and clients are going to see that. And the history over the previous weeks leading up to that is going to be consistent rate Drops. And in, in that type of scenario, there should be a bit of a natural urgency that clients have to actually get those policies, get those products in place if that's something that they actually are valuing. Otherwise they're gonna probably continue to see rates fall. And so it becomes a little bit more urgent, naturally. And I wanna talk a little bit about building urgency because one of the things that we don't want to do, we never wanna sell out of fear, right? And so we're not trying to insinuate that rates are gonna fall out, but the reality is we don't know what rates are going to do. And we can operate based on trends, and the trends are indicating that rates are gonna come down. So it's, it is a responsible thing to have a conversation with your clients about the reality that we should expect rates to come down, but doing it in a way that doesn't garner fear. It doesn't, it's not fear mongering. We're not trying to sell on fear. We're trying to sell on the realities of things. And this is a reality that rates are falling. So use that to create urgency. You should have far fewer people saying, oh, I want to wait, I want to wait. I want to wait. Because they're falling. And when the things are falling, they tend to move quick. That's just the reality of it. But if you do happen to have those people, this is the question I asked Chad specifically. Chad, you come across these people, rates are falling, and they say, hey, I want to wait for rates to come back up. How do you handle that? And Chad very eloquently gave his response. But there were a few things that I noted that I want to talk through. There's a few different things. Number one, when are rates going to come back up?

We don't know. Nobody knows. Are rates going to come back up?

We don't know. So there's so many unknowns about it. To make a decision to say, hey, I'm going to wait and I'm going to keep my money. Where it's at and where it's at most of the time is probably in an IRA, a 401k, a bank account, a CD, a brokerage account. So. So more than likely where the money is currently when they're navigating this decision is either at risk to market volatility or earning less interest than it could. That's most of the time. So when they say, oh, I wanna wait, and they're waiting for an unknown time, then it really begs the question okay, well, what happens in your account leading up to that? Because we don't know when that's gonna happen, so. So if you're trying to protect it from market volatility and it's not currently protected from market volatility, in other words, it could lose value due to market falls. How are you navigating that? And then number two, if it's in an account that's already earning less interest than what they could get in a MYGA anyways or an indexed annuity based on projections and rates, it's like, why continue to get less when you could guarantee more? So there's a few just logical issues with the idea of I'll wait for rates to come back. But then the other point that he made is, what's the purpose of the money? Right. If we're doing good fact finding and we're asking people, hey, is this a plan for living or is this a plan for dying? Then if they come back and they say it's a plan for living and it's not generating them income, it's not generating them any kind of systematic or lifetime guarantee or anything like that worth of withdrawals and income, then it's not actually accomplishing the purpose of the money anyways and it warrants a shift. If they say, well, the plans for dying, then that, you know, that changes the nature of the conversation a little bit. But I think it goes right back to what we were just saying. They're trying to just create accumulation opportunities. Goes right back to what we were saying about, well, what's it in currently? So when somebody provides that objection of I'll wait for rates to come back, you always need to consider the alternative scenario. And there's a bunch of alternative scenarios in that question. And, and again, most people shouldn't realistically be asking or saying, I'll wait for rates to come back up because again, when rates are falling, they tend to move more quickly. There tends to be more natural urgency in place. But that's what we're dealing with, I don't think. I mean, I shared this, golly, on a. I guess it was probably a monthly live training in the academy at one point. But talking about how I personally don't think that 2024 is. Is actually. No, this was, this was a podcast that I was sharing this on earlier this year. I think it was first one, maybe one of the first ones in January. But talking about, I don't think 2024 is going to be a record year in the industry. I think we're going to see a regression in overall annuity production. And part of that being because rates are going to come down.

So I don't think that we're going to be seeing carriers as inundated with new business as we've seen. I think we'll see processing times improve across the board. I think this is a logical thing.

And we shouldn't see a bunch of resistance to moving that money. Although I will say it's kind of a double edged sword, right when they historically saw 5.755, 5.8, 5.96% guaranteed rates and those rates aren't there anymore, but it's very recent in their memory, it can be hard to swallow that 2% annual loss and say, well, okay, I'll move now, you know what I mean?

But those that are willing to have the conversation, those that are willing to entertain what's actually available right now, if you tell the story that this is the history of the rates and products that we're dealing with, and you can do this for indexed annuities, you can do this for Mygas, you should be able to pretty clearly show the trend of down movement in those rates. And in showing that trend again, mixed with whatever the federal funds rate is at the time, whatever Treasuries and bonds are doing at the time, you mix those together and you've got a very compelling story for your idea that rates are probably going to continue to fall even from there. And it creates that urgency to go ahead and get the product now. So again, not selling out of fear. We never want to sell out of fear, but you can create that urgency naturally. You can create that urgency just by speaking logically on the matter. You know, there is one thing that can, it can, it can challenge annuity production when our rates are going down. And that's if the stock market continues to trend positively. When the stock market is bullish and annuity rates are not very high, I think that it can really make the sale a little bit more difficult because people tend to have short term memory, people tend to have, you know, what have you done for me lately type of mentality. And when what the stock market has done for them lately is created a bunch of loss, it's a whole lot easier for them to jump ship. When what the stock market has done for them lately is north of 20% annual returns, that's a whole lot more difficult to jump ship. Especially when the prospect of returns that you're looking at in a new product is just factually lower than what they've seen it doesn't mean that an annuity will actually return lower over time. In fact, there's plenty of scenarios you can run depending on the rates that are available and how well the carrier runs rates or holds rates, and how well the market performs. You can look at indexed annuity scenarios that outperform market, depending on the season and the number of years and all those kinds of things. So it's not to say that just because the market's trended better in recent years and annuity rates are now coming down, that that's inherently going to be a better option for people. It's just to say that they do tend to have short term memory, they do tend to have the what have you done for me lately? Mentality. And so I think that we're probably going to be up against that a little bit this year. I mean, that's a whole nother conversation in and of itself. But being able to articulate the value and create a value proposition for an annuity, a myga, an indexed annuity, whatever, you're primarily selling whatever is best for the client situation, when stock market's performing well and rates are not as high as they've been, that that creates a challenge. And I think that ultimately comes down to something that Chad and I talk about all the time. We, I don't know of anybody that talks about fact finding more than Chad and I. That is, that is one thing that we unashamedly just beat like a drum because it is so stinking important. And the way that agents approach it is often just wrong. They'll ask random questions, general questions, but rarely do they uncover the true purpose of the money. And I've said this on podcasts before, I've said this in our academy before. But one of the best ways that you can try and uncover the purpose of the money is simply by asking them, is this a plan for living or a plan for dying? Because it takes out whatever preconceived notions they have about income versus accumulation. The agents that ask their clients, is this a are you looking for income or accumulation? As if they're mutually exclusive, are probably not going to get to the root of what the purpose of the money is. And you say, well, Caleb, why they're telling me they want income, Are they telling me they want accumulation? How's that not getting you the purpose of the money? Because they're answering with their preconceived notions. If they don't understand how income works in an annuity or an income rider or annuitization.

Period, certain payout Life payout, joint lifetime payout, single life payout. If they don't understand the way that that works in these products, then they're probably going to answer with an assumption about how it works. And when they answer with an assumption about how it works, I believe that they're far more inclined to say they need accumulation because for the last 40 years they've been working to accumulate. So now they're retired. And the thought process is often I need to continue to accumulate so that I can make withdrawals. And so if you were to ask, well, what's the purpose of the money? A plan for living or a plan for dying? Somebody that assumes they need to accumulate for the sake of withdrawals would tell you it's a plan for living. But you ask them income versus accumulation, they'll tell you accumulation, they don't coincide. So you have to ask the question the right way. And in doing so, you will uncover, I guarantee you, far, far, far more cases that warrant the use of guaranteed lifetime income. And in doing that now you're shifting the whole conversation around the annuity from rates and accumulation and all these things to the purpose of the money, which is income. And when rates are not super high in annuity products, which again, I believe we're going to get back, back to earth, so to speak, in these annuities this year.

That'S going to be an extremely impactful conversation to have an extremely impactful on your bottom line production. Not only is it getting to the heart of what the client is actually looking for and actually needs, but. But when we have low annuity rates and you're not trying to sell them annuities on the basis of accumulation, which is going to be extremely hard to actually accomplish when these rates do go down. You're selling it on the basis of guaranteed lifetime income, which is more in alignment with what they're actually looking for. If they tell you it's a plan for living, that changes the whole conversation. It changes the whole deal. Now rates become, frankly, far less impactful. It's because it's all about the income at that point. Now, do you still want to have good index crediting? Of course, but that becomes a secondary piece to the guarantees. So I want to encourage you guys, ask the right questions. Don't be discouraged because rates are going down. Understand that even when rates go down, it creates a much more natural sense of urgency. And where the biggest uphill battle is going to come in 2024 for agents, I believe, is if the stock market continues to trend upward and people are generating these returns in their investment accounts and they're seeing annuity rates come down, that's going to be a harder transition for people to make. And that's just a numbers thing. And that's where you're going to see the extremely good agents separate themselves from those that did pretty well over 23 and 22, where we had record years in the industry. But a lot of agents were basically order takers. Annuities were almost selling themselves. Not to degrade and not to, not to knock what agents do. But when you have two record years in a row and you have clients just about beating down the door to, to get their products and get their policies in place because the guarantees and the rates were so good and the market was falling in 2022, that's a, that's a pretty great environment to be selling annuities in. And I think in 2024, we're going to see a greater distinction between those agents that are really, really, really good at working with clients, figuring out what the problem is, solving the problem, and articulating the benefits of annuities compared to those that they were basically selling what their clients were telling them they wanted to, because those are probably not going to be as frequent. They're going to be much more, fewer and further between over the course of this year. So get ready for a rate drop environment in the annuity world, but don't be scared by it. Reach out to us if you have any questions or if there's anything we can help you with. And as always, happy selling.

Sam.