Why You Shouldn't Overinflate Illustrations | 7 Figure Annuity Sales Podcast | Ep. 261

I want to talk about something that drives me nuts. It's when people use FIA saying that there's no income need, or I asked, and they don't have any concerns about outliving their income, or I don't have any extra need to have guaranteed this or guaranteed that. And the reality is, when you do the fact finder. Right, and this is a fact, probably 85 to 90% of my clients need an income rider. And it's very important that we ask the right questions to see that, because I can ask any question at any time to get the answer I want. By the way, I asked the question. So on this week's episode, this is what we're gonna hit. I am Chad Owen, the annuity sales coach. My sidekick, Caleb north, that decided to wear his.

I don't know, it's just a regular white T shirt.

To be fair, we were gonna be recording some training videos that I've got a button and jacket for. So I wore this so I could change. And then you said, we're doing podcasts. I was like, well, I'm not gonna.

Put on a jacket. Oh, white. Well, did you check the calendar?

I checked it on Friday.

And you see that this has been up a long time. So now you're wearing a white T shirt with a white background. If you slouch down a little bit, then you might be able to see the white. The black chair, which will give you a little bit of an outline.

Well, hopefully the content I bring can offset the lack of a apparel.

So lead the way.

Oh, yeah. So we wanted to talk about a couple things you wanted to hit on specifically overinflated illustrations. And then the way you ask questions are both super important. We just had a call a little bit ago, actually, where we were talking with some agents, and you were referring to how you position the questions you asked to figure out what is the purpose of the money. And you ask it. You ask it in a way that allows the client to answer truthfully without their assumptions. Right. So one of the things that I frequently come across with when I'm working with agents is they'll ask the client, do you need income? And the client will say, no, I don't. I don't need income. And the problem with that is that they're answering based on potentially underlying assumptions. Does the client assume that they can't take income because they don't want to deplete their retirement accounts? I mean, that's the number one fear of retirees, is outliving money. So if so, if you ask questions in a way that doesn't allow them to answer, regardless of their assumptions. You're positioning yourself to get bad information. You ask the same question, is this a plan for living or a plan for dying? Right. Another way that you ask risk tolerance. How do you ask risk tolerance?

I don't know if I want to disclose that, Academy. No.

It'S a simple way. You know, most people when they're asking risk, risk tolerance are going well. So you know, what's your risk tolerance on a scale of 1 to 10, or how do you feel about market volatility? I just ask it real simple. Are you willing to lose all of your money, some of your money, or none of your money? That gives me a true indication. Not by necessarily what they answer, it's how they answer. So I'm watching if they look at me like I'm a dumb idiot sitting there, well, that's a dumb question. I know their risk tolerance is very, very low, you know, but why is all your money in stocks, bonds and mutual funds? You know, if you truly are that risk, you don't tolerate any risk, then why is everything you have at risk? And so the plan for living and plan for dying, most people will tell you their number one thing is enjoying their money while they're alive, not passing money onto their heirs when they die. That's a nice benefit, but that is not the primary concern. The primary concern is not having to be a burden on their children, making sure they have enough money to live off of to where they don't have to rely on anybody else coming in to take take care of their funds. On top of that, they also want to be able to enjoy their retirement. They don't want to exist during retirement. They want to live. And so to do that, that means you're not just getting enough income to pay bills, you're getting enough income to where you can enjoy your lifestyle while you can.

I love it. I love it. So here's where I see that in regard to the assumptions I was referring to earlier. If you ask somebody, what's your risk tolerance? And they answer that with the assumption that they have to risk money order to see some kind of return, they're preconditioned to say, oh, well, you know, maybe a, maybe a four or five out of 10. But if you were to ask them, do you want to, Are you willing? How much are you willing to lose? And they say, none. Now you really know what the risk tolerance is. It's because it's avoiding the assumption altogether. You've asked the question in a way that allows them to circumvent those preconceived assumptions that they have. And then the same with the income. Is this a plan for living or a plan for dying? You ask somebody, are you, you know, do you need income? And maybe they, they don't know their budget well enough or they don't quite understand what their retirement expenses and income are going to be or whatever the case may be, they answer the question just randomly. No. Does that actually mean they don't need.

But often people don't even realize. Yeah, but people also sometimes don't even realize they need income. So in other words, they don't think about, hey, both alive, both of our pensions are coming in, our Social Security is coming in, no issue whatsoever. But what they forget is what happens if one of the two passes away. What if there's only 50% survivorship or 0% survivorship on the actual pension? Where we are, we have pretty high military base population around us. And so you'll have people that have disability benefits and if they're not 100% disabled when they die, zero goes to the air. None of the disability goes to the air or those spouse. So when you look at, you're going.

So good. Yeah. And I would argue too, when you're doing fact finding, you kind of have two different sides of the equation. You have the needs and you have the desires. Now most people desire that their needs are met. So if a need is a need and a desire, then that trumps just the desire. So you should be first and foremost operating based on what do they need. Then you have the desires and in an ideal scenario, you're able to get them both what they need and what they want for their retirement.

But the way you can't ever convince, you can't ever convince me that somebody doesn't need income. Well, sure, because I mean Social Security, we know, I don't like when people do this doom and gloom. While Social Security might not be around, you know, there might be this might. And I hate it when they do that because the reality Social Security is going to be around. But the question is, is it enough to live off of does that follow a true, true inflation projection? And it goes back to once again the same thing. When one passes away, the lower two goes away. So when we're addressing our questions and the concerns to people, it's not about having an income rider, not having an income rider, it's which one or what provides the best solution to a potential problem. And even if they don't need income. I shared this a while before. Two 76 year olds, they just, they're incredible to me because they're 76 years old and their idea is to travel the world backpacking and there. So I asked them, they said, so where are you going next year? And like, well, we're not sure yet. I'm like, why? So, well, we don't know what our portfolio is going to do this year. I said, so what if I created a lifestyle plan for you? So we use that income rider not just for income, but it's for lifestyle. In other words, you already know next year you could get $4,000 a month based off of the amount we're putting in. And that would be your worst case scenario for the rest of your life based off of this scenario. And like we love that. Well, there you go. They have their next, I just talked to them, I'm going to deliver the policies. They have their next trip already planned.

So there you were able to leverage the income benefit in an annuity for the desires that they have. Where I was kind of going with that was from a fact finding perspective. If you only ask do you want income? And you don't look at the actual numbers of their current income, their current expenses, but also their retirement income and their retirement expenses, you may not uncover the need. There may be a need there that should trump or just be ranked higher than their mere desire. So yeah, consider all of that. When you're doing the fact finding, you're.

You'Re saying the word trump a lot. Are you doing subliminal messaging for.

Are we getting campaigning funds here? Because if we are, I'm gonna check our bank account.

I don't think we're sponsored.

Okay, just, just check the other side. But I agree.

Yeah, the other side of what we wanted to talk about today was over inflated illustrations. This was something I think that you have come across in the last, especially a couple times in the last week or two.

Well, think about how many times when I've gotten a lot of deals from it. Honestly, keep over straight over inflating your illustrations. It just helps my business. I mean, and I, and I don't say that sarcastically, I say that very real. Because if you're sitting there telling that the client that you can earn 9, 10, 11, 12% over the 10 year historical and that's what you're using and you're pulling out 10% withdrawals and you're saying, hey, not only can you pull out 10% withdrawals, it looks like your account Value is going to be increasing as well. You know this, I probably gotten about 7 or 800,000 in the past three weeks because of illustrations like that. And because the client is not dumb. You know, they're going to understand 500,000 is not going to turn to 3.5 million in 20 years. And that's, and that's just what I've been seeing. I'm like, this is just stupid. We want to give brokers a hard time for unrealistic expectations, but then people in our own industry are doing the exact same thing. And it's not just the agent's fault. Now, I do always blame the agent because no matter what you hear from your insurance company, your marketer, you have to do your own due diligence. And I can tell, you know, the thing that I find amazing, we belong to a couple very large Facebook groups and you know, for annuities. And I am dumbfounded by the questions that are asked on the annuity page. Not because the ignorance of the agent, it's because the lack of response and what do you call support on the FMO side? Because the questions they ask, I'm going to halfway. A halfway marketer should be able to answer those questions for you. And, but they, they go onto the Facebook page to ask these questions. Now, Fortune, fortunately, there's quite a few Facebook pages that they have some really good contributors that they're smart and they know what they're doing and they've been in the business a long time and they're very gracious and offering the answers. But I sit there all the time and I'm going to why isn't your marketer answering these questions? And if they're not, then pick an FMO that will do it. Because what's your, what's your FMO doing? You know, they're not providing leads for you. And if they are, they're not high quality leads. They're not providing good case design. Because you're providing good case design. You wouldn't be asking a question like that on the Facebook page. And remember, I'm not knocking the Facebook pages. I'm top contributor in a lot of these pages. But what is the marketing organization doing that makes you want to stay there? You know, it's like when I ask someone, are you willing to lose all of your money, some of your money or none of your money? And they go, that's stupid. I don't want to lose any of my money. Well, then why do you have your money in stocks, bonds and mutual funds in, huh? That's a good point. So then on top of that, I go, okay, so you want someone to help you with your case design and answer your questions, and you really want to become better. You want to be a better agent for your clients, for yourself, but you're still sticking with a marketing organization that's not providing the basics for you and answering questions about indices and realistic expectations. So, okay, I'm off to.

So, no, that's a great. That's a great segue because I've got some things I want to add. And this is opportunity for those of you who are explicitly podcast listeners to find the YouTube channel as well. Because I'm actually going to pull up a visual that those of you watching on YouTube will get to see, and those of you that are just listening on podcast, which we're certainly glad to have you, but you won't necessarily be able to see it. I'm gonna do my best to articulate it verbally, but I do think, well.

They can always go to the. The Annuity Sales Coach podcast or 7 figure sales pod or excuse me, YouTube channel. They can subscribe and they can see it.

The annuity sales coach YouTube.

Oh, there it is.

It's coming up.

Okay, so there.

It came up on my site.

Awesome. So I've got five columns here for the last 10 years. And what I've done is this first column is the S&P 500, the actual returns of the S&P 500 over the last 10 years. Because we're talking about this in relation to some of the illustrations that are available out there with rates and over inflated returns and all that stuff. This 10.57% is the annualized return of the S&P 500 from 2013 to 2022. 10.57%. Now, yes, that does account for negative 19, negative 6 and negative almost one there in 2015. The point is, some of the illustrations that you can run out there are showing returns north of this. This is the effective annual compound rate. So when you hear the term annualized, what that's saying is that if this rate was compounded every year, your starting point and end point would be the same as it is in the sequence that took place. So this is your annual compounded rate. And some of y' all are showing illustrations that have an annual compounded rate higher than what the S&P 500 has from 2013 to 2022. The problem with that is that a fixed indexed annuity with a 0% floor by nature has none of the downside risk how in the world mathematically, and I'm asking the question rhetorically because I know the answer is it can't. But how in the world mathematically can a vehicle that offers a 0% floor, no loss due to the volatility offer more than all of the upside, mathematically, economically, fundamentally impossible. Now here's four other columns. This is a 50% par rate in the S&P 500. And this 7.04% assumes that that rate holds for the 10 years. Here's a 10% cap with a 6.85% annual compounded rate. That's the annualized return. That assumes the 10% cap holds these last two 50% par with a 5% drawdown. That's a 5% drawdown each year of the renewal rate. Relatively realistic. Here's a 10% cap with a 5% drawdown again of the initial 10. So not saying that it goes from 10 to 5, I'm saying that 10% is reduced by 5% each year, which again is a pretty, that's a pretty expectable drawdown rate. Over the long term. What do you see? Drastic difference but ends up being approximately half of the annualized return There why you got none of the loss but you're participating in the upside. I think any one of these is relatively reasonable. But showing illustrations high singles and into the double digit as annualized returns is just mathematically impossible. I hope that this helps kind of visualize it for you guys. But Chad, what are your thoughts on this?

I think it's so important. Yes, this is true. We want to have this. This is why as everybody knows, I have one particular company that I'm very fond of right now with a particular product that probably 70%, 80% of my businesses went through right now because it meets these needs. But it also has a minimum roll up rate of 4% in the benefit base. So you stack that on top of it. It's a phenomenal product product. It blows everything away as of now. I mean they change it then it doesn't matter to me it's whatever company is the best. So the important side of this whole thing is make sure you're not over.

Really soliciting an unrealistic interest rate. And if I has been doing this for 19 years now, over 19 years and I'm, I've written over, oh, I'm actually almost, I'm approaching that 300 million mark. And in personal production I can tell you if people are telling me I don't find people that need income, then you're not asking the right questions. I can find people all day long that don't need income if I'm not asking the question right. So make sure you're going through the fact finder properly. Those that are part of our academy that you know are part of our fmo. You have my fact finder. You know how to access it, you know how to use it. Very, very important that we do this and make sure we're properly finding the problem so therefore we can find the solution.

Absolutely.

So I think that's it. Yeah, I mean, we went a little over. But you know what? I think this was worth it today because we got to make sure we're representing our industry well and we're doing the right thing for the client.

Right. Love it.

Yep. Okay. So I hope this helps you guys. You have a great day and of.

Course, happy selling Sam.