Episode 40: Fixed Index Annuities
Segment 1 (Show Open):
Good afternoon, everyone! Welcome in. Welcome to Coasting in Retirement! That’s. Right. Thanks for joining us today, we’re excited to have you! Josh Null here, joined by the one and only Michelle Lee Melton, the Wickle’s Pickles to my grilled cheese sandwich, the buttermilk ranch to my side salad…Michelle, how are you doing? We are back again in Coastal College’s recording studio, beautiful downtown Fairhope, ready to put together another great show for those of you tuning in!
Listeners: Michelle and I are here today to discuss financial topics relevant to those of you in or near retirement, living your best life along our part of the gulf coast. Here’s what we’ve got in store for you today: First segment – deep dive on our topic of the day. 2nd segment - at about 25 minutes past the hour - “Michelle with the News of the Week”. Then at roughly 45 minutes past the hour, stick around for our 3rd segment, we call it” Josh’s Crystal Ball and Big Mouth”. That’s right, big mouth. So buckle up, we’ve got a lot to get to!
Quick background on me for those new to the show. Again, my name is Josh Null, I am a fee-based financial advisor, I hold my FINRA Series 65 securities license, and I am the owner of Gulf Coast Financial Advisors, we are an independent investment management and financial planning firm with offices in Fairhope, Orange Beach, and Mobile! You can find more information on me and Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com, or feel free to give us a call at 251-327-2124. If you missed that contact info, do not worry, we will repeat our contact info several times throughout the show!
Michelle, you have love of French culture, especially everything New Orleans, correct? (Michelle - feel free to express all things French here). OK, so what’s the French saying around the something being the most important topic of the day? “Topic du jour”. Alright. So, our topic today is what most, if not all, insurance carriers that offer annuities view as their “Product du jour” – the product of the day. Really, the product of the past 2 decades - that is, Fixed Index Annuities, or FIAs for short. Regular listeners will recognize that term, and they will also recognize that FIAs are just one product in an alphabet soup of annuity products – there’s Michelle’s favorite to say, SPIAs, there’s DIAs, there’s MYGA’s, VA’s, QLAC’s, etc, etc. But for today’s show we are going to concentrate on thee dominant player in the annuity space right now, and that is FIA’s - by a mile.
For you listeners that work in our industry that sell FIAs, a little warning, you will probably not like some of the things I have to say. I know many of you all don’t like how we expose how the financial services sausage is made. But we are going to be fair in our analysis, and while much of it will be critical, our conversation is not so much a criticism of the FIA product, which is what it is, but of how these things are sold. Very few things drive me as nuts as FIA’s that were oversold and over-promised, which happens way too often. It also aggravates me that, if you FIA-focused salespeople are being honest with yourselves, especially those of you that try to introduce FIAs into every client’s investment mix, when you are meeting with new clients, you’re only thinking about 2 things: how much of this potential client’s money can I cram into an annuity, and how much will it pay me in commissions? Admit it. I’ve been in dozens of these meetings. I know what the conversations are before and after the client walks in the door. What you ARE not thinking about is how you can be as efficient as possible with the client’s money. About how to keep the client’s expenses low. You’re just not, and you know it. Does that sound harsh, Michelle? Well, trust me, it’s true.
And speaking of being true, I need to be totally open and honest with our listeners: I occasionally use FIA’s in my practice. That’s going to turn off some of you fee-only investors and Bogle-heads, and I get it. As we have discussed many times before on this show, I am slowly and intractably moving ever closer to being fee-only instead of fee-based. There’s just much less shenanigans in the fee for service world vs the commission world. Plus I don’t fully trust insurance companies when it comes to indexed products. Let be crystal clear with that statement - Term life, whole life, fixed annuities, income annuities, disability income, LTC – all those products are fine, as long as you have a reputably carrier, and all are relatively easy to understand. But FIAs, my friend, are intentionally not easy to understand, and you need to pay attention to the details, pay attention to what is actually in writing, not the sales pitch coming out of the salesperson mouth.
I can honestly state that I try to talk clients out of FIAs, but every now and then, I’ll have somebody that fits FIAs to a tee: they don’t want to lose any money, they want limited volatility, they don’t want to worry about it, but they want something that has at least some potential to outperform what they can get with a bank CD or a fixed annuity like a MYGA. I anxiously await a securities-based alternative to what FIAs offer. But I’m telling you listeners that there is a certain chunk of my industry that views EVERY client as a potential FIA sale. Every one of you. Don’t just take my word for it – I have actual emails from annuity brokers and wholesalers that say exactly that - that I’m a fool for not introducing an annuity as the “safe play” or “bond-alternative” to every single client I meet, that I am missing the boat by not always including this high commissions product. Ugh.
Silly pet names aside, why this matters to your listener is that these guys and gals sell billions of dollars in FIAs, which can have huge consequences for your retirement plans. Some individual producers do hundreds of millions of dollars in FIA sales on their own, or with a small team, and with common commission rates of 7-10% of the total account value, you’re talking about MILLIONS of dollars in commissions being paid out. Now, technically the insurance company pays the producer the commission, not you, but trust me on this, in order to make up for this large commission, the insurance company is getting their pound of flesh from someone, and it ain’t going to be their own bank account. Again, the primary problem with these products are not the products themselves, but how they are sold. Millions of retirees are expecting a better outcome than they are actually going to get. Which is so aggravating because these products can have a role, and they can expectations properly set, but again, a lot of people selling these things have such strong commission breath that they will gloss over whatever details they think they need to in order to make the sale. And if you really want to get my blood boiling, Michelle, get me talking about the advisors that mix religion in with their annuity sales pitch. ARGHHHH!
Alright, let’s take the temperature in the room down. You’ve now heard me talk about how little I respect much of the sales processes that FIA pushy salespeople use. Let’s now pivot to something what these things actually do. No, not the pie in the sky promises, but the actual baseline thing that FIA’s offer. Here is it:
Josh ask Michelle if she knows what a stock market index is. S&P 500, Dow Jones, so and so forth. The explain how a FIA works.
Here’s the bottom-line folks. I like nice things. I like making money. And the FIA sales game provides people like me the opportunity to have nice things - right now - and make lots of money – right now. And sometimes it works out for the client, but buying this type of product should not be done based on a sales pitch, or an illustration that isn’t worth the paper it’s printed on, or lord help us, after someone feeds you steak at a dinner seminar. If you want to have an honest and open conversation about FIAs and the rest of your retirement plan, then why don’t you give us a call at 251-327-2124, or you can reach us through our website gulfcoastfa.com. One our site, you can choose to send us a direct message, or you can click on the blue button in the upper right-hand corner to set up a 15-minute introductory phone call on my calendar.
Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance, investments and money. Every week Michelle and I scour what she calls the interwebs for financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. So join us after the break to hear Michelle and I discuss this week’s relevant headlines in our “Michelle with the News of the Week” segment. Stay tuned!
Segment 2 - News of the Week:
Josh: “Welcome back to Coasting in Retirement, your host Josh Null here! As we discussed before the break, every week Michelle and I scour the internet for financial articles related to our topic of the day, especially articles that pertain to those of you in or near retirement. Our job is to help you all understand how these headlines impact you, especially when it comes to your money! Note – if you want to read our referenced articles yourself, we also include the links in our show transcript, which you can find on our website gulfcoastfa.com under the podcast tab. We upload our episodes every Monday after the show airs on Sunday. Without further ado, here’s “Michelle with the News of the Week”!
1. Michelle: Alright Josh, so you told me that you wanted to pick the first 2 articles, that they would be from the same source, and that you had similar viewpoints on annuities as the author did. That author goes by “Stan the Annuity Man”, which sounds like a great pickup line for a guy to use if he wanted to be single the rest of his life. Anyway, ol’ Stan the Annuity Man’s first article is titled “Indexed Annuity Scams: Back Tested Annuity Returns” and it appears that Stan is not a fan of pushy FIA salespeople either. He does jump around a little bit in the article – it seems like he used to be fan of FIAs and now he’s not because they are being sold using “back-tested” numbers, which apparently is illegal in some states. There’s a lot of industry jargon in this article so I’m going to toss it to you as why listeners should read this article and what their takeaway should be.
https://www.stantheannuityman.com/learn/indexed-annuity-scams-back-tested-annuity-returns
2. Michelle: Next up, we are mentioned that we’re doing a two-fer from Stan the Annuity Man, this time the article is titled “The Truth About Hybrid Annuities”. I immediately thought of Chilean Sea Bass when read this article, which some listeners may not realize is not a real fish but a marketing gimmick for the real fish called Patagonia Toothfish, dreamed up by an American fish wholesaler sometime back in the 1970s. Anyway, Stan says that there is no such thing as a “hybrid annuity”, ok, fine, but here’s my question Josh, I get why someone would be more inclined to eat something with “seabass” in the title vs “toothfish”, but why would calling something a “hybrid” potentially help it sell more?
https://www.stantheannuityman.com/learn/the-truth-about-hybrid-annuities
3. Michelle: Our next article comes from an organization that I believe plays an important role in regulating your industry, I’m referring to FINRA, that’s correct, right? (Josh- yes, explain a little). Finra has an article for consumers on their site titled “The Complicated Risk and Rewards of Indexed Annuities”. I picked this article because while it provided pretty detailed information about FIAs, it also did it in a concise and easy to understand manner. The biggest thing this article tries to accomplish is to explain how FIAs work, which I can tell you from my viewpoint, seems both incredibly simple AND needlessly complex, so why don’t you break it down for us further, Josh?
https://www.finra.org/investors/insights/complicated-risks-and-rewards-indexed-annuities
4. Michelle: While I think we’ve been very fair, I think we’ve also picked on FIAs quite a bit in this episode, or for sure, we’ve picked on any shady FIA salespeople out there, shame on you! But I wanted to give FIAs a shot at a positive ending, because despite all of the potential pitfalls, there’s no denying the popularity of them right now. In fact, US News and World Report wants to tell us exactly why this is happening, with their recent article titled “Fixed Index Annuity: Why It’’s Gaining Popularity Now”. Josh, I’ve said the word “annuity” more in this episode than I have in my entire life, even Stan the Annuity Man would beg off, so that is what I am doing with our last article, the floor is yours:
https://money.usnews.com/financial-advisors/articles/fixed-index-annuity-why-its-gaining-popularity-now#:~:text=A%20fixed%20index%20annuity%20is%20a%20good%20choice%20if%20you,withdrawal%20for%20the%20surrender%20period.
Josh: Michelle, great job as always with the headlines, these are all important pieces of information that impacts those folks in or near retirement! Listeners – if you would like to continue the conversation with us, then why don’t you give us a call at 251-327-2124 to talk to me or to set up an appointment, or you can always reach out to us via our contact page on our website, gulfcoastfa.com. Don’t forget to click the blue button in the upper right corner to put a 15-minute introductory phone call on my calendar!
Alright folks, coming up next: Josh’s Crystal Ball and Big Mouth. What have been some of my predictions? Have I been right? Was I ever wrong? How wrong? What do I think is going to affect investors in the near future? We talk about all of these things and poke a little fun at my big mouth. Stay tuned!
Segment 3 – Josh’s Crystal Ball and Big Mouth:
Welcome back! Your host Josh Null here, alongside co-host Michelle. So, I am opinionated, I have strong opinions at times, I would say a radio show host that isn’t probably wouldn’t be very interesting to listen to. And I am paid in my profession to offer professional guidance and opinions to my clients, otherwise what use am I? Just replace me with AI. Sometimes I feel so strongly about something that I talk about it publicly, sometimes I’ll even make predictions, and while I am usually proved right, there are times I swing and I miss. Want to hear me eat a little crow? Then let’s get at with Josh’s Crystal Ball and Big Mouth. Alright Michelle, what’s first?
1. Michelle: Alright Josh, way back in 2016 when you were just a wee little insurance agent and what’s apparently called a “registered rep”, the Department of Labor, or DOL for short, proposed a new investment fiduciary rule. The stated goal of this new rule was to provide a uniform standard for determining who is a fiduciary and expand the definition of "retirement investors". The rule also considered certain services, such as annuity sales, to be fiduciary services. You took this as a sign that you needed to pivot to fee-based, fiduciary-based services, which you did a couple of years later with the formation of Gulf Coast Financial Advisors, an independent fee-based financial planning and investment management firm. I didn’t know you then but according to what you told me, you were very vocal in your belief that the new DOL fiduciary rule would produce monumental change in your industry. Well, apparently this DOL Rule has taken more criticism and heat than what Coach Kalen DeBoer has received for Alabama’s recent loss to Vanderbilt, including having the implementation of these new rules being delayed indefinitely by a federal judge. So, what’s the deal with this rule, why did you think it was so important back in 2016, and whatcha you got to say now?
Well listeners, I hoped you enjoyed a little history on how I form my opinions and predictions, and more importantly, that I’m willing to admit when we are wrong. If you’ve liked what you’ve heard today, or maybe you just want to have a conversation about your investments and retirement plan, we invite you one last time to reach out to us. Call us anytime at 251-327-2124 to make an appointment or shoot us a message our website at gulfcoastfa.com. Remember, you can always put a 15-minute conversation on my calendar, just click the blue link in the upper right corner.
Folks, that’s it for us this week here at Coasting in Retirement! I want to give a huge thank you to my lovely co-host, Michelle Lee Melton, thank you to our show sponsor, Providence Partners, thank you to our awesome radio station FM Talk 106.5 out of Mobile, many thanks to the provider of our show music, local band Sloth Racer, huge thank to the show producer, son Payton Null, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well! Until we talk again next Sunday, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null!
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