Episode 76: Annuity Returns vs Advisory Account Performance
Segment 1:
HELLO Lower Alabama! Hello Gulf Coast! Welcome in. Welcome to Coasting in Retirement! Thanks for joining us today, Josh Null here, alongside co-host Michelle Lee Melton-Null, Michelle how are you doing? We are back 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: First segment – deep dive on our topic of the day. 2nd segment - at about 30 minutes past the hour - “Headlines of the Week”. Then at roughly 50 minutes past the hour, stick around for our 3rd segment, we call it” Josh’s Crystal Ball and 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, that is a 100% locally owned, 100% independent investment management and financial planning firm with offices in Fairhope, Orange Beach, and Mobile! You can find more information on me and the team at 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, get a pen and pad ready because we will repeat our contact info several times throughout the show!
Alright Michelle, for today’s topic, we’re going to compare some real-life returns of annuities vs advisory investment accounts. To you savvy listeners that know the different types of annuities, our examples today will NOT include MYGAs, income annuities or Michelle’s favorite, SPIAs. No, for our annuity test case we’re going to use real returns from a couple of real contracts for annuities called fixed index annuities, a product that ALL of you pre-retirees and retirees should be familiar with because it is the product de jour of my industry, financial services. The FIA examples are from contracts that I’m privy too, and we will be extra careful to speak in broad terms and reveal ZERO personal information about the policy holders. We’re going to compare these returns to a range of what an investor should have seen over the past couple of years, and to be fair to the modest returns of the annuities, we’re going to use numbers pulled from conservative and moderate risk portfolios.
Now for any of you compliance personnel, regulators or competitors listening in, let me be 1000% clear on something. As it relates to any performance data that we discuss, especially in the advisory accounts, the listener must understand that past performance is no indication of future performance. If your investment manager, broker or advisor did even a decent job these past 2 years, you should have seen some nice returns in your accounts. If you didn’t, it’s time to ask why. The issue, as you all will see, is that not only should advisory accounts performed strongly, but you also should have seen some decent returns in the FIA’s that we analyze, but…we’ll let the numbers speak for themselves.
Remember listeners, as Mark Twain said, when it comes to politics and a lot of insurance product sales pitches, there’s lies, there’s darned lies, and then there’s statistics. We’re going to see what the statistics tell us.
Before we get into our FIA examples, let’s have our future AI overlords give us a definition of this type of product:
An FIA is a hybrid because it combines features of both Fixed Annuities (guaranteed safety) and Variable Annuities (market-linked growth):
- The Floor (0%): This is the "fixed" part. If the stock market drops 20% this year, your account value does not move. Your "floor" is 0%, meaning you cannot lose your principal due to market performance.
- The Ceiling (The Catch): This is the "index" part. Your interest is linked to a market index (like the S&P 500). However, the insurance company doesn't give you all the gain. In exchange for protecting you from the losses, they limit your upside.
The "Big Three" Math Mechanics
And to provide context to the type of accounts we will be comparing these annuities to, here is the definition of an advisory investment account:
In the world of wealth management, an Advisory Investment Account (also known as a "Fee-Based" or "Managed" account) is the professional alternative to the old-school "Buy and Sell" brokerage model.
Think of it this way: In a traditional Brokerage Account, you pay a "toll" (a commission) every time you drive across the bridge. In an Advisory Account, you hire a "Navigator" (the advisor) to stay in the car with you, and you pay them a flat fee to make sure you stay on the right road.
The Three Core Pillars of Advisory Accounts
1. The Fiduciary Standard
This is the most important part. In an advisory account, your advisor is legally bound to a Fiduciary Standard. They are required to act in your best interest at all times. In a brokerage account, the standard is often just "Suitability"—which is a much lower bar that essentially means "it's good enough for someone like you."
2. The Fee Structure (AUM)
Instead of paying commissions on every trade, you pay a flat annual percentage of the Assets Under Management (AUM).
- The Alignment: If your account grows, the advisor’s paycheck grows. If your account drops, their paycheck drops.
- The Conflict-Free Zone: Because the advisor doesn't get paid "per trade," they have no incentive to churn your account just to generate fees.
3. Discretionary Management
Most advisory accounts are "discretionary." This means you give the advisor the authority to make trades on your behalf without calling you every single time. In the fast-moving 2026 market—where Agentic AI can shift trends in minutes—this allows your advisor to act quickly to protect your gains or harvest a tax loss.
Alriight Michelle, for this exercise, I want you to envision that 2 advisors are stepping into a boxing ring to fight for your business. In one corner is an “advisor” that is life insurance licensed only, or maybe they have their securities license but they still put a significant amount of their clients’ assets into fixed index annuities. In the other corner is a fee-based or fee-only financial advisor. One is going to pitch you a FIA as a “bond alternative”. One is going to pitch you an advisory investment account. Who will win? Will there be a knockout? Will there be a draw? Let’s find out. Let’s get ready to rumble!
First up, the FIA salesguy or gal. FYI – they’re almost always guys, I have no idea why. It’s like how personal injury lawyers with a million billboards are almost always guys too. Who knows. Anyway, you ask him to show you the performance over the past year or two on a couple of annuity contracts that he’s sold. He says, let me show you an illustration of what may happen with your annuity returns. You say, no, I want to know what has happened with the contracts you’ve sold. He finally relents and starts with this one:
First up is a FIA that was sold 2 years ago. The entire premium balance is tracking what’s called a “S&P 500 Index Annual Point to Point with a Cap”. The cap is 5.75%, which we learned earlier means the policy holder’s gains are capped at 5.75%, no matter how high the S&P 500 goes in any particular year. The policy was originally funded with about ¾ of a million dollars. The annuity has gained about $23k over the past 2 years, which in simple math results in a total return of about 3%, or roughly 1.5% per year. The index this contract is tracking, the S&P 500, was up over 20% for both 2023 and 2024, which means a total return of over 40% during that period, vs the total return 3% during the same period for this annuity.
Michelle: But wait, Josh, you said the cap rate was 5.75%, so with the S&P 500 performing way better than this, wouldn’t / shouldn’t that be the return of this annuity? Josh: Yes, you are correct. But you’re missing the annuity fees that are deducted from these gains, such as an income rider fee that often eats 1% or more of your gain. And to be fair to this contract, it has a robust income rider, which leads me to make this point for the first but not last time – if this annuity had been sold as a way to generate some decent level of future income in retirement, fine. I mean, you could have probably accomplished the same thing with a SPIA or a DIA and had more precise income projection. But as with most fixed index annuities, this annuity was sold as having significant upside potential with no downside. Zero is your hero Michelle! Folks, 1.5% annual return is nothing but downside, especially with inflation north of 3% for much of the past 2 years. You can get those types of returns inside your bank savings account.
But wait Michelle, the advisor / insurance agent says, let me grab another example. (Papers shuffling). This annuity had about ½ million invested in it 2 years ago, and it’s made nearly $7500 during that time! (Pulls out calculator). That means it’s made…oh crap…1.5% return over the past 2 years. Barely ¾ of a percent per year. But wait! Maybe the index it tracked was down! (Papers shuffling). Oh crap. The index was the S&P 500. But wait! This income has a Guaranteed Minimum Withdrawal Benefit (GMWB) annuity ride—that guarantees the ability to withdraw a set percentage (typically 5%–10%) of your initial investment annually for life, regardless of market performance. It protects your principal while allowing for continued market participation and liquidity.
OK, fine, GMWB riders can be very productive when generating income, but is that how this annuity was sold? I doubt it. My guess is that it was another “all upside and no downside pitch”. I also bet that the original illustration was a little more optimistic. The problem is that we may not see back-to-back years of high S&P 500 index performance like 2023 & 2024 for a while…which means the actual return on this annuity may be 0% going forward...which is a huge inflation risk. I think you listeners are picking up what I’m putting down here. If this FIA and the previous FIA were sold as “capital preservation with potential future income”, then fine. But they’re not. I’ve said many times on this show, my problem is with the product, it’s with how they’re sold.
They’re sold with all kinds of performance and tax-savings promises that they rarely keep.
But what about the upfront bonuses offered on some annuity contracts? Nothing wrong with extra money but it’s not the “free” money it’s often made out to be, there’s always a burn-off period tied to you keeping the annuity to maturing, and if you really want to get my blook boiling, get me talking about how some annuity salespeople use this premium bonus to pay the surrender charge on an annuity they are replacing that is still in its surrender period, often under the guise of better performance with the new annuity, but more often than not just an exercise to generate new commissions for the salesperson.
Our competitors listen to us Michelle, so I want to be fair to some of those tuning in that push annuities and are probably cursing us right now. Both of the annuity examples I used had long surrender periods – 10 years for both. So I took a look at the performance of 5-year surrender FIAs with similar index tracking and what I found was enlightening. One 5-year product had a total return of 7.1%, another had 4.2% and a third had 5.3%. Still mostly bank CD-like returns, but certainly much better than the 10-year annuity examples I used in our deeper analysis.
I think this is a very, very important fact. Listeners, for those of you considering buying an annuity, understand this: the longer the surrender period, the higher the commission to the person selling it to you. Human beings do what they are incentivized to do, so many annuity salepeople will present a 10 year surrender period – or longer – annuity as the best choice, when really what it does is pay them the highest commission. If you buy a FIA, never buy one with a surrender period past 7 years, and preferably, 5 years. As we’ve demonstrated, your performance may suffer the longer the surrender period. Plus the insurance industry changes too much and a lot of these products are outdated within a few years of being sold.
Michelle, did you forget about the other advisor in the ring? Well, now entering the fight is your fee-based or fee-only financial advisor. Why is he so nerdy looking compared to the fancy car driving, expensive watch wearing, tailored suit sporting insurance agent that is trying to convince you that FIAs are the greater investment product ever and that you should trust him most, if not all, of your retirement assets? Why does your fee-based advisor wear clothes from Wal-Mart and drive cash-only cars? Because the insurance-based advisor/agent is in SALES, and your fee-for-service advisor is not. Your fee-for-service advisor doesn’t accept commission on securities-based products, doesn’t swap annuities to generate new commissions, doesn’t make hyperbolic statements about what direction the stock market is heading, good or bad. He’s in the business of providing…wait for it…fiduciary-based financial advice and guidance.
So when you ask your fee-for-service advisor for performance numbers, he says fine, BUT LET ME TALK IN ALL CAPS THAT PAST PERFORAMNCE IS NO INDICATION OF FUTURE PERFORMANCE, AND MORE IMPORTANTLY, OUR FIRM LEADS WITH FINANCIAL PLANNING FIRST, SO IF PERFORMANCE IS YOUR ONLY CONCERN, HERE IS A LIST OF BROKERS THAT WOULD BE HAPPY TO TALK TO YOU.
With that said, even you folks that were invested in conservative or moderate portfolios should have seen double digit returns over the past couple of years. If you didn’t, something is off, and you should give us a call. Does that mean the market is going to keep ripping? Of course not. But positive gain years in the stock market far outweigh down years. It’s just that the down years get a lot more press. And a lot more attention from annuity salespeople trying to convince you to be scared of the stock market in retirement. Don’t be scared of long term investing. Be scared of losing all of your purchasing power in retirement. That is the true threat.
Alright, Michelle, 1% to 1.5% returns vs double digits, transparency vs confusing insurance contract language, high fees vs a modest level fee, cattle-call fancy steak dinner seminars vs building a deep personal relationship, high pressure sales tactics vs a collaborative approach. Who wins this fight?
Listeners, speaking of calling us, if you want to set up a follow up conversation with the team at Gulf Coast Financial Advisors, it’s easy. You can catch us at 251-327-2124, or find us on our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. There are flexible meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, a 30-minute zoom, or my preference, an in-person meeting at any of our 3 office locations: Downtown Fairhope, Orange Beach just down the road from the Wharf, or in Mobile off Dauphin St and I-65. Reach out to us - we would love to meet you!
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 we scour the internet for financial articles relevant to those of you in or near retirement, then give you our honest opinion about these headlines. So join us after the break to hear Payton and I discuss this week’s relevant headlines in our “Headlines of the Week” segment. Stay tuned!
Segment 2 - News of the Week:
Welcome back to Coasting in Retirement, your host Josh Null here, alongside co-host Michelle Lee Melton-Null. As we discussed before the break, every week we scour the internet for financial articles that pertain to those of you in or near retirement. Our job, or at least we tell ourselves it is, 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. Now without further adieu, here’s Michelle with the Headlines of the Week!
1. Michelle: Alright Josh, our first article is from a guy that most certainly wears clothes he bought at Walmart, ol’ Stan the Annuity Man. He has an article titled “Don't Buy Annuity Stories: Shootin' It Straight with Stan”. This article is timely because annuity shops are kicking off 'Free Chicken Dinner Seminar' season here along the Gulf Coast and listeners mailboxes are getting stuffed with invites. Stan argues that too many retirees are buying into 'hypothetical' back-tested returns and the dream of 'market upside with no downside.' He says that if an agent starts telling you a story about what a product might do, you should get up and walk out. I know you have people reach out asking you if they should attend one of these free dinner seminars, so what do you tell them?
Josh: I tell them, sure, why not, it’s usually good food at a nice place. But they must understand that if they decide to have a follow up meeting with the “advisor” hosting the dinner seminar, they are 100% getting pitched a FIA as the solution to all of their retirement concerns. And as you and I know first hand Michelle, a lot of these dinner seminar salesguys won’t honor your invitation unless you agree to set a follow-up appointment with them.
The bottom line is this: if an agent shows you a chart of how an annuity would have performed over the last 10 years using some 'proprietary AI-driven index,' or a market index you’ve never heard of, they are showing you a masterpiece of fiction. They’ve designed a computer program to look backwards and pick the winning lottery numbers from last week. It has zero bearing on what your money will do in the future.
In this office, we have a rule: We don't buy the 'maybe,' we buy the 'will.' An annuity is a transfer of risk, not a get-rich-quick scheme. If you want market returns, then you need to invest directly into the market. If you want safety, then you buy the contractual guarantee. If it isn't written in the bold print of the contract, it doesn't exist. Stop falling in love with the 'story' the agent is telling you over a free filet mignon and start reading the 'Statement of Understanding' that tells you exactly what the floor is.
https://www.stantheannuityman.com/learn/dont-buy-annuity-stories
2. Michelle: Next up Josh, a new report just came out from NerdWallet that breaks down exactly what the average American is paying for financial advice. This article lays out the most common ways that fee-for-service advisors get paid by clients, including Assets Under Management fees, or AUM for short, flat-fees, financial planning fees, and by the hour. It also confirms that the 1% AUM fee is still the industry standard, but it also highlights a growing frustration with investors. Many retirees are realizing they are paying that 1% fee on top of the additional fees inside the mutual funds their advisor picked for them. The article asks a tough question: In a world where you can get an automated portfolio for almost nothing, why are investors still writing five-figure checks to advisors every year? Is the '1% fee' a relic of the past, or is it actually a bargain if you’re getting the right help?"
Josh: This is a good article because it forces people to look at their statement with a magnifying glass. We’ve already established that annuities tend to be on the expensive side, especially those with a long surrender period. But my side of the industry isn’t without our own soft spot when it comes to how we get paid. Most people think 1% sounds small. But the truth is that 1% fee, in 2026, is too much if all your advisor is doing is asset allocation. If advisor, or more likely a broker posing as an advisor, is just putting you in five mutual funds and calling you once a year to say 'stay the course, you’re paying first class prices to sit in the economy section.
In 2026, a 1% fee has to be earned through comprehensive holistic planning. Is your advisor looking at Tax-Loss Harvesting? Are they coordinating with your CPA to handle the 2026 tax bracket shifts? Are they talking to your estate planning attorney on a regular basis? Are they assembling a lower cost portfolio of individual stocks and ETFs so you aren't paying high fees to an active mutual fund manager? If they’re not, they are probably a broker. And your broker is a dinosaur and AI is the asteroid headed for impact.
3. Michelle: For our last article of the day, we’re looking at a recent deep-dive from Morningstar that sounds the alarm on Fixed Index Annuity (FIA) Illustrations. For our listeners not familiar with that term, an illustration is typically colorful 20 plus page packet an agent hands you at a steakhouse seminar showing how your money could grow over the next ten years. These illustrations are increasingly using what they call 'Exotic Indices' and 'Back-Tested' data to show double-digit returns that simply haven't happened in the real world. For example, the article points out that insurance companies are now creating indices with fancy names like the 'Global Alpha Multi-Strategy Volatility Controlled Index.' They use an algorithm to look back at past data and say, 'If this index had existed in 2016, you would have made 12% a year.' But here’s the kicker: The index didn't actually exist in 2016. It was created six months ago. They just mined the data to find a pattern that worked in the past. Putting silly index names to the side, here’s my question to you Josh: if the illustration shows a 'Low, Medium, and High' scenario, and even the 'Low' scenario looks better than the low returns on a savings account, should investors trust that?
Josh: Not necessarily. Morningstar found that even the 'Low' scenarios in these illustrations are often based on the worst 10-year period of that specific made-up index. It doesn't account for the fact that the insurance company can change your Caps and Participation Rates every single year.
Imagine you’re looking at a travel brochure for a resort. The illustration is the picture of the pristine beach and the free cocktails. The Contract is the tiny fine print that says the beach might be closed for construction and the cocktails cost $50 each. When you buy an annuity, you are buying the Contractual Guarantees, not the illustration. If you can’t live on the 'worst-case' contractual guarantee—which is usually 0%—then the 'illustration' is just a fairytale designed to get you to sign the paperwork.
https://www.morningstar.com/retirement/be-wary-fixed-indexed-annuity-illustrations
Listeners, if you want to set up a follow up conversation with the team at Gulf Coast Financial Advisors, it’s easy. You can call us at 251-327-2124, or find us on our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. There are flexible meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, a 30-minute zoom, or my preference, an in-person meeting at any of our 3 office locations: Downtown Fairhope, Orange Beach just down the road from the Wharf, or in Mobile off Dauphin St and I-65. Reach out to us - we would love to meet you!
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, or maybe the distant 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, joined by co-host Michelle Lee Melton-Null . 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, so if I don’t have anything intelligent to say, just replace me with AI. I like making predictions, sometimes I hit the bullseye, sometimes I swing and I miss. Is there any crow to eat? Let’s get at with Josh’s Crystal Ball and Big Mouth and find out.
Michelle: Josh, I went back to our 2024 archives to do some research of what you had to say about crypto and artificial intelligence, and I must say, you were pretty adamant in your prediction. You told investors that crypto was a 'speculative gambling distraction' and that AI could possibly be a structural shift that actually mattered for their retirement assets. Two years later, let’s take a look at the scoreboard from February 2024 to February 2026:
If an investor bought Bitcoin two years ago at $44,000, they’ve had a wild ride sine then. Bitcoin hit $126,000 last year, but since then the Fed went hawkish, the market fled super risky assts, and Bitcoin has crashed nearly 50% from that peak, moving right back down in the $65,000 to $66,000 range. Compare that to AI. While the crypto bro was all about the 'digital gold' of crypto, AI companies like Nvidia were busy actually making money, with their stock up over 900% since the beginning of 2023 and annual revenue up by over 114% in fiscal 2025. Why do you think you’re were so accurate in your prediction, and what’s your crystal ball got to say about this trend continuing?
Josh: In 2024, AI was a chatbot that could write a poem. In 2026, we have Agentic AI. We have AI agents in our office right now doing the tax-loss harvesting, managing business supply chains, even assisting surgeons with 85% accuracy. Crypto promised to 'revolutionize finance,' but in 2026, you still can’t buy a gallon of milk with Bitcoin at the Publix without a 15-minute wait and a tax nightmare. AI, on the other hand, has become a utility. It’s the engine behind the productivity boom that’s keeping our economy afloat despite these high interest rates. Crypto is a lottery ticket; AI is infrastructure. If you listened to me in 2024 and moved your focus to the companies building the world of 2026, your portfolio is a lot healthier—and your blood pressure is a lot lower—than the guy still waiting for the next 'To the Moon’ crypto bubble.
Well, listeners, I hope you enjoyed a little peek into how we form our opinions and make predictions. We invite you one last time, if you would like to have a no-pressure, no-obligation conversation about your investing goals and retirement dreams, you can call us at 251-327-2124, or find us through our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. We have several meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, all the way to an in-person meeting at any of our 3 office locations. You can find GCFA offices in downtown Fairhope, or Orange Beach off Canal Road, or in Mobile off Dauphin St and I-65. Reach out to us - we would love to meet you!
That’s our show for this week! I want to give a huge thank you to my co-host Michelle, thank you to the producer of the show, Payton Null, thank you to our show sponsor, Providence Partners and Jay Stubbs, 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, 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, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null!
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