Variable Annuity – Fee Analysis

I’m biased.

Day-in, day-out I consult a number of the top “safe money focused” advisors around the US. These are not your wire house, hot stock tip, Wall Street types. Many of these advisors view safety and contractual guarantees as top priority, growth and accumulation second. That said, their target market is an older demographic – typically 55+ looking for sleep and income insurance during their golden years.

Now here’s my beef…

Daily I hear about 55+ clients who own variable annuities. That’s not the bad part. I believe variable annuities have a viable place in financial planning (evidenced by$41 billion in 2nd quarter 2011 sales; up 16% from 2nd quarter, 2010). My problem is with how these variable annuities are sold. Over 90% of variable annuities are sold to clients based on the riders you can attach to the base policy. Guaranteed withdrawal living benefit riders, death benefit riders, etc. Then the “wrap up” part of the sale is talking about upside potential, if accumulation of the VA is even discussed at all. For example, about 96% of Prudential’s record $6.8 billion 1st quarter, 2011 variable annuity sales were policies that included a lifetime income guarantee. At MetLife, 80% of their $5.7 billion of products sold in the same quarter carried a guranteed benefit. Which raises my concern…

#1 – If variable annuities are being sold rider 1st, upside 2nd – wouldn’t clients be better served with indexed annuities? Fixed Indexed Annuities offer higher living benefit rider guarantees (think 7%, 8%, even up to 8.2% compounded growth, longer deferral guarantee periods and higher payout bands applied. All resulting in larger lifetime income checks) than VAs. Granted, the upside in a Fixed Indexed Annuity is less than variable annuities, but shouldn’t we cater the product and it’s features to how it’s being sold and what clients are asking for?

#2 – If 90% of variable annuities are being sold with riders attached, do clients understand how that fee structure effects their gains credited? Back to a couple of the hottest VA sellers in Prudential and MetLife, the annual fee of their lifetime income rider is 1.03%. That’s on top of the regular annuity fees, which average 2.51% – producing a total fee structure averaging 3.54%!!! Add a death benefit rider, return of principal guarantee or more aggressive subaccounts and clients have over a 4% annual fee. Do they realize that? I’m betting most don’t and if they did, they’d be pretty ticked off. Back to fixed indexed annuities, most have an annual income rider fee structure at 0.75% – 0.95%; one-quarter that of variable annuities. And most have a 0% fee structure for the base contract.

I’m not stating that fixed indexed annuities are the be-all, end-all for retirees investors. But in today’s economy, aren’t a lot of people looking for: Guaranteed Income 1st, Low Fees 2nd, Growth 3rd? If that’s the case, shouldn’t we match the best product to their situation?
What am I missing?!? I’m all ears.

P.S. A top “safe money focused” advisor I consult (writing $15-20 million per year into FIAs) uses a 1-page Variable Fee Analysis with clients who own one. It totals up all fees within the product, to ensure clients understand what they own. It details expenses for : (1) M&E (2) GMIB Rider (3) DB Rider (4) Administrative (5) Subaccount Funds (6) Other Riders. Next it takes that total fee percentage and applies it against the client’s account value to project out 1 yr, 5 yr, 7 yr and 10 yr total fees. If you’d like a copy and would use it – post a comment and I’ll email it to you. Happy selling.

Volatile Stock Market – Marketing Idea

How about these markets lately, huh? Can the word volatile even describe it?!? In times like these, it’s crucial you’re over-communicating with clients to answer questions or address concerns they have with their financial plan. CNBC and the Wall Street Journal are scaring them to death right now. What are you telling them?

In fact, in a recent research report conducted by the Insured Retirement Institute, it’s very clear that retirees put a lot more stock (excuse the pun) in their advisors based upon how they communicate – not based on performance alone. (CLICK HERE for instant access to this report.)

That said, I wanted to share a third-party article sales idea that will give you an excellent reason to reach out to your current clients and prospects.  This idea alone generated over $1 million in premium for one of our top advisors the last time the market was this volatile. The first step is to review your database and identify:
• Any “A” or “B” prospects you haven’t been able to close thus far
• Any current clients whose assets you haven’t yet captured completely
• Any current clients who still have a large portion of assets in the market

After identifying these individuals, you want to mail out an article that’s relevant to the situation. In this case, I’ve included a recent article you can use titled, Retirees Need Less Stocks…More Annuities.” (CLICK HERE to download a copy.) This article suggests that retirees should only have 5-25% of their money tied to equities. It also proposes annuities as an excellent solution to use for income purposes. Next, place a Post-It note on the article that says something like, “With the recent market activity, I thought you would find this article interesting…Call me if you have any questions or concerns.” Then you or someone from your team needs to block off time on your schedule (make sure it’s after they’ve received the article and had a couple of days to review it) to make follow-up calls to everyone you’ve mailed. When you or your staff call out, the goals should be to:

  1. Ensure they received the article
  2. Inquire about any questions/concerns they have &
  3. Offer a free second opinion on their portfolio given the recent market shakeup

This sales idea accomplishes two critical objectives:

  1. Reach out to existing clients, reminding them you stay in touch long after the original sale and want to address their concerns. There’s also a good chance your prospects’ current advisors aren’t communicating with them. This will be a tactful way to find out if they’re unhappy with their returns and/or lack of communication and get your foot in the door.
  2. It’s a great time to offer a stock market alternative and close safe-money alternative (i.e FIA) business if they have concerns pertaining to market risk.

Every advisor wants inexpensive, proven methods to generate additional sales and deepen your existing relationships; this is it.  Give it a try, and let me know how I can help you with the cases you uncover!
Happy selling.

Annuity Death Benefit Riders (2 Top)

As I’ve discussed with many top producers, the newest product niche today is the added Death Benefit feature popping up on products all over the industry. Rightly so. According to LIMRA, 85% of all in-force annuity dollars will be inherited. In the last several months, many new products or riders have hit the market bringing an inheritance story to the already powerful safety and income stories you’re already selling daily.

I generally see two types of Death Benefit products:

a)       Combo Income/Death Benefit – These products offer riders which serve both purposes: income for the client while living with the Income Account Value then becoming inheritable to their beneficiaries at death if paid out over a 5-year period.

b)       Death Benefit Only – These products offer death benefit rider which can be used in conjunction with an income rider or as a standalone feature. The products typically have a lower roll-up rate but allow the Death Benefit Value to pass to beneficiaries in a lump sum payment.

Today, I wanted to share a few products I’ve found to be the most unique and beneficial in these two instances and share some specific ways they might fit your clients’ needs. The main feature separating these two products from others is the duration of the Death Benefit roll-up. Most Death Benefits hitting the street today are capping the Death Benefit at twice the initial premium for inheritance.

1)       Combo Income/Death Benefit Scenario -Forethought® Bonus AdvantageSM

  1. 8% Premium Bonus applied to Contract Value at issue, subject to a 10 year vesting schedule
  2. 6% Compounded growth to the Income Base at each Contract Anniversary2
  3. Accelerated Income Benefit-Temporarily boost income payout percentage to 8% of the Income Base if income start date deferred for 10 years
  4. The Death Benefit portion of the Rider subject to a cap of up to 250% for ages 55-69
  5. 8% comp (5% for ages 76-80)

2)       Death Benefit Only Scenario – Aviva BAA™

  1. 7% Premium Bonus on a 12-year chassis
  2. 4% Compounded benefit to age 85 (or 8 years – whichever is LONGER)
  3. Dollar for dollar reduction on partial withdrawals and RMDs (up to 4%)

Obviously, I can’t go into all the opportunities to use these two features in a single post, but if you have a client whose main goal is not just maximum income in retirement, contact me to discuss the different ways we can use these combination products and maximize their benefits to your client.

Truth be told, your competition is often walking in with one story and one solution. I’ve combed the latest releases for you, and I’m here to help present a tailor-made recommendation for your next appointment. Take care and finish July strong.

“I Don’t Want an Annuity…”

“I heard annuities are bad investments, and with everything I’ve seen, I DON’T WANT ONE!”

Ever heard something like that before? I’m sure you’ve worked with clients that walk into your office or seminar with this mindset. Can you blame them? Popular media has plastered negative bias about annuities everywhere you look. Check out some recent drivel:

“Here’s a puzzle for you – the answer to which could make or break your financial future. What kind of business takes your money, gives you a guaranteed minimum return and then invests the money in a complex derivative of securities or crummy real estate investments? Wait, there’s more. What kind of business takes your money and gives you a guaranteed level of performance, a stop out, plus some upside in the S&P 500, and then not only fails to hedge but invests in the very same crummy, toxic properties? If you guessed the annuities market, go to the front of the line. Unfortunately, these days, the front of the line in the annuities market heads right off a cliff.”

Guess which popular media figure made that statement?
Jim Cramer, CNBC host of “Mad Money.” For many Americans, Jim Cramer is viewed as a notable financial analyst who “understands” investments. If he is claims annuities are bad investments, then it has to be correct, right?

As far as truth is concerned, you and I both know much of what’s published in the media is biased half-truth. Fact remain that in the consumer arena, perception is 90% of reality. So what should you be doing to convert resulting annuity skeptics into annuity buyers?

For starters, remember that Advisors Excel is taking this bull by the horns for your benefit. In January this year, we hired one of the top financial services public relations firms in the nation and began an aggressive, six-figure public relations campaign! Our positive annuity blitz promotes the virtues of indexed annuities in major media publications. While we’ve strongly supported the efforts of insurance carriers and various trade organizations to combat the rampant misinformation surrounding annuities (FIAs in particular), we haven’t been excited about the results, so we took the task on ourselves.

Our goal is to leverage Advisors Excel producers to get major media outlets educated about and promote the benefits of indexed annuities. We’ve already had tremendous success with this effort, with several of our advisors gaining national media exposure while extolling the virtues of the products we sell. These positive stories lend you added support and help consumers make informed decisions. As we continue to build momentum in the major media outlets, you’ll be the first to know about these positive stories as another perk of partnering with me.

In addition, there are a number of well-rounded resources which shed positive light on traditional and fixed index annuities. Everyone’s heard the saying, “It takes ten positive things to erase one negative.” If you already keep a library of positive articles, I suggest adding the following pieces to your menu.  If you don’t currently have a library, these three resources would be a great start:

When it comes to combating negative press, don’t forget to adequately acknowledge your clients’ intellect. Rather than simply taking a “point-counterpoint” approach to media bias (often resulting in a non-productive, frustrating tennis match), help them understand why such press exists in the first place. Truth be told, there is a war raging over the American retiree’s dollar – a war fought between banks, insurance companies and Wall Street. Of those three financial outlets, which has the biggest influence on popular media?

And much like medicines, financial products are developed with very specific uses in mind. Thus, blanket criticism of an annuity, mutual fund, stock or CD is much like blanket criticism of penicillin or ibuprofen. In the wrong hands, used for the wrong purpose, any medicine can be abused.  However, when used to treat the needs for which they were designed, today’s prescriptions and financial vehicles can be just what the doctor ordered. They can be just what clients like Eleanor (below) rely on throughout their retirement years..

To discuss additional strategies that top producers use to overcome media negativity and position the true value of annuities, call me anytime.


Worn Out Presentations [3 Items]

The retirement landscape (and marketing into it) is evolving at breakneck speed. One of the top producers I consult always says “If you’re not evolving, you’re dying.” So ask yourself:

  • Am I currently showing clients materials that are timely and relevant today?
  • Or am I using sales materials that are 12-24 months (or even longer…) old?!?
  • Do my handouts, supporting docs and videos feel a little worn out?

Not after today…

My simplistic role in the retirement landscape is to empower. Empower financial advisors to efficient marketing, additional clients and a larger bottom line. Do all that while putting more American retirees in a safe and secure retirement environment. To support that cause, below are 3 incredible client pieces. All 3 were shared by your financial advisor peer group and are already being used successfully in the field.
Steal at your leisure and refresh your support materials ASAP!

Sales Support Item #1
Barron’s “Best Annuity” Article – June, 2011

This 2 page article provides a fair view of annuities & their value proposition. Given how well-respected Barron’s remains for financial news, this should be an article you immediately put in front of clients & prospects.

Sales Support Item #2
PBS NewsHour Video – Is Your Pension Safe? – June, 2011

9:38 video produced by PBS (non-polarizing to most people) about the 50 state pension crunch. This video lays the groundwork to prompt taking action. Don’t rely on the government, your employer or your state to bail you out. Take responsibility for your own retirement security now!

Sales Support Item #3
Insured Retirement Institute’s 2011 Fact Book – June, 2011

190-page fact book with updated details, stats and trends in retirement income planning! You can never say you’re at a loss for information with this in hand. There is more seminar content, presentation ideas and client letter statistics than you could ever use (embarrassment of riches)!!!

Push strong into this summer and I’m a phone call/email/post away to help with anything.

The Annuity Puzzle

Have you read the “Annuity Puzzle” article from the New York Times on Saturday, June 4th?
If not, post a comment below and I’ll get a copy out! You need to read this if you visit with clients about annuities!!!

It’s high-quality credibility from Richard H. Thaler, Professor of Economics and Behavioral Science at the University of Chicago Booth School of Business. But just as important, this 2-pager speaks to the core of what clients believe. It opens conversation about their beliefs and how they’re not alone. Here’s a couple excerpts:

  • Economists call this the “annuity puzzle.” Using standard assumptions, economists have shown that buyers of annuities are assured more annual income for the rest of their lives compared with people who self-manage their portfolios.
  • So, why don’t more people buy annuities with their 401(k) dollars?…Here’s one part of the answer: Some people think that buying an annuity is in some way a bad deal for their heirs. But that need not be true.
  • It’s is the decision to self-manage your retirement wealth that is the risky one.
  • An annuity can also help people with another important decision: when to retire

Read through these two pages and decide how you can leverage this in your practice. And make it a great week; contact me when I can do more.


Annuities…Solving Problems Since 1995

You likely saw the United States recently hit its Federal debt ceiling of $14.2 trillion. At nearly the same time the United States also had its credit outlook downgraded by Standard & Poor’s from positive to negative, citing the fact that authorities have not made clear how they’ll tackle long-term fiscal pressures. News to virtually no one, the economic recovery in our country will not be quick one.

What does all of this mean to you as an advisor, and more importantly, what does it mean to your clients? Clients are more concerned than ever before about running out of money during retirement. News like the above and countless other daily stories have them scared. In fact, according to a recent Associated Press and poll, nearly half of Baby Boomers near retirement fear they can’t afford it. (CLICK HERE for the entire article.) They might run out of money using today’s numbers! But pile on top of that inflation and leaving a meaningful benefit to loved ones and it looks dire.

To help address these issues, I’m providing two presentations specifically built to ease your client’s top three financial concerns:

            1) Outliving retirement income

            2) Safeguarding against inflation

            3) Providing a death benefit to heirs

Presentation #1– This illustrates your prospects that need income with inflation protection first, and secondarily will leave money to beneficiaries (assuming a 6% payout percentage for life).

Presentation #2– This illustrates your prospects that have equal concerns of needing lifetime income but also want to leave money to loved ones (guaranteeing a 4.5% payout percentage for life).

I distinctly recall an advisor I consult saying, “Your potential clients are coming to you for help solving a problem. They don’t care what product gets them there.”  Find that problem, agitate it, make it real to them and provide sound solutions to help clients enjoy the retirement they’ve always envisioned. They’re in more uncertain waters than ever before, and you have the solutions they need!

Make it a great week!