Swallow The Food…Not the Annuity Sales Pitch
The Annuity Man
Every week, I receive 2 to 3 “invitations” to a restaurant to eat a good meal and listen to some “expert” tell me about market volatility and offering a free portfolio review. In the past, the restaurants were middle of the road quality, but now the invitations are to top steakhouses and 5 star eateries. High commission products anyone?
You better believe it! The majority of these “food pitch seminars” are trying to eventually sell you a Fixed Index Annuity (FIA). One size fits all. Pitched as the greatest product of all time. Does everything you need. There’s only one problem. If it sounds too good to be true, it is…every single time…without exception…when it comes to most FIA sales pitches.
For the record, I like Fixed Index Annuities (FIAs) when they are properly explained for their benefits and limitations. I recommend them when I feel they are suitable and appropriate for someone's specific situation and goals. They work just like the contract says they will work, and people should base their buying decision on those contractual guarantees only.
My mom lives in St. Augustine, Florida and has attended 1 to 2 of these annuity food fests every week for many years. She’s such a pistol, that she will call ahead and see what’s on the menu….and especially what’s for desert. The desert treat at the end is what a person originally from North Carolina (my mom) truly cares about. I’m guessing that she has eaten over 200 free meals over the years funded by eager annuity agents. I want to thank them personally for supporting her nutritional needs. Like most people, she still has no clue how a FIA index option works!
The reason that FIAs (Fixed Index Annuities) are the topic of most bad chicken (now steak) dinner seminars is that it’s a good story that pays a high commission, especially with FIAs that have a long surrender charge time period. That doesn’t mean that I hate FIAs or that they are a bad product. It means that you need to fully understand how FIAs work, and the specific limitations and benefits that are unique to the strategy. In other words, don't buy the sizzle because you are going to own the steak.
My main problem with the "food seminars" is that if you have 100 people in the room eating the free meal, it makes no sense to just show one product type. That's the definition of "square peg into round hole" selling. Not everyone in that room even needs an annuity (of any type), and all 100 of them certainly don't need the same one being presented. From a fiduciary standpoint, it's not a rational approach and certainly not putting the client's needs first.
FIAs are fixed annuities. They are a life insurance product, not a security. To sell the vast majority of them, you only have to pass a state life insurance license exam. FIAs were introduced in 1995 to compete with CD returns, and those are the actual return ranges that have been historically produced. I actually think that's a good story. Principal protection with CD type (or a little better) returns. In essence, FIAs are an enhanced CD product, not the too good to be true market return product you hear pitched.
FIAs do have their place as a principal protection product, right beside CDs (Certificates of Deposit) and MYGA (Multi-Year Guarantee Annuities) fixed rate strategies. FIAs are also an efficient delivery system for attached Income Rider benefits for future lifetime income guarantees. That's specifically how I like using them. If someone wants what I call an "Income Later" guarantee, then I quote all FIAs with Income Riders and also Deferred Income Annuities (DIAs) to find the highest contractual guarantee for that person's specific situation and goals. Quoting both strategies is essential to assure you are locking in the highest number.
If you are looking for true market upside with no downside, that product does not exist. If it did, the FED would have all of their problems solved and only buy Fixed Index Annuities. Remember, if it sounds too good to be true, it is every single time with annuities (regardless of type). No exceptions. It's also very important that you never make your buying decision on hypothetical, theoretical, back-tested, or hopeful agent return scenarios. Don't ever buy the dream pitched, because you are going to own the contractual reality.
So the next time you get one of those food seminar invitations in the mail, please go….but remember to ONLY swallow the food…not the sales pitch. Free food is always a good thing. Right?