Planning Strategies Based on Proven Success, Not Taradiddles*

byRob Wick

I have been hosting more and more calls about growth potential utilizing a fixed indexed annuity. There are some consistent responses that I receive from fellow advisors, such as: index annuities are too confusing, there is not enough growth potential, or my client’s assets are locked up for too long. In this week's G.R.I.T., we're focusing on GROWTH.  I will break down these common objections and share a few thoughts as to why you should consider positioning a portion of your clients’ retirement assets into an indexed annuity.

The most common response from advisors is that an index annuity is too confusing and there are too many moving parts. Personally, I really enjoy this objection. The same advisors that are saying this, are also selling variable annuities! And just so I'm clear -- a variable annuity with its multiple expenses, no floors, account value vs. income value growth, income that can fluctuate and a multitude of mutual fund choices -- is easier for a client to understand than an index annuity? Give mea break.

Perhaps the reason some advisors consider an index annuity to be confusing is due to their lack of understanding/education or they're lacking a sales process. A true sales process provides the chance to break down how an index annuity truly works and where it fits into a client's comprehensive retirement plan. At Peak Pro, we can provide both the education and sales process to break down where, how and why an FIA holds value in a portfolio. When we speak, let's discuss the True G.R.I.T index investing sales process.

I have a bit of a chuckle when I'm told, "index annuities do not have enough growth potential". To recap, I have covered taking a market loss and what is required to recoup back to 100% in previous G.R.I.T. blogs. I'm reminded of this, as I recently met with a 68-year old client this past weekend, she was 100% exposed to the market. We reflected on the market events of 2008: large market corrections and the impact of potentially losing upwards of 40% (as many did during the housing market crash).

The conversation had nothing to do with products, but rather the emotion and the impact to her future lifestyle, should she have lost a sizable portion of her nest egg. When presented the opportunity to forgo double-digit returns and focus on downside protection with a meaningful rate of return (4%-6% average) she showed a visible sense of relief. We too often get hung up on the potential returns and lose sight of more important details, like protection from loss. In many cases telling the right story is more important than the product and its features or returns.

Finally, and I love this objection: duration and “locking up clients assets”. I will concede the point if your clients were sold a 10+ year surrender, with no need for lifetime income. Anything in excess of 10 years, in my opinion, is just too long and you're doing your clients (and your business) a disservice. Clients' needs and wants will certainly change over a decade and being able to pivot is an important aspect for you as an advisor. With this in mind, there are now 5-year solutions that perform on the level of the very best of any 10-year strategy. If you could provide your clients a 13.72% return (4/19-4/20) on a one-year point-to-point on a 5-year chassis, would you still consider that you have “locked up” your clients' assets? 

Whether the objection be "index annuities are too confusing" or "there is not enough growth potential or my client assets are locked up for too long"; I again ask you to evaluate the following questions:

  • What's your knowledge level and what's your sales process?
  • Are you hosting the difficult conversations with your clients and discussing what life/retirement looks like with half their assets?
  • Are you digging deep enough to differentiate between your clients' needs and wants?
  • If the need is to protect a retirement nest egg from market loss, then why get hung up on large return potential?
  • If there is no need for a lifetime income stream and this is safe money positioning, why the concern on shorter duration solutions?

If you do not have a sales process in place, let's connect and make sure you have a solid understanding of index investing. Give me a call at (866) 866-7050 x1105 or email me at rob@peakprofinancial.com

*Taradiddles is a cowboy phrase for lies, myths, or tall tales.