You can learn a lot from little kids. They are unfiltered and say what is on their minds because they have not yet been “polluted” by political correctness.
For example, as my family was on our boat a year ago and I donned my swimsuit, my 8-year-old son Matthew thought he would verbally express a profound observation. After staring at me for about 10 seconds, he said, “Daddy, you need to start eating at Subway instead of McDonalds.” I will say, when an 8-year-old tells you that you are fat, you are fat.
I have a wealth management practice in addition to running my marketing organization. Within my wealth management practice, I am a registered representative, an investment advisor and an insurance agent. Of the two businesses — securities and insurance — the one I have built my career around is the insurance business.
So when Matthew tells his friends what his dad does for a living, wouldn’t you think he would tell them I am in insurance? Wrong. His friends know me only as an “investment advisor.” Clearly, even an 8-year-old thinks that an investment advisor is cooler than an insurance agent.
Apparently, my kids don’t go to school and brag about how their dad sells indexed annuities. Stocks and bonds are clearly more glamorous. I wonder if my kids have watched too many Ken Fisher commercials?
Although I believe Matthew favoring investment advisors over insurance agents is purely coincidental — because he is only 8 and doesn’t know the difference — that example is a microcosm of the perceptions of the general public. Everybody, including my farmer cousin, wants to pretend to be a “Wall Street” quant instead of Ned Ryerson in “Groundhog Day.” OK, bad comparison. (Note: If you don’t know who the cheesy insurance salesman Ned Ryerson is, Google him.)
Many of my friends know me as an annuity and life expert, which may not make me the coolest guy in my group of friends. Needless to say, they don’t choose to discuss annuities and life insurance with me very often. However, for those friends who also know that I work with securities, they always want to discuss stocks, bonds, funds, the economy, etc., with me. Interesting dynamic, huh?
So, as I work with my friends’ financial portfolios, I am very cognizant of this anti-annuity dynamic and the standoffishness around these products. Therefore, I approach the annuity conversation with caution with my friends. Although my friends trust me, I do not want them to think that I am trying to push annuities and life insurance.
What If The Market Tanks?
A 50-year-old friend of mine sold a piece of his business recently and received a total of more than $500,000. I would consider this friend to be very savvy about stocks, bonds, interest rates, etc. He wanted to speak with me about his options.
When we talked, he expressed what many other clients feel today: that we are 11 years into a bull market that on average lasts only 48 months. He also believed the bond market and yield curve were signaling big trouble in our economy within the next couple of years. This made him uncomfortable with his normal choice, the stock market. He also understood that bonds may not be a great choice because if interest rates rise, bonds are not so “safe.” In short, he felt what many investors feel — nowhere feels safe today!
After I gave him many securities and nonsecurities options while keeping the notion of annuities silent, he said something that broke my silence. He asked me, “Is there anything out there that if the stock and bond market tank I am protected, but yet if the market rises, I am able to get more than the 1.6% the bank is giving me?” I could no longer stay silent!
I went on to explain what an indexed annuity does, without ever mentioning the “A” word. After hearing the story of what these products do, without ever mentioning the “A” word, my friend said, “That is exactly what I am looking for.” I then explained that the solution I proposed was an annuity. I proposed that for a small portion of his portfolio — the fixed income part — this would give him what he is looking for, a little more upside potential than fixed alternatives, but with the downside protection of 0% in negative environments. He said, “Why have I never heard of this before?”
For those of you who have sold these products, you are probably nodding your head in agreement as you have experienced a situation very similar to this. Many consumers like what annuities do, but they do not like the “A” word! Public awareness around annuities seriously lags the marketing heft of the multitrillion-dollar securities business (which I love as well). That, along with the fact that you have “money managers” with large budgets bashing annuities and calling them “scumbag products” (verbatim), results in annuities not being perceived as “cool” in the mindsets of consumers.
Millennials Could Learn To Love Annuities
This is an unfortunate mindset that has been created by some of these pundits and their negative marketing. However, I believe this will change as the largest age cohort in the United States is more risk averse than their parents were at their age. I am not referring to baby boomers; I am referring to the 82 million millennials.
The millennial generation came of investing age over the past 20 years when they saw the stock market lose 49% from 2000 to 2002 then 57% from 2007 to 2009. This volatile period was different than the bullish 1980s and ‘90’s that their parents experienced and this experience is tattooed in the minds of these millennials.
Furthermore, even the baby boomers who experienced the bullish ‘80s and ‘90s are beginning to realize that annuities can do things that the securities companies cannot — provide guaranteed lifetime income that cannot be outlived. And the level of lifetime income guaranteed to them many times is higher than the securities rules of thumb, such as the 4% withdrawal rule (which is now 2.8%, according to Morningstar).
As a matter of fact, the most popular indexed annuity my agents are offering to retiring clients today guarantees that when a 63-year-old client (for example) retires in two years, they will be guaranteed a lifetime income that increases to more than 7.2% of their premium per year for the rest of their life. How can a stock/bond rep argue against this unless they are suggesting dangerously high withdrawal rates?
It’s not profound when I say to make annuities become “cool,” we as an industry need to explain the wonderful things these products do in an effective manner. Explaining and selling these products is harder than selling stocks was in 1999. This requires powerful marketing, storyselling, communication skills and subject matter expertise. Carriers and independent marketing organizations need to help financial professionals with this process.
The adage “customers want a hole, not a drill bit” rings true with annuities. For example, my friend hated (past tense) the “A” word, at least until I made him aware of what annuities do. If I had mentioned annuities at the outset, the conversation would have been over!
Baby boomers, after they are educated on what annuities can do (like my 7.2% example), will also realize that these products can be just as cool as the Wall Street-type stuff. But again, we need to be able to educate and communicate the value in an effective manner because there are biases against these products brought about by certain marketing campaigns.
I will end with a story that I often share with agents and clients. This is in response to the prospect who says, “That level of guaranteed income seems too good to be true!” This story should be credited to national retirement expert, Moshe Milevsky, and explains how life insurance and annuity companies are able to provide the unique benefit of guaranteed lifetime income that can be higher than the securities “rules of thumb.”
There were five 95-year-old ladies sitting around the table playing bingo. One of the 95-year-old ladies looked up and said, “This is very boring! We have been doing this for 30 years and it’s time to try something new. Let’s all put $100 on the table right now and whoever is still alive a year from now will be able to split the entire $500 pool.” They all agreed it sounded like fun so they each threw $100 on the table. One year goes by and, as the mortality tables showed, there were only four of those 96-year-olds still alive. One of them passed away. What does this mean? This means that each of those four 96-year-olds gets $125 at that point in time, which is $500 divided up four different ways. It wasn’t even invested in anything over that year but they each got their money back, plus an additional $25, by merely living an additional year! Isn’t that magical?
To be clear: The point is not that anybody is going to get 25% on their money. The point is, that like mortality credits with life insurance, longevity credits with annuities cannot be replicated by Gordon Gekko and the Wall Streeters.
Going back to Groundhog Day, maybe Phil (Bill Murray) should slow down and listen to what Ned Ryerson has to say. Of course, Ned Ryerson also needs to approach the conversation in a more effective manner!