Biased and uninformed, most financial advisors have minuscule knowledge when it comes to selling annuities, while clients are too befuddled and unschooled to make proper buying decisions. If, however, annuities were sold correctly, this perfect storm would fast head out to sea.
That’s the hopeful scenario painted by vociferous “Stan The Annuity Man,” aka Stan G. Haithcock, who claims title as the nation’s top independent annuity agent for both consumers and fee-only investment advisors. Previously, he was a financial advisor at a wirehouse for 10 years.
As a zealous consumer advocate, Haithcock helps his clients find the best contractual guarantees in sync with their specific needs. Donning another hat, he’s an annuities source for large fee-only advisors. He works directly with, and is paid by, the annuity carriers.
His B2B clients include Evensky & Katz/Foldes Financial, for whom he helps analyze annuities and speaks to Harold Evensky’s personal financial planning classes at Texas Tech University.
Haithcock also talks annuities at private financial advisor events that banks and brokerages put on. The Annuity Man is not, however, a consultant to financial advisors.
The vehement Ponte Vedra Beach, Florida-based expert is deeply frustrated that annuity advertising’s sales messages are, he insists, unregulated and as a result, can “promise anything.” A decade ago he was mad as hell and not going to take it anymore.
That’s when, shortly after leaving UBS Financial Services, the Charlotte, North Carolina, native called in to a radio show promoting annuities and yelled fraud. Upshot: A bunch of listeners phoned him asking for help with their annuities.
Thus began Haithcock’s new career as a consumer advocate. In his previous one — stock-and-bond financial advisor at Morgan Stanley and PaineWebber, before UBS — he didn’t deal in annuities.
Now, in video rants on his website, he heatedly shouts warnings to investors about variable and indexed annuities’ sales pitches, the outcomes of which, he criticizes, serve to “handsomely” compensate financial advisors with “high commissions.”
In striving to demystify annuities, ThinkAdvisor recently picked Haithcock’s brain. This netted, in part, explanations of two of his strategies: laddering annuities by either purchase date or start date; and “IRA Ray Mirror”; i.e., leveraging annuities against one another to reap a better contractual return. Here are excerpts from our phone conversation:
ThinkAdvisor: You’ve been called “The Walking Middle Finger of Annuity Truth.” How does that sit with you?
Stan Haithcock: I embrace it because I’m abrasively factual — I do not sugarcoat these products. My clients aren’t buying a dream. If they want to, I won’t allow it.
What can advisors learn from you?
When they follow my instructions about annuities, they become better advisors because once guarantees for their clients’ income streams are in place, they can better manage the money that’s left over.
What’s the biggest mistake advisors make in selling annuities?
They look at them as investments. They’re not investments. An annuity is a contractually guaranteed transfer-of-risk strategy, and a noncorrelated asset.
So advisors misunderstand annuities?
There’s a huge uninformed bias against annuities. Most advisors have no clue about all the different types there are and how to use them. They haven’t done their due diligence. They don’t know that annuities are customizable. Most think that “annuity” means single-premium immediate annuity. But annuities can solve for many things other than income.
For what objectives are annuities most appropriate?
I use an acronym: PILL. “P” stands for Principal protection. “I” is for Income for life. “L” is Legacy. The second “L” is for Long-term care. There are more than 10 different types of annuities, without getting into institutional products; and they all have different value propositions and uses.
What other mistakes do FAs make?
They’re recommending that clients put too much money into annuity solutions and are selling variable annuities and indexed annuities as one-size-fits-all products. They call these hybrids and tell clients that they can get everything under the sun in one product. There’s no such thing as a hybrid annuity!
You contend that there’s a conflict of interest because advisors earn trips and other bonuses for selling specific annuities. What do you believe is a better approach?
Always show at least three to five different carriers to find the highest contractual guarantee that solves for the client’s goal. Never show just one. Some captive advisors can show only one, but even they should encourage clients to get multiple quotes.
Because annuities are commodity products. It’s a very dynamic marketplace: just because MetLife, say, is competitive one month on a certain product doesn’t mean they’ll be competitive on it the next. You need to access all carriers to get the best guarantee.
You maintain that the annuity industry doesn’t regulate carriers’ advertising sales messages. What’s the result?
They can pretty much promise anything. So, for example, too many people think they’ll get market growth on an indexed annuity. They’re just not going to. If that product existed, [Federal Reserve chair] Janet Yellen would be buying it for the country. But when you tell the uninformed consumer, “I can get you market-type growth and no losses,” they’re going to sign up, right? Clients should not be deluded. It isn’t a security!
What’s the role of indexed annuities, then?
They were devised to compete with CD returns. To tell someone that they can get market upside with no downside is a pretty good pitch. The only true part is that you won’t get any downside.
What are ways to be transparent when selling annuities?
It’s important to be very, very clear not only about the benefits but the limitations. Every one of these products has a limitation, including what you can withdraw per year penalty-free. Advisors use that as a benefit. But that’s just getting your own money back. They also need to be very clear that on all commercial annuities, there’s a free-look time period, where clients can get their money back no questions asked.
Anything else important to clarify?
An income rider is an income benefit that you can attach to a variable or indexed annuity. But too many advisors are blurring the line between the income rider percentage that the income account grows by and actual yield. Clients commonly believe they’re getting yield of 7% or 8%. They aren’t. Too many agents allow annuity buyers to believe this non-fact.
Why are annuities so complex?
They shouldn’t be — and shame on the annuity carriers for continually putting out things that only actuaries can explain. The immediate annuity, deferred income annuity [also called longevity annuity] and QLAC [Qualified Longevity Annuity Contract, a deferred income annuity that can be used in IRAs] are so [simple] that if you’d explain them to a 9-year-old, they would fully understand them. The immediate annuity solves for immediate income; the deferred income annuity solves for future income.
Why, then, are variable annuities the most popular of all?
The only reason that complex products, like the variable annuity and the indexed annuity, are sold in such [high] volume is that they pay the highest commissions.
So how much of the pie should variable annuities represent?
In a perfect world, 25% of sales, not 75%. Immediate annuities, deferred-income annuities and QLACs should be 75%, and I think they will be in the future. Eventually, the consumer will demand that annuities aren’t complex.
How should FAs overcome instant client objections when bringing up the subject of annuities?
They should say, “Do you like your Social Security? Well, Social Security is an annuity. But we [still] need to fill a gap for income.” Aging baby boomers and the demographic tidal wave of people looking for guarantees need to transition part of their portfolio to build an income floor with no risk – along with Social Security and a pension, if they’re fortunate enough to have one.
And annuities fit that bill?
By adding an annuity, they’ll have a guaranteed income they can never outlive, in combination with their investments. People love to get checks in the mail.
What are the key questions that FAs should ask clients when selling annuities?
“What do you want the money to do contractually? When do you want this contractual agreement to start?”
Do you agree with Harold Evensky – known as “The Father of Financial Planning” -- chair of Evensky & Katz/Foldes Financial, who told me in an interview six months ago: “The immediate annuity will be the single most important investing vehicle of the next 10 years”?
Absolutely. And I would add to that, the immediate annuity as a deferred-income annuity and the QLAC. Those will be the top three choices. They’re the most pro-customer transfer-risk annuities on the planet and will overtake variable annuities and indexed annuities in popularity.
What are their big advantages to consumers?
They’ve got no annual fees and very low commissions. Advisors that manage stock-and-bond portfolios need to have these in their inventory to solve for immediate and future income.
If the fiduciary standard is imposed on financial advisors, how might that affect the annuity market?
It will certainly change the way annuities are sold. The intention of the law is good, but the implementation will be horrible for the consumer, especially the non-wealthy, who need choices. This law will limit choices.
In what way will it change the way annuities are sold?
They will eventually be available direct from the carrier, like stocks, bonds and ETFs. Probably within five years, most agents will be cut out of the picture. Baby boomers will want choices and to make their own decisions. They won’t want to interact with an agent.
How will that impact you, personally, as an independent annuity agent?
I’m developing a separate business for the direct-to-consumer model. I’ll continue to be a consumer advocate.
On your website, you merchandise a variety of annuity-themed T-shirts. Do you design them yourself?
Yes. My favorite is “Got Guarantees?” If I were Annuity Czar for a day, that would be my slogan.
You remind me of a tall Sam Kinison, the late comedian who loudly ranted and railed — but for humorous effect.
I’m the annuity version! I’m mad because the industry has let their brand be tarnished on a very good product — and that’s continuing. But at the end of the day, I’m your typical math geek crunching numbers and trying to find the best way to skin a cat contractually.
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