Since the fixed annuity industry is in the business of adopting useless generic words like “hybrid,” I decided to actually bring wordsmith value to the fixed annuity congregation by introducing a combo word that fits perfectly into the-future-greatest-thing-since-sliced-bread sales pitch. That word is vomitility. Fixed annuities are the antidote for what happens when market volatility creates that uncontrollable drool that is the precursor for the inevitable loss of one’s investment cookies.
Yes, I said vomitility. It’s a perfect blend between vomit and volatility, and something I expect to hear at every bad chicken dinner seminar from Tampa to Portland. Before you start sending the hate emails, let’s break this vomitility thing down for a second. Hybrid smybrid! The new shiny thing for annuity agents is vomitility.
Alright, now let’s get serious. We all remember the whole 2008 market disaster where people got destroyed and vowed on their last grandchild that they were never going to let that happen to their portfolio again. My how time flies, and isn’t it interesting the selective memory of people that are now turning down fixed annuity guarantees because they want more market return. Pigs get slaughtered every single time, and this time will be no different.
Some people love volatility in their portfolio. Those people are called traders…or delusional. Most everyone else in the investment world doesn’t want to throw the dice overhand with a running start. Most rational investors know that a portion of their portfolio should either be guaranteed or not subject to volatile market swings. This is truly where a fixed indexed annuity (FIA) might be a good fit for a portion of the overall allocation. Agents should proudly show the last five-year FIA study of 3.27 percent average annual returns, and yell at the top of their lungs, No downside! No losses! No 2008!
By the way, 3.27 percent with no downside is something that agents should hold as a badge of honor and not sugar coat or juice the numbers like the annuity promoters unfortunately do on the Internet. And for all of those newly created FIA indices with no back testing and only sizzle dreams or “new-ness” attached, agents still should present the 3.27 percent reality, not the hype of the unknown. It’s much better to get a call from a client asking why the returns are higher than planned, than the reverse. There’s no need to hang yourself when FIA returns are acceptable to rational people (and agents), and when the facts of the product are properly and factually presented. It’s all about client (and agent) return expectations at the end of the day.
It’s time for the annuity industry to show people how the world of fixed annuities can prevent vomitility. Trust me, this word is going to stick (no pun intended).
Screaming for a fixed annuity solution
In a recent Workplace Benefits Report study by our friends at Bank of America/Merrill Lynch (just rolls off your tongue, huh!), some of the findings screamed for fixed annuity transfer of risk solutions. The study was done for people who are very close to retiring, or retiring right now. Below are some of the main points with a corresponding vomitility solution.
- 59 percent say that their 401(k) will either be the largest or second largest source for retirement income. Vomitility solution: Fixed annuities for contractually guaranteed lifetime income.
- 42 percent say Social Security will be their biggest income source. Vomitility solution: Fixed annuities as an additional lifetime income stream.
- 46 percent believe the economy and market volatility play a larger role in their retirement planning than their parents. Vomitility solution: Fixed annuities to avoid market volatility.
When I say fixed annuities, I mean all fixed annuities, not just FIAs. That means Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs/Longevity), Indexed Annuities, and Fixed Rate (MYGA) Annuities should be shown as transfer of risk solutions that can remove volatility from a portfolio. The one-size-fits-all practice of too many agents and FMOs needs to stop now.
All of us are watching these markets and just waiting for the shoe to drop and the Dow to plunge like it’s 2008 all over again. We all know that it will probably happen in the near future, and we will hear the same type of investor “I’ll never do that again” promises that have conveniently been forgotten. Whatever happened to the ridiculously corny “zero is your hero” annuity phrase of the past? It’s getting ready to be en vogue once again.
Fixed annuities do have a place in a portion of most portfolios. Just like the gold or silver is purchased as a non-correlated asset to smooth out portfolio volatility, that same strategy should be used for fixed annuities. The question I always ask is “How much risk are you willing to shoulder?” and “How much risk are you willing to transfer?” Every client is different, and based on the answer to these two questions, you can get a feel for how much volatility can be removed from their portfolio using a customized fixed annuity strategy.
Everyone hates that pre-vomit stage when your mouth starts watering uncontrollably. Once the drool starts, it’s hard to stop the inevitable. Watching the market volatility and ongoing economic uncertainty evokes the same queasiness because you know the eventual drop will happen. That’s vomitility my friends, and fixed annuities are the appropriate and suitable strategies to prevent this dreaded and predictable investor affliction.
For more from Stan Haithcock, see: