I truly believe that most annuity agents have the client’s or prospect’s best interests in mind. I’m fortunate enough to know a lot of these professionals, and have seen and approved a lot of their proposals that I am sent to review as an objective resource. With that being said, I also see far too many annuity pitches that are dancing on the line of full disclosure and allowing the client to fill in the blanks to some very important annuity questions and current issues.

There’s no need or justification for these types of bullet-point proposals or presentations because as I always say: “The contractual realities of the policy will eventually reveal themselves.” We all know that this is true, so it’s common sense to “go there” voluntarily because clients need to fully understand the good, the bad, and the limitations of any annuity before buying.

I am fortunate to have clients and prospects nationwide, and they cut across all demographic and cultural lines. So I have a pretty good sample base to draw some of my conclusions from. I also receive hundreds of emails and calls every month from people that have been pitched an annuity, and the one common thread that is disturbingly apparent is that too many agents are letting the prospect fill in the blank to important annuity questions that somehow go unasked.

The problem with clients and prospects filling in the blanks for themselves is that their answers (i.e., hopes) typically do not correlate with the realities of the policy. Below are some “blanks” that I feel the agent needs to proactively address and fill in with facts so that the person has enough information to make an informed buying or non-buying decision.

Income rider or yield?

This is the granddaddy of all fill-in-the-blanks when it comes to annuities. Too many annuity owners think that they own an annuity with a 7 percent or 8 percent yield, like the good old days of Jimmy Carter-interest-rate CDs. It’s so important to clarify that this income rider growth percentage is not the CD-type yield that the client wants and yearns for, and can only be used for future income. 

Current interest rates

I don’t care what annuity you are presenting, if that person is astute at all, they are wondering how current interest rates should be considered for the annuity they are looking to purchase. Agents cannot let that person fill in the blank, or even worse, tell them what they want to hear about interest rates to get the sale. The bottom line is that no one knows where interest rates are going. That’s a fact. 

Inflation

This is the gorilla in the room that every single person is thinking about, so why not address it. Like interest rates, no one knows the answer and when or if inflation will hit. However, agents can address how the annuity will work or be affected by inflation or deflation so that the prospect will have realistic expectations of the proposed annuity strategy under those economic conditions.

Surrender charges

Even though the client will eventually see the surrender charges listed in the application, it’s important to explain how they work and to give examples of specific surrender charge situations.

Realistic return expectations

We all know what I’m talking about here, indexed annuities. Potential buyers need to know that these strategies were designed to compete with CD returns, not the stock market. Even though all of us can point to “exception” years that show some FIA (fixed indexed annuity) returns at high levels, the reality is that those high returns typically don’t happen. Recent Beacon Research studies on FIA returns over five and 10 year spans bear the reality of the product’s design. And by the way, that’s not a bad thing. Don’t let the client fill in the blank with dream returns. Proactively place their return expectations in reality.

Contractual realities and product limitations

No product is perfect, and every product has limitations, including all annuities. When people hear the “too good to be true” pitch, most instinctively wonder what the catch is and want to know all of the what-if scenarios. When presented with the truth and the complete facts about an annuity strategy, most people are level headed enough to understand the good and the bad in order to make the right decision. 

Worst case scenario

If a client wants to see a proposal on the indexed annuity strategy they are considering, I always show the accumulation value at zero or the guaranteed contractual minimum. There is no need to show a hypothetical, theoretical, projected, or back-tested return scenario to make the numbers look good. All you are doing is creating a future problem for both of you. Have the clients always make their decision to own an annuity on the contractual guarantees, or worst case scenario. Any realized returns above that is pure gravy, and that is a call that you want to take.

As an agent, you have to know that filling in these blanks might cost you the sale because the reality of the contract doesn’t fit the dream that the prospect might be hoping for and possibly being sold by a competing agent. That’s OK. In the long run, having a client base that fully understands their annuity strategy is very good for your long-term business model and the annuity industry as a whole.

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