Monday’s shattering market plunge will cause consumers to flee to the safety of annuities, Stan The Annuity Man, aka Stan Haithcock, told ThinkAdvisor in an interview an hour before markets closed Monday.
The annuity expert and self-described No. 1 immediate annuity seller in the nation expects investors, especially retiring baby boomers, to conclude that they’re carrying too much portfolio risk, then buy annuities for a guaranteed lifetime income stream.
Haithcock, who represents numerous major annuity companies, sells fixed annuities only — no variable or buffered products — and boasts more than 5,000 consumer and business-owner clients nationwide. Before becoming Stan The Annuity Man in 2005, he was a financial advisor at Dean Witter, Morgan Stanley, PaineWebber and UBS.
In the interview, he discussed the reasons for the rise in overall annuity sales last year. One big one is that banks and brokerages have begun selling them, he says. Further, advisors are realizing that retiring clients seek the guaranteed income most annuities provide.
Haithcock, whose Annuity Man Consulting division serves organizations and ultra-high net worth individuals, also talked about the way he foresees annuities — which he considers commodities — to be sold in the future.
ThinkAdvivsor interviewed Haithcock, who was speaking from his office in Ponte Vedra Beach, Florida. Since he sells no products that “go up and down,” “not one client is angry and has phoned me,” he says. Monday was therefore a “a nonevent,” he noted, coolly. But arguing that indexed annuities are “overhyped” made his blood boil.
Here are highlights from our interview:
THINKADVISOR: What will this market carnage mean to the annuity world?
STAN HAITHCOCK: There’ll be a flight to safety with annuities. The market that we’re witnessing now will drive annuity sales because people will realize they need more guarantees in their portfolios than they have currently. They’ll say, “We probably shouldn’t be this deep into risk.” The demographic tidal wave of baby boomers reaching retirement age wants guarantees, and annuities are the only product on the planet that provide a lifetime income stream.
How has your business been going recently?
In the last month, we’ve had the best immediate annuity sales probably ever because people realized they were shouldering too much risk in the markets and they needed to pare that back a little.
Was this triggered by the coronavirus pandemic?
That’s part of it. The other part is that people realized they didn’t have the right [asset] allocation and proportion. Everybody needs an income floor: Social Security; a pension, if they have one; [retirement account] required minimum distribution; annuities if you want lifetime income. Everybody needs a guaranteed income stream hitting their bank account every month. Annuities fit that bill.
Overall, annuity sales were up last year. Why is that?
Because banks and brokerage firms are starting to sell them. They’re profitable for the firms, and [retiring baby boomers] are looking for guarantees. It’s a combination from heaven. As people get older, they’re transitioning from growth to guarantees in their portfolios.
Are annuities profitable for advisors, too?
For fee-based and fee-only advisors, they can be profitable but not as profitable as some market-type products. But most advisors understand that annuities do have a role, especially from the standpoint of providing an income guarantee or income floor. So they’re pointing toward that more and more.
But what about advisors who don’t recommend annuities?
Most advisors think annuities are bad because they can’t charge fees on them. I don’t think they’re seeing the benefit proposition that annuities can provide, which is unique: lifetime income. The rule of peeling 4% off a portfolio [annually] in retirement to create income works only if markets are, kind of, going [in a] sideways-to-up direction. Once they’re going down — and today, the [Dow] is down 2,000 points — it’s hard to convince somebody that the 4% rule makes sense, [though] over time, it does. The annuity industry should pound the message that annuities are the only products and strategy that can provide an income stream you can never outlive.
What place should an annuity typically have in a portfolio?
Annuities should never be used for market growth. Their primary uses are lifetime income and principal protection. From a financial advisor’s standpoint, that’s what they need to be looking at — a transfer of risk. It comes down to two questions: What do you want the money to contractually do? When do you want those contractual [payments] to start?