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?
What’s your stance on indexed annuities? Last time we talked you felt very strongly about them.
I probably sell more indexed annuities than anybody in the country because we use them for either principal protection or as a delivery system for an income benefit. But people are using them for market growth. They aren’t for that. Indexed annuities are not tied directly to the market. They aren’t securities. So I hate how they’re sold, promoted, overhyped and overpromised.
What’s your view of variable annuities?
I don’t sell them because they can go down in value — I sell guarantees. Variable annuities were put on the planet to provide market returns. It’s a market growth product.
What are your thoughts about the part of the Secure Act that makes it easier for 401(k) sponsors to offer annuities?
It’s a positive for the industry. Under fiduciary rule, you have to show that all carriers [provided] hold themselves harmless. The Secure Act avoids that, saying you’re not liable if you provide, say, just two or three carriers within the plan. The concern I have is the lack of consumer education to understand the limitations and benefits of what [employees] are buying.
Many consumers believe annuities have high fees. That’s one reason, they say, that they stay away from them.
There are no fees with immediate annuities, qualified longevity annuity contracts [QLACs], deferred-income annuities, multi-year guaranteed annuities, or indexed annuities if you don’t add an income rider. High fees can be attached to variable annuities but not to all. So the whole fee thing just isn’t factual. There are no annual fees on the majority of annuity products.
Many consumers also think that if the annuity owner dies, payments stop; and the insurance company keeps the money.
That’s insane because that’s only one of 30 ways to structure the payout. I would say that just 2% of the policies I write are “life-only.” The rest have a guarantee that the initial premium will go to someone in the family and the annuity company won’t keep a penny.
Buffered annuities are something new. What are they?
For lack of a better phrase, it’s a higher-end indexed annuity; and it’s a security. I’ve chosen not to sell them. You get a little bit more upside potential, but you share in some of the downside. It’s a product that hasn’t had a lot of traction.
What new trends concerning annuities do you forecast?
You’re going to see a trend to what California and some other states have: a built-in annuitization tax, on, for example, an immediate annuity. You’ll see that more and more. It wouldn’t surprise me if the federal government tries to do it. The only problem is that [this goes] after a voting base, and I’m not sure they want to do that. Elderly people buy annuities, and elderly people vote.
Down the road, how do you think annuities will be bought?
In the future, it’s going to be like shopping on Amazon. You’ll be looking for the best guarantees for your specific situation: Shop for what you want.
You were a financial advisor for some time. Why did you leave that work to focus on selling annuities?
Because no one was selling them correctly; that is, selling them just for the contractual guarantees. Everybody was trying to sell them as pseudo-securities, which is a mistake. I saw a big void out there for someone to educate the public and sell annuities for the contractual guarantees that they are.
I see you’re still selling “Stan Annuity Man” barf bags on your website. Is there more demand for them nowadays?
[Laughs] That’s kind of my joke on the bad-chicken-dinner annuity salespeople that entice consumers to eat the food and then try to sell them indexed annuities. It’s my finger in their eye, saying, “Stop doing that!” You can’t have a seminar and sell [the same] product to everybody. Unfortunately, the annuity industry has earned its bad reputation.
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