Annuity Illustration or Annuity Illusion?: Shootin' It Straight With Stan (TAM Classic)

Welcome to Shootin' It Straight With Stan. I'm your host, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is a barn burner, as they would say in the South. I don’t know where that comes from, but I assume they’re burning barns for whatever reason. But this is a barn burner, and the topic is Annuity Illustration or Annuity Illusion.

Annuity Industry and Misleading Sales Pitches

At this moment, in the annuity and life insurance industries, we see products with potential returns, such as indexed universal life (which I don’t sell) and indexed annuities (which I do sell, but I sell them properly as efficient delivery systems for Income Rider guarantees). When people look at them for accumulation value, they are CD products. Let me repeat that: they are CD products. Yes, they are CD products. They are not market products. They were not created in 1995 when they were first introduced to offer market returns or "market upside with no downside"—that pitch is misleading.

In addition to this misleading sales pitch (which I just gave in a very good Southern, low IQ voice), they also pitch this: "Mr. Jones, Mrs. Jones, please look at this proposal. Please look at these numbers that, if you had owned it 10 years ago, you would have made these returns." You’ve all seen that, right? Nod your head if you haven't. If not, you will be pitched this soon. They’ll say, "Look at this. If you had owned it 10 years ago, you would have made 7%, 10%, 11%, 13%, or 14% returns with principal protection, and we’ll give you an upfront bonus too." That’s going to be a big issue in this industry.

The Problem with Hypotheticals

I’ve been pounding the table on this misleading, too-good-to-be-true nonsense targeted at people who either don’t understand it or think they’re smarter than their neighbors. Either way, it's a problem. And now, the lawyers, and I love lawyers. Some of my best friends are lawyers. Dave, one of my best friends, is a lawyer. So, I don’t have anything against lawyers, but they’re capitalists. Lawyers smell blood and love suing big companies and industries with big pockets. Can I get an annuity amen and a hallelujah with that? We all know that.

Legal Troubles for the Annuity Industry

So, what's been happening in the industry? Kudos to the annuity industry for keeping this under wraps, but I’m sure they wish I would stop talking about it. But I consider myself the annuity consumer advocate, the annuity whisperer, and the top agent in the country. It’s my duty to tell you what’s going on.

Right now, many states don't allow back-tested numbers to be used. "Well, Sir, if you had owned it 10 years ago, look what you would have made." There are a lot of indexes that are made up out of thin air. You'd never heard of them three months ago, and now they’re showing you unrealistic returns. This isn’t rational. This is an easy fix; the annuity industry could clean this up.

If my name were Stanislav, the annuity czar, I would fix it. I wouldn’t allow it. But lawyers have caught on. They've discovered that many hardworking Americans have put their retirement money into a product that promised market upside with no downside. These people were led to believe they would get 9%, 10%, 11%, or 13% returns based on the sales pitch. And those back-tested numbers were in writing, printed on the issuing annuity company's paper.

The Reality of Annuity Illustrations

Now, in the annuity company’s defense, they are not trying to mislead anyone. But the problem is, once the agent army gets a hold of it, the carrier can't regulate what gets said or shown. The solution is simple: don't show hypothetical or theoretical numbers. After these legal challenges, back-tested numbers will no longer be allowed. I've been saying for over a decade: Please stop showing these. You own an annuity for what it will do, not what it might do. The "might do" refers to these hypothetical, theoretical, projected back-tested unicorn-chasing proposals that sound too good to be true.

So, is it an annuity illustration or an annuity illusion? Most of the time, it’s an illusion.

A Warning from a Trusted Source

There’s a very smart woman in the annuity business whom I respect greatly. She focuses on the Indexed Annuity space and has never seen one of those back-tested proposals come true. That was it for me when I read that from her years ago. She’s the source, and once she said it, I was done. All this stuff makes no sense.

The Danger of Unrealistic Expectations

The other day, I got a call from a gentleman looking at MYGAs (guaranteed interest rate products) and an Indexed Annuity. The agent told him he could get 7%, 9%, or even 10%. I asked, "What’s your goal?" His response: "I’d like to get 9% to 10%." I said, "I don’t want to call you an idiot, but you’re delusional. It’s not going to happen."

Agents, please don’t send me your mom’s annuity, or your brother’s, or anyone else’s. If you have to sell an annuity to your mom or Uncle Bob, you need to get out of the business.

The Problem with Selling Family Products

Agents and advisors should not do business with family. I don’t do business with family. I don’t want to talk about annuities or money at a family reunion. I want to talk about the deviled eggs and the potato salad (mayonnaise-based, of course, not mustard-based).

The Annuity Illusion

But here’s the point: these annuity illustrations are often illusions. Whether it’s indexed universal life, pitched as offering tax-free income, or Indexed Annuities offering market participation with principal protection—it’s all an illusion. Let me give you an example. The tax-free income from an indexed universal life policy is often pitched as if you’ll receive tax-free income, but the truth is, it’s a loan on the policy. And all loans are tax-free—because they’re loans. There’s a fee for the loan, but you’re still getting a loan. So, let’s be clear: you’re not getting tax-free income.

What Can the Annuity Industry Do?

I believe the annuity industry could clean this up and do themselves a favor from a PR standpoint. If I were Stanislav, the annuity czar, I would stop back-tested numbers from being shown. The annuity industry could be proactive and say, "We are not showing back-tested numbers. Here are the caps, spreads, and participation rates for this first year, and here’s the carrier’s renewal rate history."

The Bottom Line

The bottom line is this: Do not put any faith, credibility, or confidence in any back-tested numbers shown to you. If you’ve bought an annuity based on that kind of pitch, you made a mistake. Get out if you can.

I’m working on my breathing to lower my blood pressure, but this topic drives me crazy because consumers are making big-time mistakes based on misleading representations. Be careful and watch the news—this is going to get interesting. Stay safe, stay happy, stay healthy, stay positive, and stay tuned to Shootin' It Straight With Stan. I’m Stan The Annuity Man. I’ll see you next week.