070 John Olsen: Annuity Royalty Shares Wisdom

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welcome to

0:05
fun with annuities with your host me

0:07
stan

0:08
the annuity man america's annuity agent

0:10
can annuities be fun

0:12
can contractual guarantees be fun

0:14
absolutely they can

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find out the brutal facts about

0:18
annuities with no sales pitches or high

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pressure nonsense

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just the brutal and factual annuity

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truth which is all you need to hear

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let's have some fun with annuities and

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let's have that fun

0:30
start right now

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[Music]

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welcome to fun with annuities i'm your

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host stan the annuity man america's

0:43
annuity agent licensed in all 50 states

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i want to welcome everybody on all major

0:47
podcast

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platforms listening to us today and also

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on the fun with annuities youtube

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channel where you can view

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me and the guest interacting and

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laughing and facial expressions and all

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that stuff

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but without further ado i want to

1:01
introduce and go through kind of the

1:03
background of our guest today which i'm

1:04
so excited that he's joined us

1:06
his name is john olson um he's an

1:09
author he's an educator and he can

1:12
literally be called an annuity expert

1:15
in fact he's one of the few people on

1:16
the planet that i can

1:18
confidently call annuity royalty i've

1:21
been a friend of his for a long long

1:22
time and a follower

1:24
he's a thought leader um in the annuity

1:27
space even though he's kind of

1:28
semi-retired right now and kind of

1:30
focusing on his guitar and his you know

1:34
all of his stuff that he does his

1:35
research and world war ii research and

1:37
all that stuff

1:38
but uh he's done a lot but in 2015

1:41
after being with numerous companies et

1:44
cetera he started

1:45
olson annuity education uh which is

1:48
it does exactly what it sounds like it

1:50
does it educates people

1:52
on annuities um he is an expert on

1:55
annuity

1:56
taxes um he doesn't do a lot of that now

1:58
but in the past he was the go-to person

2:01
for that and he was on

2:02
on the editorial advisory board for tax

2:05
facts which is kind of a resource for

2:07
all of us out here in the financial

2:09
services business

2:10
now he's written a lot of books and

2:12
co-authored a lot of books let me just

2:13
go through a few of them

2:14
he's the co-author of the advisor's

2:16
guide to annuities

2:18
he's the co-author of indexed annuities

2:20
a suitable approach

2:22
he's the author of taxation and

2:24
suitability of annuities for the

2:25
professional

2:26
advisor and he's also authored the

2:29
timeless classic of read

2:30
the title of the book is called read

2:32
this before buying any annuity i mean

2:34
it's just perfect

2:35
um and the one of the most fascinating

2:37
books he's ever written in my opinion

2:39
it's titled the advisor as a defendant

2:42
how to keep from being sued successfully

2:44
he's trying to help the advisor to do

2:45
the right thing

2:46
and be a fiduciary before fiduciary was

2:48
the go word the go-to word

2:50
and then finally one of the best books

2:52
ever written on the annuity topic

2:54
john olson's guide to annuities for the

2:56
consumer now you can go to his site

2:58
at olson annuityeducation.com but you

3:01
can also go to my site at the

3:02
annuityman.com because we'll have a page

3:04
that has john's uh information links

3:06
where he can buy his books and

3:08
you can replay this podcast etc now a

3:10
little bit about him personally he lives

3:12
in kirkwood

3:12
missouri missouri as the southerners say

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with his wife catherine

3:16
and and a cat that runs the show um i

3:19
think the cat's name is calpernia

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he enjoys teaching he's a teacher he's

3:24
an educator he's a writer

3:25
he loves to read he loves classical

3:27
music he smokes a few cigars and he and

3:30
he likes to argue

3:31
almost anything because he wins he's

3:33
you're going to find out when he starts

3:34
talking that this cat

3:36
knows what he's talking about um he

3:38
calls himself an

3:39
adequate pistol shot a decent folk

3:41
guitarist and a pretty crappy

3:43
golfer which he's just a worldly guy he

3:47
he loves uh world war ii history

3:50
calligraphy i mean he does a lot and

3:52
you're going to see him if you're

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watching the fun with annuities youtube

3:54
channel

3:55
you'll see in the background the library

3:56
just packed full of books john is a

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voracious reader and learner and with

4:02
that i want to welcome to the fun with

4:04
annuities podcast

4:05
annuity royalty john olson john thank

4:08
you for

4:09
thank you for joining us oh sam

4:12
thank you very much it's my pleasure to

4:15
be here

4:16
uh gosh i appreciate all of your very

4:20
kind words

4:21
uh yeah i've been in i've been in the

4:23
annuity business

4:24
the financial services industry since

4:28
february of 1973. there you go

4:32
i retired for the most part

4:35
in 2012 but i still did

4:39
quite a bit of expert witness testimony

4:42
which

4:42
was the origin of the book that you

4:45
mentioned

4:46
how to keep from being sued successfully

4:49
represented both plaintiff and defendant

4:53
and i found something interesting that i

4:56
think your

4:57
your viewers would find interesting and

5:00
that's that

5:00
uh in the cases that i worked on which

5:03
were

5:04
uh cases in front of a court or a finra

5:07
arbitration

5:08
that alleged that an unsuitable

5:11
annuity sale had been made uh and i've

5:15
looked at both sides the the plaintiff

5:18
and the defendant

5:20
i can count on one hand the number of

5:23
cases

5:23
in which the agent who's

5:26
who miss sold a case was really a bad

5:30
guy

5:31
for the rest of them he'd simply he or

5:34
she

5:35
simply didn't know any better at all

5:38
there there are there's a great deal of

5:42
misunderstanding about annuities

5:45
particularly even more than life

5:47
insurance because

5:48
they can be very complicated and as stan

5:52
and i

5:52
were talking about yesterday the the

5:55
more recent products are so difficult

5:59
jack marion and i sat in the

6:01
ritz-carlton cigar club for 20 minutes

6:04
reading a brochure sales brochure

6:07
on a variable annuity that had a certain

6:10
kind of step-up

6:11
writer uh after 20 minutes

6:15
i looked at jack and said i don't

6:17
understand it do you and he said no

6:19
and by the way jack marion is also

6:21
annuity royalty and he's the co-author

6:24
of of the book that john co-authored

6:26
with him called index annuities a

6:28
suitable approach

6:29
and and those two john and jack

6:32
pretty much laid the foundation of facts

6:35
when it

6:36
surrounds index annuities annuities in

6:38
general but

6:39
um you know from a suitability

6:41
standpoint john

6:42
and you know this is a consumer's

6:44
podcast and and also youtube channel

6:47
where consumers are trying to figure out

6:50
do annuities fit do they make sense

6:54
go through why that is so important for

6:57
the annuity industry and the consumer

6:59
themselves the suitability part

7:01
of annuities and the purchase of

7:03
annuities

7:04
well thank you stan yes it is

7:08
important it's critical let's let's look

7:10
at the word suitability

7:12
what does it really mean it means

7:16
is this product that is being

7:18
recommended to you

7:20
does it do the things that you want it

7:23
to do

7:24
that are your goals and does it avoid

7:27
doing the things that you don't want it

7:29
to do

7:30
uh you're just you're you're disfavored

7:34
it's a question of suitability is

7:38
when you look at it and it's it's the

7:40
thing that you wanted to do

7:42
for example if you're of

7:45
let's say you're 65 years old i'm just

7:47
using an example

7:49
and you've decided that you need an

7:51
income

7:52
starting today and it has to persist

7:56
for as long as you do for life or

7:59
perhaps for

8:00
your lifetime and your spouse's lifetime

8:03
it has to do that

8:04
that's critical and you say well i

8:08
not only needed to do that but i need to

8:10
know

8:11
the amount and i need to know that

8:14
amount will never go down

8:17
there's one product that does that

8:20
spectacularly well

8:22
it's called a fixed immediate annuity

8:25
right sometimes call it a single premium

8:28
immediate annuity

8:29
right single price yes thank you you can

8:31
either pay it

8:33
buy it with one lump sum or buy it with

8:35
a series of installments

8:37
but why does it work because

8:40
that's all it does it provides an income

8:43
for you

8:44
and or you and your wife

8:47
and it guarantees period

8:50
this amount of money is going to be paid

8:52
to you

8:53
or it could go up every year by what's

8:56
called a cost of living writer

8:57
that nobody wants anymore because

9:00
they're so darned expensive

9:02
right the amount of income you'd get

9:05
but that's what they do what don't they

9:08
do

9:09
well they're not savings instruments

9:12
right

9:12
in fact after you buy it you don't have

9:15
the money that you paid anymore it's

9:17
long right

9:19
it's gone because you traded it you

9:21
traded it for

9:23
a stream of income by contrast let's say

9:26
that you're

9:27
35 or 45 whatever and you don't uh want

9:31
the money today

9:33
you want to have an income commencing at

9:36
retirement

9:36
let's say 65 and it needs to go for life

9:41
or yours and your spouses

9:44
and you're willing to take some risk to

9:48
get

9:48
a pretty good return well i've defined

9:52
a couple of different products will work

9:55
but typically a variable deferred

9:57
annuity

9:58
would be something you would want to

9:59
look at on the other hand

10:02
if you say look i'm i'm really

10:05
i'm really worried about what's going to

10:08
be happening in the future

10:10
and by the way if you're not you should

10:12
be uh

10:14
you might say i want to have that income

10:17
but i don't want to lose any money i

10:20
i don't want my principal to go down

10:24
in that case you would want a deferred

10:26
annuity but it would be what is called

10:28
fixed that doesn't refer to the interest

10:31
rate it refers to the fact that

10:33
when you ask what's the contract worth

10:37
it's measured in dollars six dollars

10:40
right and to go through the products you

10:42
know just just to interrupt

10:44
a little bit here obviously i've written

10:45
books on all of these products you can

10:47
get them at my site you can run quotes

10:48
at my site 24 7

10:50
365. um but but i always ask john i

10:53
always ask two questions to people what

10:55
do you want the money to contractually

10:56
do and when do you want those

10:57
contractual guarantees to start and then

10:59
from there

11:00
we you we just kind of drill down on the

11:03
uh and shop for the highest contractual

11:05
guarantee for that situation um

11:08
i want your insight on how how do the

11:12
annuity carriers

11:14
approach suitability i think that

11:16
there's a misconception out there in the

11:19
in this in the consumer world with

11:21
annuities that

11:23
the annuity carriers don't care they're

11:25
just trying to sell they just want their

11:26
agent army out there sell sell sell

11:29
i tell people all the time the you know

11:31
the annuity industry can't regulate what

11:33
an agent says

11:34
but they're very serious about

11:36
suitability and appropriateness

11:38
of the product can you go into that from

11:40
the carrier side because i know

11:41
that you you know used to speak with

11:44
them on a regular basis and advise the

11:46
industry

11:47
where does that land and why should the

11:49
cusp the consumer be

11:50
feel comfortable with the suitability

11:52
approach from the carriers in the

11:54
industry

11:56
uh thank you sen uh

12:00
years ago decades ago i'm afraid that

12:04
that statement from stan they don't they

12:07
don't care they just want to sell so

12:09
sell

12:10
decades ago that was the case with an

12:12
awful lot of them

12:13
wow okay it's left the case anymore no

12:16
it's not

12:17
now why for one thing they have

12:20
recognized

12:21
that they have obligations that perhaps

12:24
they didn't recognize before

12:26
but they're also driven by

12:30
the consumer forces that have have

12:33
over the uh the years said look

12:37
we we demand that you guys

12:40
put into place some kinds of procedures

12:43
policies etc to make sure that when one

12:47
of your agents sells a contract an

12:49
annuity contract

12:51
that it's the right thing for the client

12:53
and

12:54
now i can say with considerable uh

12:58
certainty that there are companies

13:01
that are extremely

13:05
uh not only interested but determined

13:09
to get the right product and an agent

13:13
for example now

13:14
uh with almost every company has to fill

13:17
out a suitability questionnaire and what

13:19
does it ask

13:20
says well how much net worth does this

13:22
client have

13:23
how much income does this client have

13:25
what is the what is the age of course

13:28
what does what are they trying to do um

13:31
and where what kinds of investments do

13:33
they have

13:36
because we want to know what else they

13:38
have

13:39
if we're if we're recommending an

13:41
addition to

13:42
the products that they own these things

13:45
are now required

13:46
and agent training is now mandated

13:50
in just about every state so that

13:54
you as consumers can have

13:57
considerable uh certainty

14:01
that mo that there the agent

14:05
will have been told you've got to do it

14:08
suitably and has and has been trained in

14:11
how to

14:12
do that uh some companies are better

14:14
than others

14:15
i would say if you're a consumer and

14:18
so an agent is recommending uh

14:22
asking to come over and talk about

14:23
annuities there are a few things you

14:26
should do first

14:28
number one if you have access to a

14:30
computer and you know that

14:31
that agent recommends a company find out

14:34
about that company

14:36
let me stop you let me stop you right

14:37
there i don't think

14:39
agents should recommend a company you

14:42
know i

14:44
i think it should be if you're looking

14:46
you know and i know you didn't mean it

14:47
statically like that

14:49
but people should understand if you're

14:51
looking for a solution

14:53
you know remember my two questions what

14:54
do you want the money to contractually

14:55
do and when you want those contractual

14:57
guarantees to start

14:58
that agent should be able to show you

15:01
three to ten

15:02
three minimum companies that provide

15:05
that solution to you if an agent

15:07
says i've looked at it and this is the

15:09
best one

15:10
i think for you that's that's not a

15:12
sufficient answer

15:14
i i agree with you stan but there are a

15:16
lot of agents

15:17
who recommend only one and i i simply

15:20
wanted to look at that scenario

15:22
sure absolutely dead right

15:26
the agents who can

15:31
work with more than one company and

15:33
that's most agents these days

15:36
has an obligation to go shopping which

15:39
is what stan

15:40
does yeah exactly indeed well i did

15:43
for my clients i i didn't recommend one

15:46
company

15:48
all of them but there are some things

15:49
you want to do

15:51
first of all if the a

15:56
i think you should write down

15:59
write down what you want what you don't

16:01
want

16:03
and in writing it down it'll help you to

16:06
clarify exactly

16:07
what your goals are and what you your

16:10
things you want to avoid

16:12
and then when someone recommends

16:16
uh who comes in with three to ten

16:19
i've always liked three i

16:22
personally i'm not sure i could handle

16:24
10 but um

16:26
i don't disagree with stan saying you

16:28
want

16:29
to be sure that this agent has gone

16:31
shopping

16:32
sure when the agent

16:36
sits down with you a couple of things

16:39
are are really important

16:43
number one if that agent talks about

16:47
any feature or whatever in that

16:50
annuity with the sales brochure and

16:53
glides over it

16:55
and you didn't understand what he he or

16:58
she

16:58
said you need to say you know i didn't

17:02
understand what you said could you

17:03
explain that a little better

17:05
and if what you get is a repetition of

17:08
well you know it's so and so

17:10
find another asian well and i always say

17:12
john that

17:13
if you can't explain it to a

17:14
nine-year-old don't buy it no offense to

17:16
nine-year-olds when

17:18
i was first learning insurance back in

17:22
the 70s

17:23
uh i started a progress of i'm sorry

17:26
a process that i uh used until

17:29
i retired i when i had a new thing that

17:33
i wanted to look at i would explain it

17:35
to my wife

17:37
who is a very very smart lady but she's

17:40
not an annuity expert

17:42
and then i would say explain it back to

17:44
me

17:45
right she could not do that it was my

17:48
fault i didn't make it clear

17:51
so if you have an agent who's talking to

17:54
you about

17:54
income writers or whatever you need to

17:58
know what it will do

18:00
what it won't do and if that agent

18:03
can't explain it correctly uh

18:06
just say thank you very much and find

18:10
another agent and i always tell people

18:12
if it sounds too good to be true it is

18:14
every single time without exception with

18:16
annuities

18:17
um you've got to be very careful i if i

18:19
had a vote

18:20
and i told i told my my ceo this the

18:22
other day

18:24
if there was a person that i could

18:25
appoint as annuity czar

18:27
other than myself of course john it

18:29
would be you

18:30
um if your annuities are and let's just

18:33
hypothetically look at that

18:35
how would you make this industry better

18:38
because with 10 000 baby boomers

18:40
reaching age 65 every single day

18:42
i call that a demographic tidal wave of

18:45
people looking for

18:46
solutions transfer of risk contractual

18:48
guarantees etc

18:50
what would you do to improve the

18:53
industry

18:55
appeal and also reputation

18:58
what would you do uh well

19:02
the first thing i would do most

19:04
insurance agents do not want to hear

19:06
this

19:07
but i am very sincere about it

19:10
i would say if you are going to

19:13
recommend index annuities

19:17
you need to have a special license i

19:19
agree and let's stop right there

19:21
and part of that licensure would be they

19:24
would have to read and take a test

19:26
on the book that that john co-authored

19:28
with jack marion

19:30
called index annuities a suitable

19:31
approach that would be

19:33
that would be the book but go further

19:35
i'm so for this

19:37
john i can't tell you so you're saying

19:40
it

19:40
it to sell fixed indexed annuities the

19:42
go go product right now the bad chicken

19:44
dinner product of choice

19:47
you have to have a separate license

19:48
correct and the reason i believe that

19:51
is that the insurance license uh that

19:55
examination in every state is pretty

19:58
darn

19:58
easy yeah it doesn't require in-depth

20:02
understanding index annuity products

20:05
most of them

20:07
are relatively complicated many of them

20:10
are so complicated that even experts

20:13
have trouble

20:14
understanding yes i can tell you and not

20:17
be

20:19
worried that i'm saying the wrong thing

20:22
that most agents more than half

20:26
don't understand what they're selling i

20:29
agree with that

20:31
i think that's being generous well

20:34
i would i would put that percentage

20:36
higher actually

20:37
yeah and the thing is uh when i used to

20:41
give

20:42
presentations around the country to two

20:44
agents i would ask

20:45
don't raise your hands because i don't

20:46
want to embarrass anybody but

20:49
how many people have actually read the

20:52
annuity contract

20:54
i would bet that the percentage is not

20:56
higher than

20:57
five percent right they read the

21:00
marketing material right and

21:03
they say that's enough it's not

21:07
the the agent needs to understand what

21:10
it will do and what it won't do

21:12
let me give you some examples that you

21:14
might want to use

21:15
if you are considering an index annuity

21:20
most of them are being sold today with

21:22
what are called income

21:23
writers and they simply provide in

21:25
addition to the regular contract

21:28
a guaranteed income under certain

21:30
conditions

21:32
and that that uh rider has a cost

21:35
and by the way index annuities typically

21:39
have no annual costs and no front end

21:42
costs

21:43
uh except if there's a writer like this

21:46
so the writer might

21:47
say it's going to cost you 75 basis

21:50
points that's

21:50
that's uh insurance speak for three

21:53
quarters of one percent

21:55
per year and they'll say that's what it

21:58
is

21:59
okay but if i'm able to

22:02
increase the guaranteed amount due to

22:05
how well

22:06
my contract has been performing which is

22:09
called a step up option and most of them

22:11
have it

22:12
does does that mean my cost will still

22:14
be 75 basis points

22:16
no it doesn't in most contracts

22:20
the the fee will go up correct

22:24
that's it's important when you say okay

22:27
is that

22:28
is that the current cost uh what is the

22:31
guaranteed cost

22:33
uh you're saying that uh this can give

22:36
me an interest rate

22:37
let's say it's a multi-year guarantee

22:39
annuity

22:41
rate of four percent for how long is

22:43
that four percent guaranteed

22:45
right and after the guarantee

22:48
what is the minimum that they can give

22:50
me right

22:52
now and can we transfer it after the

22:54
surrender charge to get a higher rate or

22:56
move it

22:57
etc i you know i totally agree with that

23:00
mike

23:00
i got a question for you most people

23:02
just cavalierly say that they hate all

23:04
annuities because they've seen the ad

23:05
and always say well

23:06
if you hate all annuities then you hate

23:08
your social security payment because

23:09
that's an annuity payment if you hate

23:10
all annuities you hate your pension

23:12
because that's an annuity um how would

23:15
you combat

23:16
the i hate all annuity mantra out there

23:20
if you're the annuities are

23:23
okay well number one the problem is

23:26
education and it's a long-term solution

23:30
but those people who say and i've talked

23:33
with

23:33
attorneys and accountants who say

23:35
basically that

23:36
well um i hate all annuities

23:39
and i used to give continuing education

23:42
to accountants

23:43
and periodically i get somebody and i'd

23:46
say okay why

23:48
well i hate them no no why yeah

23:51
exactly we examine each one well they're

23:53
too expensive

23:55
you know that's absolutely possibly

23:58
correct of one kind of annuity right

24:01
variable deferred annuity particularly

24:04
with an income rider

24:05
could cost you more than three percent

24:07
per year for the life of the policy

24:10
with no writer will cost you zero

24:13
dollars per year

24:15
so where are all the fees you're talking

24:18
about

24:18
typically here's what happens and they

24:21
talk about annuities as if they're all

24:23
the same

24:24
right i tell my students this any

24:26
sentence that begins with

24:27
annuities r dot dot dot should not even

24:30
be finished

24:31
because it'll be nonsense right it's

24:34
like saying

24:34
all vehicles have four wheels it's like

24:37
saying i hate all restaurants

24:39
or i hate old trucks uh when you say i

24:41
hate all annuities it it's

24:43
it's it's ludicrous but i do think the

24:45
annuity industry has not done a good job

24:48
of a consistent simplistic message

24:51
of what annuities do which is true they

24:54
transfer risk

24:55
their risk transfer products their risk

24:58
transfer

24:59
contracts and i don't know why they keep

25:03
gravitating toward the growth story john

25:06
i guess it's because it's the sexy thing

25:08
to do but in my opinion we should be

25:11
talking about the transfer risk

25:12
guarantees

25:14
that these annuity types specific

25:16
annuity types

25:17
provide instead of talking about

25:20
potential hypothetical theoretical back

25:22
tested stuff by the way on the back

25:25
tested i know back tested is is illegal

25:28
in some states where you say well

25:30
if you owned it 10 years ago this

25:31
indexed annuity you know

25:33
this is what you're going to earn um

25:36
what's your take on that would you allow

25:38
back testing

25:41
i have never i've rarely seen

25:44
back testing that i had any respect for

25:46
at all

25:47
and here's why they will say okay

25:50
uh this particular index annuity is

25:53
going to give you 60

25:55
of whatever is let's say the s p 500 uh

25:58
you're going to get 60

25:59
uh if it goes up but if you go down

26:01
you're going to get nothing

26:03
that's a typical index annuity and

26:05
they'll say okay

26:07
where if you had bought this annuity in

26:09
1975

26:11
how would you have done and they look at

26:13
the index that you picked

26:15
and they they back test but they back

26:18
test using that 60 which would not have

26:22
been the case

26:23
every year that percentage which by the

26:26
way is not guaranteed

26:28
that percentage can go up and down

26:30
because

26:31
the market goes up and down and the risk

26:34
goes up and down

26:35
but stan just said something that i hope

26:37
you all will listen to

26:39
these are investments to a degree

26:43
but most annuities are in our

26:46
risk management tools right there are

26:50
only a few things you can do with risk

26:52
you can assume it

26:54
you can eliminate it you can reduce it

26:57
or you can transfer it let's say the

27:00
risk is that you're going to have an

27:01
auto accident

27:02
you can get rid of it don't don't don't

27:04
drive

27:06
you can reduce it well drive better

27:10
you can um you can uh

27:13
retain it uh well i'm not going to have

27:15
any insurance

27:17
or you can transfer it and say

27:20
i can't handle that risk uh

27:23
you all do that with your homeowners

27:25
insurance and your life insurance

27:27
i can't handle the risk that i would die

27:30
tonight and my

27:31
my family needs an income but it's died

27:34
with me

27:35
or my home burned down most people can't

27:38
afford

27:39
to build their home again so they

27:41
transfer the risk

27:43
that's what annuities do and i would

27:46
tell

27:47
insurance companies look

27:50
you don't do that you don't talk about

27:52
risk transfer

27:53
and i know why i've heard insiders

27:57
from insurance companies say the public

28:01
won't understand

28:02
that well you know i think you're

28:04
smarter than that

28:06
in fact i know you're smarter than that

28:08
if it were simply

28:10
put to you in simple english you can

28:14
either keep this risk of

28:17
having too little what's the one big

28:19
risk

28:20
that everybody worries about in their

28:23
their uh

28:23
60s and 70s running out of money

28:26
yep it's called it's called longevity

28:29
risk and let me interject right here one

28:30
of the things that i do is i try

28:32
i think one of my skills is to simplify

28:36
annuities and how they are explained

28:38
i've come up with an easy acronym called

28:40
pill

28:41
that explains transfer of risk p stands

28:43
for principal protection

28:45
i stands for income for life l stands

28:47
for legacy

28:48
and the other l stands for confinement

28:50
care long-term care

28:51
if you don't need to transfer risk to

28:53
solve for one or more of those

28:54
issues principal protection income for

28:56
life legacy long-term care confinement

28:58
care

28:58
you don't need an annuity in my opinion

29:00
and if i was

29:02
the advertising agency for the annuity

29:04
industry of which

29:05
john olson would be the annuity czar it

29:08
would be a very simple ad john it would

29:10
be

29:10
a take on the got milk ad if we all

29:12
remember the got milk where they had

29:14
celebrities and they had the milk

29:16
mustache

29:17
got milk the ad would say this got

29:19
guarantees

29:20
question mark i have a t-shirt that i

29:22
wear around that's what

29:24
people are looking for i had someone ask

29:27
me the other day john

29:28
how's business stan the annuity man well

29:31
we're we're doing

29:32
record numbers why because the

29:34
demographic tidal wave of people looking

29:36
for contractual guarantees

29:38
could care less about politics they

29:40
could care less about

29:41
interest rates they could care less

29:42
about stock market all they care about

29:45
is chapter two of their lives and they

29:46
want guarantees

29:48
period yes and essentially

29:51
fixed annuities are all

29:55
about guarantees and one other thing

29:59
he mentioned the word mortality risk

30:03
there is one thing that's interesting if

30:05
an annuity

30:06
is giving you a projected return of 5.1

30:11
and the cds out there are 4 and you say

30:15
this looks too good to be true how can

30:17
they do it here's how they can do it

30:20
the insurance company sells an annuity

30:24
to 1 million people and they know

30:27
that they have to reserve that is to say

30:30
set aside

30:32
enough funds to pay the income that they

30:35
have

30:35
guaranteed to all million people

30:39
but they don't have to have enough to to

30:42
do that

30:43
for the next 40 years why

30:47
because some of them won't be here in 40

30:49
years

30:50
right who don't make it those who

30:53
die along the way the money that the

30:57
insurance company would have had to pay

30:59
those people

31:00
can now be paid to this the people who

31:04
didn't die

31:05
that's why mortality risk

31:08
or or longevity risk i'm sorry it's it's

31:11
actually

31:12
it's the same it's the same thing there

31:15
are there is only

31:16
one thing on the planet

31:20
that can give you that risk and that's

31:22
annuities

31:25
and i agree with that john and one of

31:26
the things i tell people all the time

31:27
one of the biggest misconceptions and

31:29
again the annuity industry has

31:30
done a poor job with this is a lot of

31:31
people will think well

31:33
stanley annuity man and john olson if i

31:35
die the evil annuity company keeps the

31:37
money

31:38
no you don't have to structure it that

31:39
way you can structure it so that the

31:40
annuity company is on the hook i want

31:42
people to really lean in and listen to

31:44
what i'm getting ready to say

31:45
you can structure the lifetime income

31:47
stream so that

31:48
the annuity companies on the hook to pay

31:50
as long as you're breathing if it's

31:52
joint life as long as

31:53
both of you either one of your breathing

31:55
but when you pass or when that second

31:57
person

31:57
passes away you can contractually

32:00
structure the policy

32:02
so that 100 of any unused money goes to

32:05
the beneficiaries and the annuity

32:06
company

32:07
does not keep a penny i need people to

32:10
be clear about that i repeat that

32:12
15 times a day to people john that think

32:16
that the money goes poof when you die

32:17
yes that's one way to structure it but

32:20
99 of the people that we work with do

32:22
not structure

32:23
what's called life only right and

32:26
instead

32:27
i just was looking yesterday uh i get

32:30
canex

32:31
uh which is a uh a thing for

32:34
professionals

32:35
in annuities and i was looking at their

32:38
report

32:39
for the first quarter of two 2021

32:43
and the kind of annuities that people

32:46
bought

32:47
and something like 60

32:51
of the people who bought annuities

32:54
bought

32:54
the thing stan just described it's

32:57
called cash refund

32:59
and it says this i'm going to pay you

33:01
for as long as you live or for as long

33:03
as you and your spouse live

33:05
right if you don't get back the amount

33:08
of money that was

33:09
put on income that

33:12
that you had at that time then the

33:15
balance is going to be paid to your

33:16
beneficiary in a check

33:18
over half the people very few people

33:21
uh get life only although by the way

33:26
if you have nobody that you care about

33:29
you're single and either that or you

33:32
have children but you don't like them

33:35
uh and you can say i want

33:38
the insurance company to be able to stop

33:41
paying whenever i die

33:43
and that then will give you the single

33:46
highest guaranteed income

33:49
available for life on the planet there

33:53
is no other instrument that can do that

33:55
but most people look at that and say

33:58
what if i die next month

33:59
so the cash refund option that stan has

34:02
described

34:03
is i don't believe uh i've sold two life

34:07
onlys

34:08
in my entire career they were both

34:12
unmarried with no children that wanted

34:15
the highest income they could get

34:18
everybody else uh li is the

34:22
the you can structure them the way that

34:24
you want when you

34:25
they're customizable i tell people that

34:28
that all the time

34:29
i wanted to to pivot a little bit john

34:33
we've been around a long time both of us

34:35
and we've been in the industry for a

34:37
long long time

34:39
um anytime there's low a low interest

34:41
rate environment

34:42
that's when banks and brokerage firms

34:44
and annuity companies come up with

34:46
with um products out of midair i mean

34:49
they just kind of invent them

34:50
to to attract customers and attract

34:52
premium

34:53
one of the gogo products right now

34:55
that's being sold primarily in banks and

34:57
brokerage firms is what's called a

34:58
buffered annuity

34:59
now john you're going to get a kick out

35:01
of this because i call it a copay

35:03
annuity because it is kind of like a

35:06
copay

35:06
because what you're what they're saying

35:08
is you're going to get a little bit

35:10
extra

35:11
upside as compared to an index annuity

35:14
but

35:14
but if it goes down you might have to

35:17
share

35:18
in that downside risk which what i.e the

35:21
co-pay

35:22
i am i am i can't wait to hear

35:27
your take on what these buffered

35:29
annuities what what you think about

35:31
buffered annuities i get a lot of calls

35:33
on them i don't sell them

35:35
for a lot of reasons i don't believe in

35:36
the concept what's your take on buffered

35:39
annuities john

35:40
well first of all uh

35:43
you're you're absolutely right copay it

35:46
sounds sounds right

35:47
the problem with with but they're also

35:50
called structured annuities the same i

35:52
understand

35:52
i just think copay drives home the fact

35:57
because you're you're you're sharing in

35:58
the risk right if you have

36:01
one of these annuities typically you'll

36:03
say this we're going to give you more

36:05
interest than you would have gotten

36:06
from an a straight index annuity and if

36:10
it loses money

36:11
we'll we'll absorb the first 10

36:14
or 15 percent or 20 you get to select

36:17
that

36:18
and then if if there's a really bad year

36:22
and it drops more than that amount

36:24
you're on the hook for

36:26
the excess what strikes me is

36:29
that's backwards yes it is

36:32
because what do you want to protect

36:34
yourself against

36:36
a minor loss or a catastrophic loss

36:39
because if you select let's say a 10

36:42
percent loss

36:45
they're going to eat the 10 and the and

36:48
the market goes down 38

36:50
which it has done before in one year

36:53
you're stuck with 28 of that loss

36:58
that's going to hurt a lot more than if

37:01
you had said no

37:02
i'll take the 10. but they don't give

37:04
you that option

37:06
not only that they are complicated

37:09
because

37:10
most of them are tracking indexes

37:13
that haven't been around for a while yep

37:16
they have no track record

37:18
and to understand them uh

37:22
requires go buy the book index annuities

37:24
a suitable approach

37:26
jack and i wrote that because of the

37:29
fact that

37:30
these products were so complicated

37:32
nobody knew

37:33
how they worked well and also too these

37:36
are great bull market products

37:38
john the these are fear products sold in

37:41
a bull market

37:42
and meaning that everyone's jittery

37:44
about the

37:45
the rise of the markets um but they want

37:48
to protect their downside that's kind of

37:49
the fear approach with with too many

37:51
index annuity

37:53
um presentations um as well

37:56
but the point is with the buffered

37:58
annuities

37:59
i just challenge anyone to explain the

38:02
to the detail what they own

38:04
from a 30 000 foot view i guess it looks

38:07
pretty good

38:08
but if you know the details of it then

38:11
then i challenge you to

38:13
to validate the purchase of it and for

38:15
any

38:16
advisors that do happen to be listening

38:17
and want to challenge me on that come on

38:19
bring it um i have no problem uh you

38:22
know arguing that point

38:23
um but i just think that buffered

38:25
annuities

38:27
people aren't getting what they think

38:28
they're getting and

38:30
it bothers me but let but let me ask you

38:32
one more you brought something up that i

38:33
i'm dying to hear your take on i'm not a

38:35
big fan

38:36
of these these indices indexes

38:40
created out of midair based on an

38:42
algorithmic back

38:43
test to look for a return you

38:47
what drives me crazy john is is is

38:50
you'll have a presentation someone will

38:52
call me say well this guy

38:53
presented me this index annuity or

38:55
buffered annuity with this

38:56
this index it hadn't been around but if

38:58
i owned it ten years ago this is what i

39:00
would have made

39:01
how's that even possible how do you

39:04
back test something that's never been

39:06
around well is that as

39:08
disturbing to you as it is to me well it

39:10
is disturbing they use

39:12
proxies and they say well uh this hasn't

39:15
been around for a while

39:16
but it that index tracks x

39:19
and x has been around for a while so

39:22
we'll use x

39:23
the the problem is if somebody has to

39:27
say

39:28
but you would have gotten this and it

39:30
hasn't

39:31
been around that should be enough for

39:33
you to say thanks but no thanks

39:35
exactly but but they are selling a

39:39
number of risk

39:40
and guarantees that's what it's about

39:43
when you're 95 years old and you're

39:45
still alive

39:47
you can't work at walmart you you know

39:50
you need that income

39:52
and you need it to persist for as long

39:54
as you live

39:56
no matter what and you can't do that

39:59
with these products that get cute

40:03
yep that's a good way to put it um i

40:06
also wanted to ask you about

40:07
the word fiduciary and it drives me a

40:09
little crazy because i think fiduciary

40:11
which is

40:12
that the southern definition of that is

40:14
putting

40:15
the client's interest ahead of yours as

40:17
the selling agent or advisor

40:19
in my opinion that should be automatic

40:22
and involuntary

40:23
if you're in the financial services

40:25
business you should be a fiduciary

40:27
period with everything that you do

40:30
but that's not the case in a lot of

40:32
cases and the fiduciary seems like the

40:34
next

40:35
hammer of regulation that's coming down

40:39
maybe it's well maybe we need it what's

40:41
your take on this whole fiduciary

40:43
argument and how it's going to affect

40:45
the financial services industry

40:49
okay well first of all there is

40:51
fiduciary

40:52
is ju is a standard of care that as stan

40:55
says

40:56
means that the fiduciary has put your

41:00
interests

41:01
ahead of his or her own that's the basis

41:05
but the fiduciary standard there's not

41:08
one

41:08
there are several for example a lawyer

41:11
has a fiduciary duty

41:13
but it's not the same duty as a

41:15
portfolio manager

41:16
right they have different things but the

41:19
fiduciary

41:20
standard in the financial services

41:22
industry

41:23
that by the way applies to all

41:25
investment advisors

41:27
by definition it also applies to anybody

41:31
who claims to have special expertise

41:35
a lot of agents don't know this but if

41:38
i'm a clu

41:39
chartered life underwriter

41:42
or cfp for example i'm not but there are

41:44
a lot of them out there

41:46
you have to agree to be a fiduciary in

41:48
order to get that

41:49
designation right but most insurance

41:53
agents are

41:53
subject to that so-called suitability

41:56
standard

41:57
but that's changed folks in

42:00
2006 june of 2020

42:05
if you're recommending an annuity

42:08
you're going to have whether it's

42:10
qualified or non-qualified in it

42:12
whatever you're going to have to deal

42:15
with

42:16
best interest because

42:19
the naic model reg and the state

42:23
that have adopted it will will adopt

42:27
that fundamental thing that says you

42:30
have to put

42:31
the client's interest first and by the

42:33
way that model regulation that

42:35
you and i talked about stand that uh

42:39
your agents will be subject to

42:43
that says that not only they have to put

42:45
your interest

42:46
first well my i'm the only agent i don't

42:48
deal with agents because you know

42:51
people you're you're consumers right

42:55
that do you deal with they're going to

42:58
have

42:59
that duty of putting your interest first

43:02
but they're going to have more they're

43:04
going to have to give you

43:06
documents that describe what they've

43:09
recommended right they've recommended it

43:12
and believe it or not whether they're

43:14
licensed with one company

43:16
two companies or two companies more and

43:19
more

43:20
but they only write with one they have

43:22
to do all of that

43:23
they have to tell you how they're

43:25
compensated and if you

43:27
ask they have to tell you what their

43:29
compensation is

43:31
that i on the compensation side i have a

43:33
great idea for the industry that could

43:35
solve a lot of problems but it'll never

43:36
happen because it makes too much sense

43:39
and that is if every single annuity type

43:41
once again

43:42
there's many different types of

43:44
annuities but if all annuity types had

43:46
the same commission level

43:48
preferably low then that would take out

43:51
the

43:52
the drive for some agents to push a

43:54
product based on a high commission

43:56
i i i think that solves the the problem

43:59
i don't think that will ever go through

44:01
but if if you think about it if the

44:03
immediate annuity

44:04
had the same commission level as the

44:06
mygo which had the same commercial level

44:08
as the index annuity

44:09
which had the same commission level as a

44:11
deferred income annuity or a qlac

44:13
then it was going to force literally the

44:16
agent or advisor to it

44:18
to recommend the suitable product that

44:20
would provide the best

44:22
solution contractually for the goal i

44:24
know that's never going to happen john

44:25
but

44:26
what's your take on that well here we

44:29
have to disagree

44:31
and although here we go all right and

44:33
the reason for that is this

44:35
there are some products that require

44:37
ongoing monitoring

44:40
and the commission structure that most

44:42
people have

44:44
is wrong it's it it's it's

44:47
all up front most agents get that if

44:50
they sell an annuity they get the whole

44:51
thing up front

44:53
and there's nothing let's stop there for

44:56
and i've told this to people before but

44:57
this is a good time to drive that home

44:58
again the fact that

45:00
that commission is is not is

45:03
if you put a hundred thousand dollars in

45:04
any type of annuity you're gonna see a

45:06
hundred thousand dollars on your

45:07
statement even though the agent got paid

45:09
you can call it hidden you can call it

45:11
build in you can call it part of the

45:12
administrative cost

45:14
but it is what it is but keep going on

45:16
some need ongoing management

45:19
uh there are products variable deferred

45:22
annuities for example or

45:24
index annuities with uh where there's a

45:26
choice of

45:27
indices sure a prudent

45:31
agent will every year be meeting with

45:35
the client

45:36
and saying let's see how that index

45:38
worked and perhaps you want to have more

45:40
than one index

45:41
etc what is needed and i'm sure stan

45:45
will agree with this

45:46
is to have the compensation

45:50
uh mirror the work that you're doing

45:54
i used to tell wholesalers who tried to

45:56
get me to sell their products

45:58
i said no trail no sale what does that

46:01
mean

46:01
it meant i don't want six percent up

46:04
front i want

46:05
as a certain amount every year because

46:07
i'm going to be earning it

46:09
every year there the problem is that

46:12
there are

46:13
products that need to that and there are

46:15
products that need

46:16
absolutely none right no i agree it's

46:19
kind of like when

46:20
yeah i agree with i agree with that but

46:22
i do think that

46:24
too many sales and recommendations are

46:26
based with with

46:28
you know the the bad agents out there

46:30
that are just looking at the highest

46:31
commission

46:32
i have internal wholesalers call me all

46:33
the time and they get frustrated because

46:35
most agents call in and say

46:37
what's the highest commission product

46:38
out there i can sell and then they go do

46:40
a square peg into round hole selling

46:42
which is

46:43
which is um which is kind of sad i do

46:46
think that the annuity industry

46:47
is going to more of a direct consumer

46:50
model which i've pioneered out here

46:52
um so you know when john talks about

46:54
meeting with the client you know we do

46:55
that via zoom and we do that via

46:57
on the phone and have clients in all 50

46:59
states i do think that

47:01
eventually the annuity industry will

47:04
will be headed down that path right now

47:06
it's it's early

47:07
and you know as they say john pioneers

47:09
take all the arrows and we're

47:10
we're that we're those people but i do

47:12
think the commoditization

47:14
of what annuities are commodities in my

47:17
opinion

47:18
once people figure out that you you need

47:20
to shop for annuities like you shop for

47:22
a plane ticket

47:23
um i think that the industry it'll be a

47:26
better industry and more

47:27
pro-consumer industry as opposed to you

47:30
know this is the this is the hot product

47:32
that you need to sell right now based

47:34
upon what an

47:35
internal wholesaler is pushing you to do

47:38
well i certainly agree with stan that

47:42
the commission structure for annuities

47:45
needs to be

47:46
changed it needs to be changed because

47:49
it doesn't

47:50
mirror the work that is done i

47:53
disagree with him in that i would not

47:56
pay the same commission for something

47:58
that requires ongoing monitoring

48:00
as as for a product that it's

48:03
fire and for gap you don't need it but

48:06
i'm okay i'm okay with that why not have

48:10
the annuity

48:12
frankly if you paid a percentage

48:15
every year that would work but let me

48:18
address what stan had said about

48:20
they need to change this that's already

48:24
happening

48:25
and here's why in the new

48:28
naic model regulation that agent

48:32
not only has to tell you what he's

48:34
selling you

48:35
he has to tell you what he didn't sell

48:37
you and why

48:40
and that's going to allow you the

48:43
consumer

48:44
to to to be able to be more confident

48:48
that this guy is not selling simply the

48:51
highest product

48:52
because if he is then he's going to have

48:56
real trouble being honest on those forms

48:59
that he has to give you

49:02
i totally agree um john we're coming up

49:06
on the

49:06
on the end of the segment but i wanted

49:08
you to kind of if you want to give

49:10
some last words to the um to the viewers

49:12
and the listeners from a consumer

49:14
standpoint

49:15
on just you know annuities in general

49:17
and where you see

49:19
the industry headed and why it's

49:21
important for them to understand that

49:23
okay thank you uh pure

49:26
unadulterated self-interest this is my

49:30
for the podcast listeners um for the

49:33
viewers they just saw him hold up a book

49:35
for the podcast listeners

49:37
he just held up a book called john

49:39
olson's guide to annuities for the

49:41
consumer

49:41
once again we'll have that link on our

49:43
site where you can go purchase that

49:45
but that would be a good go-to source

49:47
and an objective resource

49:49
whether you're considering me as your

49:50
agent or someone else as your agent

49:52
advisor that's certainly

49:54
that's certainly where to go anything

49:56
else john

49:57
yeah well where where are we headed

50:00
we're headed to more regulation we're

50:03
headed to much

50:04
much more a scrutiny of suitability

50:07
and one thing that's interesting is

50:09
there are two diametrically opposed

50:11
trends happening

50:13
in the same time in the same industry

50:15
you have people saying we have to go

50:17
get back to the basics we're going to

50:20
start selling

50:21
products that that don't have a lot of

50:24
whistles and bells

50:25
in fact we're going to stop selling the

50:27
stuff that has whistles and bells

50:29
and you have another company right

50:31
across the street

50:33
that says we've got to have a new thing

50:35
with whistles and bells

50:37
both trends are happening we don't know

50:39
who's gonna win

50:42
no i agree with that i think the the

50:44
industry is changing

50:45
you know on a on another podcast we'll

50:47
have you on we'll talk about more about

50:49
the trends and where

50:50
me and you are predicting where things

50:51
are gonna go but i really do appreciate

50:54
you being on john i mean

50:56
once again john olsen annuity royalty

50:58
definitely and he knows his stuff

51:00
and i'm just so glad that he is a good

51:02
resource for us

51:03
and once again we'll have him we'll have

51:06
a specific pace for him permanently

51:08
on our site so you can you know go to

51:10
his site you can link to his site you

51:11
can link to his books if you want to buy

51:12
them you can replay this

51:14
this um this podcast but john i really

51:16
appreciate you being here

51:18
and thanks everyone for joining me on

51:20
the number one annuity podcast on the

51:22
planet

51:23
fun with annuities

51:28
thanks for listening to fun with

51:30
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51:59
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52:01
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52:05
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