John Olsen: Annuity Royalty Shares Wisdom (TAM Classic)

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[Music]

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welcome to fund with annuities where

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every single week I welcome a celebrity

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guest expert that can help you maximize

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chapter 2 of your life listen learn

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laugh and love every minute of the most

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let's get to

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[Music]

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it welcome to fun with annuities I'm

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your host stany annuity man America's

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annuity agent licensed in all 50 states

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I want to welcome everybody on all major

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podcast platforms listening to us today

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and also on the fun with annuities

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YouTube channel where you can view me

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and the guest interacting and laughing

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and facial expressions and all that

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stuff but without further Ado I want to

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introduce and go through kind of the

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background of Our Guest today which I'm

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so excited that he's joined us his name

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is John Olen um he's an author he's an

0:58
educator and he can literally be called

1:01
an annuity expert in fact he's one of

1:03
the few people on the planet that I can

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confidently call annuity royalty I've

1:08
been a friend of his for a long long

1:10
time and a follower he's a thought

1:12
leader um in the annuity space even

1:14
though he's kind of semi retired right

1:16
now and kind of focusing on his guitar

1:19
and his you know all of his stuff that

1:21
he does his research and World War II

1:23
research and all that stuff but uh he's

1:25
done a lot but in 2015 after being with

1:29
numerous companies Etc he started Olsen

1:32
annuity

1:33
education uh which is it does exactly

1:35
what it sounds like it does it it

1:37
educates people on annuities um he is an

1:41
expert on annuity taxes um he doesn't do

1:44
a lot of that now but in the past he was

1:45
the go-to person for that and he was on

1:48
on the editorial Advisory board for tax

1:50
facts which is kind of a resource for

1:53
all of us out here in the financial

1:55
services business now he's written a lot

1:57
of books and co-authored a lot of books

1:58
let me just go through a few of them

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he's the co-author of the advisor's

2:02
guide to annuities he's the co-author of

2:04
indexed annuities a suitable approach

2:07
he's the author of Taxation and

2:09
suitability of annuities for the

2:10
professional advisor and he's also

2:13
authored the Timeless classic of read

2:15
the title of the book is called read

2:16
this before buying any annuity I mean

2:18
it's just perfect um and the one of the

2:21
most fascinating books he's ever written

2:22
in my opinion it's titled the adviser as

2:25
a defendant how to keep from being sued

2:27
successfully he's trying to help the

2:29
adviser to do the right thing and be a

2:31
fiduciary before fiduciary was the go

2:33
word the go-to word and then finally one

2:35
of the best books ever written on the

2:36
anud topic John olsson's guide to

2:39
annuities for the consumer now you can

2:40
go to his site at olssen annuity

2:43
education.com but you can also go to my

2:45
site at the annu man.com because we'll

2:46
have a page that has John's uh

2:49
information links where you can buy his

2:50
books and you can replay this podcast

2:52
Etc now little bit about him personally

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he lives in Kirkwood Missouri Missouri

2:57
as the southerners say with his wife

2:59
Katherine and and a cat that runs the

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show um I think the cat's name is ceria

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um he enjoys teaching he's a teacher

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he's an educator he's a writer he loves

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to read he loves classical music he

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smokes a few cigars and he and he likes

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to argue almost anything because he wins

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he's you're gonna find out when he

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starts talking like this cat knows what

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he's talking about um he calls himself

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an adequate pistol shot a decent folk

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guitarist and a pretty crappy golfer um

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which he's just a worldly guy he he

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loves uh

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uh World War II history calligraphy I

3:32
mean he does a lot and you're going to

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see him if you're watching the fun with

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an Nudy's YouTube channel you'll see in

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the background a library just packed

3:38
full of books John is a uh voracious

3:41
reader and learner and with that I want

3:43
to Welcome to the fun with annuities

3:45
podcast annuity royalty John olssen John

3:48
thank you for thank you for joining us

3:51
oh Sam thank you very much it's my

3:54
pleasure to be here uh gosh I appreciate

3:59
all your very kind words uh yeah I've

4:02
been in I've been in the annuity

4:04
business the financial services industry

4:07
since February of

4:09
1973 there you go I retired for the most

4:14
part in

4:16
2012 uh but I still did uh quite a bit

4:19
of uh expert witness testimony which was

4:22
the origin of my the book that you

4:24
mentioned how to keep from being sued

4:26
successfully right represented both uh

4:30
plaintiff and defendant and I found

4:33
something interesting that I think your

4:35
your viewers would find interesting and

4:38
that's that uh in the cases that I

4:41
worked on which were uh cases in front

4:44
of a court or a finra arbitration that

4:47
alleged that a an unsuitable annuity

4:50
sale had been made uh and I've looked at

4:53
both sides the the plaintiff and the

4:57
defendant I can count on one hand the

5:00
number of cases in which the agent who

5:04
who Miss sold a case was really a bad

5:08
guy for the rest of them he simply he or

5:11
she simply didn't know any better at all

5:16
there there are there's a great deal of

5:19
misunderstanding about annuities

5:22
particularly even more than life

5:24
insurance because they can be very

5:27
complicated and the Stan and I were

5:29
talking about yesterday the the more

5:32
recent products are so difficult Jack

5:36
Maran and I sat in the RIT Carlton cigar

5:38
club for 20 minutes reading a brochure

5:41
sales brochure on a variable annuity

5:45
that had a certain kind of stepup writer

5:48
uh after 20 minutes I looked at Jack and

5:51
said I don't understand it do you and he

5:54
said no and by the way Jack Maran is

5:56
also a nity royalty and he's the

5:58
co-author of of the book that John

6:01
co-authored with him called index

6:02
annuities a suitable approach and and

6:04
those two John and Jack pretty much laid

6:08
the foundation of facts when it

6:10
surrounds index annuities annuities in

6:13
general but um you know from a

6:14
suitability standpoint John and you know

6:17
this is a consumers podcast and and also

6:20
YouTube channel where consumers are are

6:22
trying to figure out do annuities fit do

6:26
they make

6:27
sense go through why that is so

6:29
important for the annuity industry and

6:32
the consumer themselves the suitability

6:34
part of annuities and the purchase of

6:37
annuities well thank you Stan yes it is

6:41
important it's critical let's let's look

6:44
at the word suitability what does it

6:46
really mean it

6:48
means is this product that is being

6:51
recommended to you does it do the things

6:55
that you want it to do that are your

6:57
goals and does it avoid doing the things

7:01
that you don't want it to do uh your dis

7:04
your your

7:06
disfavored it's a question of

7:08
suitability is when you look at it and

7:11
it's it's the thing that you wanted to

7:13
do for example if you're of let's say

7:17
you're 65 years old I'm just using an

7:20
example and you've decided that you need

7:23
an income starting

7:25
today and it has to persist for as long

7:28
as you do for life or perhaps for your

7:32
lifetime and your spouse's lifetime it

7:34
has to do that that's critical and you

7:37
say well I not only need it to do that

7:41
but I need to know the amount and I need

7:44
to know that amount will never go

7:47
down there's one product that does that

7:50
spectacularly well it's called a fixed

7:54
immediate annuity right sometimes called

7:57
it a single premium immediate annuity

7:59
right single PR yes thank you you can

8:02
either pay it buy it with one lump sum

8:04
or buy it with a series of installments

8:07
but why does it work because that's all

8:10
it does it provides an income for you

8:13
and or you and your wife or right and it

8:17
guarantees period this amount of money

8:21
is going to be paid to you or it could

8:23
go up every year by what's called a cost

8:25
of living Rider that nobody wants

8:28
anymore because they're so darn

8:30
expensive they reduce the amount of

8:33
income you'd get but that's what they do

8:36
what don't they do well they're not

8:39
savings instruments right in fact after

8:42
you buy it you don't have the money that

8:44
you paid anymore it's gone right it's

8:48
gone because you traded it you traded it

8:50
for a stream of income by contrast let's

8:54
say that you're 35 or or 45 whatever and

8:58
you don't uh want the money

9:00
today you want to have an income

9:02
commencing at retirement let's say 65

9:06
and it needs to go for life or or yours

9:09
and your

9:10
spouses uh and you're willing to take

9:14
some risk to get a pretty good return

9:17
well I've defined a couple of different

9:20
products will work but typically a

9:23
variable deferred annuity would be

9:25
something you would want to look at on

9:27
the other hand if you say look I'm I'm

9:31
really I'm really worried about what's

9:34
going to be happening in the future and

9:36
by the way if you're not you should be

9:39
uh you might say I I want to have that

9:42
income but I don't want to lose any

9:45
money I I don't want my principle to go

9:48
down uh in that case you would want a

9:51
deferred annuity but it would be what is

9:53
called fixed that doesn't refer to the

9:56
interest rate it refers to the fact that

9:58
when you ask what's the contract worth

10:02
it's measured in dollars fixed dollars

10:05
right and to go through the products you

10:07
know um just just to interrupt a little

10:09
bit here obviously I've written books on

10:11
all of these products you can get them

10:12
at my site you can run quotes at my site

10:15
247365 um but but I always ask John I

10:18
always ask two questions to people what

10:19
do you want the money to contractually

10:20
do and when do you want those

10:21
contractual guarantees to start and then

10:23
from there we you we just kind of drill

10:26
down on the on and shop for the highest

10:28
contractual G guarantee for that

10:30
situation um I want your Insight on how

10:35
how do the annuity carriers approach

10:39
suitability I think that there's a

10:40
misconception out there in the in this

10:43
in the consumer world with annuities

10:45
that the annuity carriers don't care

10:48
they're just trying to sell they just

10:49
want their agent Army out there sell

10:51
sell sell I tell people all the time the

10:54
you know the annuity industry can't

10:55
regulate what an agent says but they're

10:57
very serious about suitability and

10:59
appropriateness of the product can you

11:02
go into that from the carrier side

11:03
because I know that you you know used to

11:06
um speak with them on a regular basis

11:07
and advise the industry where does that

11:10
land and and why should the C the

11:12
consumer be feel comfortable with the

11:14
suitability approach from the carriers

11:16
in the

11:17
industry uh thank you s

11:21
uh years ago decades ago I'm afraid that

11:26
that U statement from Stan they they

11:28
don't they just want to sell sell sell

11:31
decades ago that was the case with an

11:33
awful lot of them wow okay it's not the

11:36
case anymore no it's not now why for one

11:40
thing they have recognized that uh they

11:43
have obligations that perhaps they

11:45
didn't recognize before but it they're

11:48
also driven by the consumer forces that

11:53
have have over the the years said look

11:57
we we demand that that you guys put into

12:01
place some kinds of procedures policies

12:04
Etc to make sure that when one of your

12:07
agents sells a a contract an annuity

12:10
contract that it's the right thing for

12:12
the client and now I can say with

12:16
considerable uh certainty that there are

12:20
companies that are

12:23
extremely

12:25
uh not only interested but determined to

12:29
get the right product and an agent for

12:32
example now uh with almost every company

12:35
has to fill out a suitability

12:37
questionnaire and what does it ask says

12:39
well how much net worth does this client

12:41
have how much income does this client

12:43
have what is the what is the age of

12:45
course what do what are they trying to

12:48
do uh and where what kinds of

12:51
Investments do they have uh because we

12:54
want to know what else they have if

12:57
we're if we're recommending addition to

13:00
the products that they own these things

13:03
are now required and agent training is

13:06
now mandated in just about every state

13:09
so that you as

13:12
consumers can have

13:15
considerable uh certainty that Mo that

13:20
the the agent will have been told you've

13:24
got to do it suitably and has and has

13:26
been trained in how to do that

13:30
uh some companies are better than others

13:32
I would say if you're a consumer and so

13:35
and an agent is recommending uh asking

13:38
to come over and talk about annuities

13:40
there are a few things you should do

13:43
first number one if you have access to a

13:46
computer and you know that that agent

13:48
recommends a company find out about that

13:50
company find out let me stop you let me

13:52
stop you right there I don't think

13:55
agents should recommend a company you

13:58
know I think it should be if you're

14:00
looking you and I know you didn't mean

14:02
it statically like that but people

14:04
should understand if you're looking for

14:06
a solution you know remember my two

14:09
questions what do you want the money to

14:10
contractually do and when you want those

14:11
contractual guarantees to start that

14:13
agent should be able to show you three

14:16
to 10 three minimum companies that

14:19
provide that solution to you if if an

14:21
agent says I've looked at it and this is

14:23
the best one I think for you that's

14:25
that's not a sufficient answer I I agree

14:29
with you Stan but there are a lot of

14:31
agents who recommend only one and I I

14:33
simply wanted to look at that scenario

14:36
sure absolutely dead right um the agents

14:42
who can re uh work with more than one

14:45
company and that's most agents these

14:48
days has an obligation to go shopping

14:52
which is what Stan does yeah exactly

14:54
indeed I did for my clients I I didn't

14:58
recommend one company I look all of them

15:01
but there are some things you want to do

15:04
first of all if the a if the uh you

15:07
wanna I I think you should write

15:10
down write down what you want what you

15:13
don't want and in writing it down it'll

15:17
help you to clarify exactly what your

15:20
goals are and what you your things you

15:22
want to avoid and then when someone

15:26
recommends uh comes in with three to 10

15:30
uh I've always liked three I personally

15:34
I'm not sure I could handle 10 but um I

15:37
don't disagree with Stan saying you want

15:40
to be sure that this agent has gone

15:42
shopping sure when the agent re sits

15:47
down with you a couple of things are are

15:51
really

15:52
important number one if that agent talks

15:56
about any feature or whatever in that

16:00
annuity with the sales brochure and

16:03
Glides over it and you didn't understand

16:07
what he he or she said you need to say

16:10
you know I didn't understand what you

16:12
said could you explain that a little

16:14
better and if what you get is a

16:16
repetition of well you know it's so and

16:18
so find another agent well and I always

16:21
say John that if you can't explain it to

16:23
a nine-year-old don't buy it no offense

16:25
to nine-year-olds when I was first First

16:29
Learning Insurance back in the 70s uh I

16:32
started a progress of I'm sorry a

16:35
process that I uh used until uh I

16:39
retired I when I had a new thing that I

16:42
wanted to look at I would explain it to

16:44
my wife who is very very smart lady but

16:48
she's not an annuity expert and then I

16:50
would say explain it back to me right

16:53
she could not do that it was my fault I

16:56
didn't make it clear so if you have an

17:00
agent who's talking to you about income

17:02
writers or

17:04
whatever you need to know what it will

17:06
do yeah what it won't do and if that

17:09
agent can't explain it

17:12
correctly uh just say thank you very

17:15
much and find another agent and I always

17:19
tell people if it sounds too good to be

17:20
true it is every single time without

17:22
exception with annuities um you've got

17:24
to be very careful I if I had a vote and

17:27
and I told I told my my CEO this the

17:29
other day if there was a person that I

17:31
could appoint as annuity Zar other than

17:34
myself of course John it would be you um

17:38
if your annuities are and let's just

17:39
hypothetically look at that how would

17:41
you make this industry better because

17:44
with 10,000 Baby Boomers reaching age 65

17:47
every single day I call that a

17:49
demographic tidal wave of people looking

17:51
for Solutions transfer of risk

17:53
contractual guarantees Etc what would

17:56
you do to improve the end

17:59
industry appeal and also reputation what

18:03
would you

18:05
do uh well the first thing I would do

18:09
most insurance agents do not want to

18:11
hear this but I am very sincere about it

18:15
I would say if you are going to

18:18
recommend index annuities you need to

18:22
have a special license I agree and let's

18:24
stop right there and part of that lure

18:27
would be they would have to read and

18:29
take a test on the book that that John

18:32
co-authored with Jack Maran called index

18:34
annui is a suitable approach that would

18:36
be the that would be the book but go

18:38
further I'm so for this John I can't

18:41
tell you so you're saying it it to sell

18:44
fixed index annuities the go- go product

18:46
right now the bad chicken dinner product

18:48
of

18:49
choice you have to have a separate

18:51
license correct and the reason I believe

18:54
that is that the insurance license that

18:58
examination in every state is pretty

19:01
darn easy yeah it doesn't require

19:04
in-depth understanding index annuity

19:07
products most of them are relatively

19:10
complicated many of them are so

19:13
complicated that even experts have

19:16
trouble understanding yes I can tell you

19:19
and not be U worried that I'm saying the

19:22
wrong thing that most agents more than

19:27
half don't don't understand what they're

19:30
selling I agree with that I think that's

19:33
being

19:33
generous well I would I would put that

19:37
percentage higher actually yeah and the

19:39
thing is uh when I used to give uh

19:42
presentations around the country to to

19:44
agents I would ask don't raise your

19:46
hands because I don't want to embarrass

19:48
anybody

19:49
but how many people have actually read

19:52
the annuity contract I would bet that

19:55
the percentage is not higher than 5%

19:59
right they read the marketing material

20:02
right and they say that's enough it's

20:06
not the the agent needs to understand

20:10
what it will do and what it won't do let

20:11
me give you some examples that you might

20:14
want to use if you are considering an

20:16
index

20:18
annuity uh most of them are being sold

20:21
today with what are called income

20:22
writers and they simply provide in

20:25
addition to the regular contract a

20:27
guaranteed income under certain

20:30
conditions and that that uh writer has a

20:33
cost an annual cost by the way index

20:36
annuities typically have no annual cost

20:39
and no front-end cost uh except if

20:42
there's a writer like this so the writer

20:45
might say it's going to cost you 75

20:47
basis points that's that's uh Insurance

20:50
speak for three4 of 1% per

20:53
year and they'll say that's what it is

20:57
okay but if I'm able to increase the

21:01
guaranteed amount due to how well my

21:04
contract has has been performing which

21:06
is called a stepup option and most of

21:08
them have it does does that mean my cost

21:11
will still be 75 basis points no it

21:14
doesn't in most contracts the the fee

21:18
will go up correct that's it's important

21:23
when you say okay is that is that the

21:25
current cost what is the guarantee cost

21:29
uh you're saying that uh this can give

21:32
me an interest rate let's say it's a

21:34
multi-year guaranteed annuity sure

21:36
interest rate of 4% for how long is that

21:40
4% guarantee right and after the

21:43
guarantee what is the minimum that they

21:46
can give me right now and can we

21:49
transfer it after the surrender charge

21:50
to get a higher rate or move it Etc I

21:53
you know I totally agree with that might

21:56
I got a question for you most people

21:57
just cavalierly that they hate all

21:59
annuities because they've seen the ad

22:00
and always say well if you hate all

22:02
annuities then you hate your Social

22:03
Security payment because that's an

22:04
annuity payment if you hate all

22:05
annuities you hate your pension because

22:07
that's an annuity um how would you

22:10
combat the I hate all annuity Mantra out

22:14
there if you're the annuities

22:16
are okay well number one the problem is

22:20
education and it's a long-term solution

22:24
but those people who say and I've talked

22:27
with attorneys and accountant who say

22:29
basically that well uh I hate all

22:32
annuities and I used to give continuing

22:35
education to accountants and

22:37
periodically I'd get somebody and I'd

22:39
say okay why well I hate them no no why

22:44
yeah we would examine each one well

22:46
they're too expensive you know that's

22:49
absolutely possibly correct of one kind

22:53
of annuity right variable deferred

22:55
annuity particularly with an income

22:57
writer would cost you more than 3% per

23:00
year for the life of the policy with no

23:03
Rider will cost you 0 per year so where

23:08
are all the fees that you're talking

23:10
about typically here's what happens and

23:13
they talk about annuities as if they're

23:15
all the same right and I tell my

23:16
students this any sentence that begins

23:19
with annuities are dot dot dot should

23:21
not even be finished because it'll be

23:23
nonsense right it's like saying all

23:26
vehicles have four wheels it's like

23:29
saying I hate all restaurants or I hate

23:30
all trucks um when you say I hate all

23:33
annuities it it's it's it's ludicrous

23:35
but I do think the annuity industry has

23:37
not done a good job of a consistent

23:40
simplistic message um of what annuities

23:43
do which is they transfer risk their

23:46
risk transfer products their risk

23:49
transfer contracts and I don't know why

23:52
they keep gravitating toward the growth

23:55
story John I guess it's because it's the

23:58
sexy thing to do but in my opinion we

24:01
should be talking about the transfer

24:02
risk guarantees that these annuity types

24:05
specific annuity types provide instead

24:08
of talking about potential hypothetical

24:11
theoretical back tested stuff by the way

24:14
on the back tested I know back tested is

24:17
is illegal in some states where you say

24:19
well if you owned it 10 years ago this

24:21
index annuity you know this is what

24:23
you're going to earn um what's your take

24:26
on that would you allow back test

24:30
I have never I've rarely seen back

24:33
testing that I had any respect for at

24:35
all and here's why they will say okay uh

24:39
this particular index annuity is going

24:42
to give you 60% of whatever is let's say

24:44
the S&P 500 uh you're going to get 60%

24:48
uh if it goes up but if you go down

24:50
you're going to get nothing that's a

24:51
typical index annuity and they'll say

24:54
okay where if you had bought this

24:56
annuity in 1975

24:58
how would you have done and they look at

25:00
the index that you picked and they they

25:04
back test but they back test using that

25:07
60% which would not have been the case

25:10
every year that percentage which by the

25:13
way is not guaranteed that percentage

25:15
can go up and down because the market

25:19
goes up and down and the risk goes up

25:21
and down but Stan just said something

25:23
that I hope you all will listen to these

25:27
are invest ments to a degree but most

25:31
annuities are in are riskmanagement

25:34
tools there are only a few things you

25:37
can do with risk you can assume it you

25:40
can eliminate it you can reduce it or

25:43
you can transfer it let's say the risk

25:46
is that you're going to have an auto

25:47
accident you can get rid of it don't

25:49
don't don't drive you can reduce it well

25:53
drive

25:54
better uh you can um you can retain it

25:59
uh I'm not GNA have any

26:01
insurance or you can transfer it and say

26:05
I can't handle that risk uh you all do

26:09
that with your homeowner's insurance and

26:11
your life insurance I can't handle the

26:13
risk that I would die tonight and my my

26:16
family needs an income but it's died

26:18
with me or my home burned down most

26:22
people can't afford to to build their

26:24
their home again so they transfer the

26:26
risk that's what a new do and I would

26:30
tell insurance companies look you don't

26:34
do that you don't talk about risk

26:36
transfer and I know why I've heard

26:39
insiders uh from insurance companies say

26:43
the public won't understand that well

26:47
you know I think you're smarter than

26:48
that in fact I know you're smarter than

26:51
that if it were simply put to you in

26:55
simple English you can either keep this

26:57
risk

26:58
uh of having too little what's the one

27:02
big risk that everybody worries about in

27:05
their their uh 60s and 70s running out

27:08
of money yep it's it's called it's

27:10
called Longevity risk and let me

27:12
interject right here one of the things

27:13
that I do is I try and I think one of my

27:15
my skills is to simplify annuities and

27:18
how they are explained I've come up with

27:20
an easy acronym called pill that

27:23
explains transfer of risk P stands for

27:25
principal protection I stands for income

27:27
for life L stands for Legacy and the

27:30
other L stands for confinement care

27:31
long-term care if you don't need to

27:33
transfer risk to solve for one or more

27:35
of those issues principal protection

27:37
income for Life Legacy long-term care

27:38
confinement care you don't need an

27:40
annuity in my opinion and if I was the

27:43
advertising agency for the annuity

27:45
industry of which John Olsen would be

27:47
the annuity are it would be a very

27:49
simple ad John it would be a take on the

27:52
got milk at if we all remember the got

27:54
milk where they had celebrities and they

27:55
had the milk mustache got milk the ad

27:58
would say this got guarantees question

28:01
mark I have a t-shirt that I wear around

28:03
that's what people are looking for I had

28:06
someone ask me the other day John how's

28:08
business stand the annuity man well

28:10
we're we're doing record numbers why

28:13
because the demographic tial wave of

28:15
people looking for contractual

28:16
guarantees could care less about

28:18
politics they could care less about

28:20
interest rates they could care less

28:22
about stock market all they care about

28:24
is chapter two of their lives and they

28:26
want guarantees period

28:28
and essentially fixed annuities are all

28:33
about guarantees and one other thing

28:37
they uh he mentioned the word mortality

28:40
risk there is one thing that's

28:42
interesting if if an annuity is giving

28:45
you a projected return of

28:49
5.1% and the CDs out there are 4% you

28:52
say this looks too good to be true how

28:55
can they do it here's how they can do it

28:58
the insurance company sells an annuity

29:02
to 1 million people and they know that

29:05
they have to reserve that is to say set

29:08
aside enough funds to pay the income

29:12
that they have guaranteed to all million

29:15
people but they don't have to have

29:18
enough to to do that for the next 40

29:22
years why because some of them won't be

29:25
here in 40 years right those who don't

29:28
make it those who die along the way the

29:32
money that the insurance company would

29:34
have had to pay those people can now be

29:38
paid to the the people who didn't die

29:41
that's why mortality risk or or

29:45
longevity risk I'm sorry it's it's

29:47
actually it's the same it's the same

29:50
thing there are there is only one

29:53
thing on the planet that can give you

29:57
that risk and that's

29:59
annuities and I agree with that John and

30:01
one of the things I tell people all the

30:02
time one of the biggest misconceptions

30:04
and again the annuity industry has done

30:05
a poor job with this is a lot of people

30:06
will think well Stan the annuity man and

30:09
John Olsen if I die the evil annuity

30:11
company keeps the money no you don't

30:13
have to structure it that way you can

30:14
structure it so that the annuity

30:15
companies on the hook I want people to

30:17
really lean in and listen to what I'm

30:18
getting ready to say you can structure

30:20
the lifetime income stream so that the

30:23
annuity companies on the hook to pay as

30:25
long as you're breathing if it's joint

30:26
life as long as both of you either one

30:28
of you are breathing but when you pass

30:30
or when that second person passes away

30:32
you can contractually structure the

30:35
policy so that 100% of any unused money

30:38
goes to the beneficiaries and the

30:39
annuity company does not keep a penny I

30:43
need people to be clear about that I

30:45
repeat that 15 times a day to People

30:47
John that think that the money goes poof

30:50
when you die yes that's one way to

30:51
structure it but 99% of the people that

30:54
we work with do not structure what's

30:57
called life only

30:58
right and and Stan I just was looking

31:01
yesterday uh I get KX uh which is a uh a

31:06
thing for Professionals in annuities and

31:09
I was looking at their report for the

31:12
first quarter of 200 21 and the kind of

31:17
annuities that people bought and

31:20
something like

31:22
60% of the people who bought annuities

31:25
bought the thing stand just described

31:29
it's called Cash refund and it says this

31:32
I'm going to pay you for as long as you

31:33
live or for as long as you and your

31:35
spouse live right if you don't get back

31:38
the amount of money that was put on

31:42
income that that that you had at that

31:44
time then the balance is going to be

31:47
paid to your beneficiary in a check over

31:49
half the people very few people uh get

31:53
life only although by the way if you

31:57
have nobody that you care about you're

32:00
single and either that or you have

32:03
children but you don't like them uh and

32:06
you can say I want the insurance company

32:10
to be able to stop paying whenever I die

32:13
and that then will give you the single

32:16
highest guaranteed income available for

32:20
life on the planet there is no other

32:23
instrument that can do that but most

32:25
people look at that and say what if I

32:28
next month so the cash refund option

32:30
that Stan has described is I don't

32:33
believe I've sold two lifeon in my

32:37
entire career they were both unmarried

32:41
with no children sure that wanted the

32:44
highest income they could

32:46
get everybody else uh like the the you

32:50
can structure them the way that you want

32:53
when you hear they're customizable I

32:55
tell people that that all the time I

32:57
wanted to to Pivot a little bit

33:00
John we've been around a long time both

33:02
of us and we've been in the industry for

33:04
for a long long time um anytime there's

33:07
low a low interest rate environment

33:10
that's when Banks and brokerage firms

33:12
and annuity companies come up with with

33:14
um products out of midair I mean they

33:16
just kind of invent them to to attract

33:18
customers and attract premium one of the

33:20
go- go products right now that's being

33:22
sold primarily in Banks and brokerage

33:24
firms is what's called a buffered

33:25
annuity now John you're going to get a

33:27
kick out of because I call it a co-pay

33:29
annuity because it is kind of like a

33:32
co-pay because what you're what they're

33:34
saying is you're going to get a little

33:36
bit extra upside as compared to an index

33:39
annuity but but if it goes down you

33:42
might have to share in that downside

33:45
risk which what I.E the co-pay I am I am

33:50
I can't wait to hear your take on what

33:54
these buffered annuities what what do

33:56
you think about buffered annuities I get

33:58
a lot of calls on them I don't sell them

34:00
for a lot of reasons I don't believe in

34:01
the concept what's your take on Buffer

34:04
annuities John well first of all uh

34:08
you're you're absolutely right cop

34:10
sounds sounds right the problem with but

34:14
they're also called structured annuities

34:16
the same thing I understand I just think

34:17
copay drives home the

34:20
fact because you're you're you're

34:22
sharing in the risk right if you have

34:25
one of these annuities typically he'll

34:27
say this we're going to give you more

34:29
interest than you would have gotten from

34:31
an a straight index anity and if it

34:34
loses money will'll will absorb the

34:36
first 10% or 15% or 20% you get to

34:40
select that and then if the if there is

34:44
a really bad year and it drops more than

34:47
that amount you're on the hook for the

34:49
excess what strikes me is that's

34:52
backwards yes it is because what do you

34:56
want to protect yourself against a minor

34:59
loss or a catastrophic loss because if

35:02
you select let's say a 10%

35:06
loss and they're going to eat the 10%

35:09
and the and the market goes down 38%

35:12
which it has done before in one year

35:15
you're stuck with 28% of that

35:19
loss that's G to hurt a lot more than if

35:23
you had said no I'll take the 10 but

35:25
they don't give you that option not only

35:28
that they are complicated because most

35:31
of them are tracking indexes that

35:35
haven't been around for a while y they

35:37
have no track record and to understand

35:41
them uh requires go by the book index

35:45
annui is a suitable approach Jack and I

35:47
wrote that because of the fact that

35:50
these products were so complicated

35:52
nobody knew how they worked well and

35:55
also too these are great bull market

35:57
products John the these are fear

36:00
products sold in a bull market and

36:03
meaning that everyone's jittery about

36:05
the the the rise of the markets um but

36:07
they want to protect their downside

36:09
that's kind of the fear approach with

36:10
with too many index annuity um

36:13
presentations um as well but the point

36:16
is with the buffered

36:18
annuities I just challenge anyone to

36:20
explain the to the detail what they own

36:23
from a 30,000 foot view I guess it looks

36:26
pretty good but if you know the details

36:29
of it then then I challenge you to to

36:32
validate the purchase of it and for any

36:35
advisers that do happen to be listening

36:36
and want to challenge me on that come on

36:38
bring it um I have no problem you know

36:40
arguing that point um but I just think

36:43
that buffered

36:44
annuities people aren't getting what

36:46
they think they're getting and it and it

36:48
bothers me but let but let me ask you

36:50
one you brought something up that I I'm

36:51
dying to hear you take on I'm not a big

36:54
fan of these these indices indexes

36:58
created out of midair based on an

37:00
algorithmic back test to look for a

37:03
return you what drives me crazy John is

37:06
is is you'll have a presentation someone

37:09
will call me say well this guy presented

37:10
me this index annuity or buffer annuity

37:13
with this this index it hadn't been

37:14
around but if i' had have owned it 10

37:16
years ago this is what I would have made

37:18
how's that even possible how do you back

37:21
test something that's never been around

37:24
well is that as disturbing to you as it

37:25
is to me well it is disturbing they use

37:28
proxies and they say well uh this hasn't

37:31
been around for a while but it that

37:34
index tracks x and x has been around for

37:37
a while so we'll use x the the problem

37:41
is if somebody has to say but you would

37:44
have gotten this and it hasn't been

37:47
around that should be enough for you to

37:49
say thanks but no thanks exactly but but

37:53
but they are selling transfer of risk

37:55
and guarantees that's what it's about

37:58
when you're 95 years old and you're

38:01
still alive you can't work at

38:03
Walmart you you know you need that

38:06
income and you need it to persist for as

38:09
long as you live no matter what and you

38:13
can't do that with these products that

38:16
get cute yeah that's a good way to put

38:19
it um also wanted to ask you about the

38:22
word fiduciary and it drives me a little

38:24
crazy because I think fiduciary which is

38:26
the the southern definition of that is

38:28
putting the client's interest ahead of

38:31
yours as the selling agent or adviser in

38:33
my opinion that should be automatic and

38:36
involuntary if you're in the financial

38:38
services business you should be a

38:40
fiduciary period with everything that

38:42
you

38:43
do but that's not the case in a lot of

38:45
cases and fiduciary seems like the next

38:48
Hammer of Regulation that's coming down

38:52
maybe it's well maybe we need it what's

38:54
your take on this whole fiduciary

38:56
argument and how it's going to affect

38:58
the financial services um

39:01
industry okay well first of all there is

39:03
fiduciary is is a standard of care that

39:07
as Stan says means that the fiduciary

39:11
has put your interest ahead of his or

39:14
her own that's the the basis but the

39:18
fiduciary standard there's not one there

39:20
are several for example a lawyer has a

39:24
fiduciary duty but it's not the same

39:25
Duty as a portfolio manager right they

39:28
have different things but the fiduciary

39:31
standard in the financial services

39:34
industry that by the way applies to all

39:37
investment advisers by definition it

39:40
also applies to anybody who claims to

39:44
have special expertise a lot of Agents

39:46
don't know this but if I'm a clu

39:49
chartered life

39:51
underwriter uh or cfp for example I'm

39:54
not but there are a lot of them out

39:55
there you have to agree to be a

39:57
fiduciary in order to get that

40:00
designation right but most insurance

40:03
agents are subject to that socalled

40:05
suitability standard but that's changed

40:08
folks in two th since June of

40:13
2020 if you're recommending an annuity

40:18
you're going to have whether it's

40:19
qualified or non-qualified in a whatever

40:23
you're going to have to deal with best

40:26
interest

40:27
because the NAIC model regg and the

40:31
state uh that have adopted it will will

40:35
adopt that fundamental thing that says

40:38
you have to put the client's interest

40:40
first and by the way that model

40:42
regulation that you and I talked about

40:45
San that uh your agents will be subject

40:50
to that says that not only they have to

40:53
put your interest first well my I'm the

40:55
only agent I don't deal with agents

40:57
because you know talking people your

41:01
consumers the agents that do deal with

41:04
they're going to have that duty of

41:08
putting your interest first but they're

41:10
going to have more they're going to have

41:12
to give you documents that describe what

41:16
they've recommended right why they've

41:18
recommended it and believe it or not

41:21
whether they're licensed with one

41:22
company two companies or two companies

41:25
more and more but they only write with

41:28
one they have to do all of that they

41:30
have to tell you how they're compensated

41:32
and if you ask they have to tell you

41:35
what their compensation is that I on the

41:38
compensation side I have a great idea

41:40
for the industry that could solve a lot

41:41
of problems but it'll never happen

41:43
because it makes too much sense and that

41:45
is if every single annuity type once

41:47
again there's many different types of

41:49
annuities but if all annuity types had

41:52
the same commission level preferably low

41:55
then that would take out the the drive

41:58
for some agents to push a product based

42:00
on a high commission I I I think that

42:02
solves the the problem I don't think

42:04
that will ever go through but if if you

42:06
think about it if the immediate annuity

42:09
had the same commission level as the MAA

42:11
which had the same commission level as

42:12
the index annuity which had the same

42:14
commission level as a deferred income

42:16
annuity or a CAC then it's going to

42:18
force literally the agent or adviser to

42:22
to recommend the suitable product that

42:24
would provide the best solution contract

42:27
for the goal I know that's never going

42:29
to happen John but what's your take on

42:31
that well here we have to disagree and

42:35
uh oh here we go all right and the

42:37
reason for that is this there are some

42:39
products that require ongoing

42:42
monitoring and the commission structure

42:45
that most people have is wrong it it's

42:49
it it's it's all upfront most agents get

42:52
that if they sell an annuity they get

42:54
the whole thing up front and there's

42:56
nothing and let's stop there for and

42:59
I've told this to people before but this

43:00
a good time to drive that home again the

43:01
fact that that commission is is not is

43:05
if you put $100,000 in any type of

43:07
annuity you're G to see $100,000 on your

43:09
statement even though the agent got paid

43:11
you can call it hidden you can call it

43:13
buildin you can call it part of the

43:14
administrative cost but it is what it is

43:16
but keep going on some need ongoing

43:19
management okay uh there are products

43:23
variable deferred annuities for example

43:25
or index annuities with

43:27
uh where there's a choice of indices

43:30
sure a

43:32
prudent agent will every year be meeting

43:36
with the client and saying let's see how

43:38
that index worked and perhaps you want

43:40
to have more than one index Etc what is

43:44
needed and I'm sure Stan will agree with

43:46
this is to have the

43:50
compensation uh mirror the work that

43:53
you're doing I used to tell wholesalers

43:56
who tried to get me to sell their

43:58
products I said no Trail no sale what

44:01
does that mean it meant I don't want 6%

44:03
upfront I want as a a certain amount

44:06
every year because I'm going to be

44:08
earning it every year there the problem

44:11
is that there are products that need

44:14
that and there are products that need

44:16
absolutely none no I agree it's kind of

44:19
like when yeah I agree with I agree with

44:21
that but I do think that too many sales

44:24
and recommendations are based with with

44:27
you know the the bad agents out there

44:29
that are just looking at the highest

44:30
commission I have internal wholesalers

44:32
call me all the time and they get

44:33
frustrated because most agents call in

44:35
and say what's the highest commission

44:37
product out there I can sell and then

44:38
they go do you square peg into round

44:40
hole selling which is which is um which

44:43
is kind of sad I do think that the

44:45
annuity industry is going to more of a

44:47
direct consumer model which I have

44:49
pioneered out here um so you know when

44:51
John talks about meeting with the client

44:52
you know we do that via zoom and we do

44:54
that via on the phone and have clients

44:56
and all 50 states I do think that

44:59
eventually the annuity industry will

45:01
will be headed down that path right now

45:03
it's it's early and you know as they say

45:05
John Pioneers take all the arrows and

45:07
we're we're that we're those people but

45:09
I do think the commoditization of what

45:13
annuities are Commodities in my opinion

45:15
once people figure out that you you need

45:17
to shop for annuities like you shop for

45:19
a plane ticket um I think that the

45:22
industry it will be a better industry

45:24
and more Pro consumer industry as

45:26
opposed to you know this is the this is

45:28
the hot product that you need to sell

45:30
right now based upon what an in internal

45:32
wholesaler is pushing you to do well I

45:35
certainly agree with Stan that the

45:39
commission structure for annuities needs

45:42
to be changed it needs to be changed

45:44
because it doesn't mirror the work that

45:47
is done I disagree with him in that I

45:51
would not pay the same commission for

45:53
something that requires ongoing

45:54
monitoring as as for a

45:57
that it's fire and forget you don't need

46:00
it but I'm okay I'm okay with that why

46:04
why not have the

46:06
annuity frankly if you paid a percentage

46:10
every year that would work but let me

46:13
address what stanard said about they

46:15
need to change this that's already

46:18
happening and here's why in the new NAIC

46:23
model regulation that agent not only has

46:26
has to tell you what he's selling you he

46:29
has to tell you what he didn't sell you

46:32
and why and that's going to allow you

46:36
the

46:37
consumer to to to be able to be more

46:41
confident that this guy is not selling

46:43
simply the highest product because if he

46:46
is then he's going to have real trouble

46:50
being honest on those forms that he has

46:52
to give

46:53
you it is a I I totally agree

46:57
um John we're coming up on the on the

46:59
end of the segment but I wanted you to

47:01
kind of if you want to give some last

47:03
words to the um to the viewers and the

47:05
listeners from a consumer standpoint on

47:08
just you know annuities in general and

47:10
where you see the industry headed um and

47:13
why it's important for them to

47:14
understand that okay thank you uh pure

47:18
uh unadulterated

47:20
self-interest this is my for the podcast

47:24
listeners um for the viewers they just

47:26
saw him hold up a for the podcast

47:28
listeners he just held up a book called

47:30
John Olsen's guide to annuities for the

47:32
consumer once again we'll have that link

47:34
on our site where you can go purchase

47:36
that but that would be a good go-to

47:38
source and an objective resource whether

47:40
you're considering me as your agent or

47:42
someone else is your agent adviser

47:44
that's certainly that's certainly where

47:46
to go anything else John yeah well where

47:49
where are we headed we're headed to more

47:52
regulation we're headed to much much

47:55
more scrutiny of suitability and one

47:58
thing that's interesting is there are

47:59
two diametrically opposed Trends

48:02
happening in the same time in the same

48:04
industry you have people saying we have

48:07
to go get back to the basics we're going

48:10
to start selling products that that

48:13
don't have a lot of whistles and bells

48:15
in fact we're going to stop selling the

48:16
stuff that has whistles and bells and

48:18
you have another company right across

48:21
the street that says we've got to have a

48:24
new thing with whistles and bells both

48:26
Trends are happening we don't know who's

48:29
going to

48:30
win no I I agree with that I think that

48:32
the industry is changing you know on a

48:35
on another podcast we'll have you on

48:36
we'll talk about more about the trends

48:38
and where me and you are predicting

48:39
where things are going to go but I

48:41
really do appreciate you being on John I

48:43
mean once again John Olsson annuity

48:46
royalty definitely and he knows his

48:48
stuff and I'm just so glad that he's a a

48:50
good resource for us and once again

48:52
we'll have him uh we'll have a specific

48:54
page for him permanently on our site so

48:56
you can you know go to his site you can

48:58
link to his site you can link to his

48:59
books if you want to buy them you can

49:01
replay this this um this podcast but

49:03
John I really appreciate you being here

49:05
and thanks everyone for joining me on

49:07
the number one annuity podcast on the

49:09
planet fun with annuities

49:16
[Music]