What Type Of Annuity Simulates Market Index Performance?

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What type of annuity simulates market index performance?

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What a loaded question. Hi there, I'm Stan the Annuity Man, America's annuity agent,

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licensed in all 50 states. Boy, if there was ever a topic that I needed to address,

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it's this one because this is the one where hopes and dreams are sold

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but contractual realities exist. We're going to go over everything after this.

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So anytime someone talks about market performance and the word annuity in combination. I start, you

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know, to throwing up in your mouth a little bit, like your mouth starts watering. Because this

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is where the bad sales pitches happen. This is where the hopes and dreams are sold. This

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is where people that should be making a really good informed decision get overwhelmed by the

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too good to be true nature of these market return scenarios and hypotheticals and theoreticals. Now,

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we do not at the Annuity Man sell any of these products that have hypotheticals. We only sell

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the contractual guarantees of the policy. I'm the pioneer of CGO, which is Contractual Guarantees

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Only. With annuities, eventually, the whole annuity industry will join me when they figure out all of

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this other stuff is nonsense. But when you're talking about market return products in the

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annuity world, it really comes down to three. We can sell you one of those three, but we only use

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that one to deliver an income rider guarantee. We don't look at the hypothetical. Okay? So,

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let's go through the first. Variable annuity. It was put on the planet in the 1950s by TIAA. It was

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called TIAA-CREF a long time ago. And in essence, it's a bunch of mutual funds. The industry calls

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them separate accounts, but me and you call them mutual funds. Mutual funds wrapped with

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an insurance wrapper. The average annual fee for a variable annuity is, I think, around 2 and a half

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to 3% annually for the life of the policy. I'm not saying that's good or bad. No load, meaning agents

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can't sell them and there's no fees. No-load variable annuities. That for all of you people

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that manage your own account, you can manage your own account inside of a variable annuity. The

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good news about a variable annuity was that those mutual funds, i.e., separate accounts internally,

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you know, it was growing tax deferred and that was good. You could go aggressive and it was

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a good product, but the variable annuity world has really lessened, and it takes a securities

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license to offer variable annuities. And just full disclosure, I used to work for Dean Witter,

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PaineWebber, Morgan Stanley, and UBS. So, I had the securities license. I don't have that

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anymore because there's nothing there I want to sell. You know, I'm licensed in all 50 states to

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sell fixed annuities, contractual guarantees. But, you know, in my opinion, back in the day,

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there were some no-load variable annuities that I would say, yeah, you need to look at that if

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that's what you want to go do. And then in 1995, fixed index annuities were introduced, and they

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were introduced to compete with CD returns. They were never introduced as market products. The 2008

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market debacle was kind of the proliferation of fixed index annuities, in my opinion. Okay?

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I've been around a long time. You know, I saw when they first came out in 1995. Keyport Life,

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I think, was the first one to come out with them. But what they typically have is an index,

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typically the S&P index, but that doesn't include dividends. Okay? And that's a key point that you

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need to know. S&P 500, over 50% of the returns are dividend-based. So, when you're talking about

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index annuities without the dividend in the S&P, then you're limiting yourself. The other thing

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with index annuities, and hopefully there'll be one in the future that I want to recommend

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that I really, really like. But what we use them for now is a delivery system for income

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rider when you want income to start at a later date. Works perfectly. Okay? But the index side,

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we really don't look at because there's a couple levers that they have: their caps, spreads,

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participation rates. I've done videos on all of that. I've written a book on index annuities if

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you want to go to my site and download that for free, and I explain caps and spreads and

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all that stuff. But the bottom line is that they are not market products, and historically they've

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not created market returns in the biggest bull market of all time. They are principal protection

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products, which is good. They are CD return products, which is good, but that's not how

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they're sold. They're sold with hypotheticals and theoreticals showing double-digit returns. Also,

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too, in the index annuity world, a lot of carriers make up an index out of midair that you've never

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heard of before. They run an algorithm to look for a return. Then they put a name on it,

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the Unicorn Index or whatever, and then they say, "Hey, if you'd owned it 10 years ago, you would

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have gotten this." Well, it's only been around 3 days because you just created it. So, there's a

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lot of things happening in the index annuity world that I disagree with. I don't blame the carriers.

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They're very transparent. It's just when it gets out to the agent army out there, the story gets

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better and better. You know, it's kind of like if you sat in a room before and they did the exercise

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where you whisper something in everyone's ear. By the time it came around, it was completely

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different because people just kind of added to the story. So, index annuities we have no problem

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with. We just use them as a delivery system for the income rider guarantee. We do not focus on the

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index side whatsoever. And the newest product to the party is also a securities product. You have

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to have a Series 7 to sell it. It's called a RILA, a registered index-linked annuity. Similar to an

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index annuity. However, the difference is I call these co-pay annuities. I know people out there,

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if you want to yell at me, [email protected], send the hate-me email there. But I call them

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co-pay annuities because in essence, you pay a fee for your participation in the downside. So,

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you pay more of a fee if you're just going to participate in 10%. You pay less fee if you're

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going to participate in 20%. In other words, they keep ratcheting it down, but you're paying for

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whatever participation in the downside that you're going to get or whatever is going to happen. Good

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side about this is you can pin a gain. You can lock in a gain, which is good. And all of

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these RILAs are different. But my comment to the people that are selling RILAs that are securities

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licensed, because I've been there. So don't look at me and say, you don't know what you're talking

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about. No, actually I do, player. I really do. If you're offering that to your clients,

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then I don't understand that. Manage the money. Aren't you there to manage the money? Aren't you

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there to charge a fee for managing the money? And if they do better, you do better, you know?

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But why are you selling a package product? Why are you having your client participate in the downside

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and pay for it? Listen, I've seen some of the returns on RILAs. Some have been good, some have

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been bad. But I don't understand it other than the brokerage firms wanting to package something like

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an index annuity that's unique to the securities industry and sell it. That's what it is. Now,

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for anyone that charges any advisor that charges a fee on an index annuity or a RILA, like an ongoing

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wrap fee, to me, my opinion, that's a joke. It's especially a joke with the index side.

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I think the RILAs would have more of an argument because there's a little bit more to it. It's a

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lot more complication and all that stuff. You can pin gains, etc. But for index annuities,

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where you can typically with most of them only lock in the gain one day per year and the other

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364 you can't do jack, there is absolutely. Send me the email, [email protected], there's no

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justification for anyone, any advisor charging a fee to manage an index annuity. That is a joke,

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and the people know that. So, what you're saying is I'm going to charge you this fee,

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Mr. Mrs. Jones, but, you know, when we meet one day next year, we'll be able to lock in the gains,

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but up until then, we're just going to watch it, but I'm going to charge you a fee. That's an index

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annuity wrap fee. I think RILAs are a little bit more than that. But once again, going back to the

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whole premise of what annuity types mimic or can possibly give you market returns, there's three:

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variable annuities, index annuities, but they really can't. Index annuities were developed

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for CD products, but that's not how they're sold. And then RILAs. But in my perfect world

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that I live in, that I want to live in, and that I definitely want my clients to live in,

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market growth does not equate to an annuity. If you need market growth, then go get it. Why you

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would want limited market growth? I have no idea. And yes, I've been there. So, this was a tough

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topic to me because I've had to hold it in. I've not told you what I really want to tell you. But

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these packaged products, these hopeful products, don't buy hope, buy contractual guarantees. Don't

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buy hypotheticals, buy contractual guarantees. Don't buy back-tested numbers. Buy contractual

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guarantees. And with variable annuities, if you want to buy mutual funds, go buy mutual funds. You

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don't need a variable annuity and pay the fee to do that unless tax-deferred growth is just

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the biggest thing to you ever. But the problem with the variable annuity side, in my opinion,

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is you're limited with your choices. I'm the pioneer of Contractual Guarantees Only. So this

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topic to me makes my mouth water to vomit, but it's where annuity companies make a lot of money.

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I get it. Hey, do me a favor. Above my head, click that video. It's counting down right now. Click

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it. It tells you how we work at the Annuity Man. If you want to lock in a policy and be one of our

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clients, I tell you the nuts and bolts of it. Okay? So, do that and I'll see you next time.