Know your Annuities!

I think it is safe to say we've all experienced buyer's remorse at least once in our life; you know, that sense of regret after making a purchase. Factors that affect buyer’s remorse may include: resources invested, the involvement of the purchaser and whether the purchase is compatible with the purchaser’s goals.

       Divorce has become a popular sport - guess one could say that it is the ultimate example of buyers remorse. Personally, when I hear the term buyer's remorse I think of two very specific purchases. All of my friends know I am a HUGE Chicago Cubs fan; I was even fortunate enough to attend 2 of their World Series Games in 2016, including game 7 in Cleveland when they finally broke the curse of the Billy Goat. 

What many do not know is that I am also an avid collector of vintage baseball cards. Below is a picture of a 1956 Topps Mickey Mantle I purchased at auction even though it hadn’t been graded by PSA (Professional Sports Authentication).

 After having the card graded it didn’t come back as high as I thought due to some rounding on the corners; this was my first real buyer's remorse. Unfortunately, this 1952 Bowman Mickey Mantle was my second bout with a sense of regret after making a major purchase.

I knew it wouldn’t grade higher than a 4 or 4.5 because someone took an ink pen to the back of card to repair some faded print. Not only did that reduce the rating, as expected, but the grade also came back with “markings”. This certainly did not help the value!

       Can you remember the first flat screen television that you bought? Now, for less than half the price you get a much clearer 4K T.V. that is twice as big and a third of the weight of the original Plasma's.

      Would you agree that it wouldn’t be too far of a leap to suggest that investment products, annuities in particular, have likely also improved drastically over the past decade? I have wholesaled FIA's for 13 years and can say with certainty, an indexed annuity today looks very different than it did 6 or 7 years ago.

I believe there are many annuity owners that would be thrilled to trade in an older annuity for one of today's modern policies; if they only knew what was available. As a result, we created an annuity review service designed to make it easy for advisors to provide their clients a thorough review of their existing annuities. I am so excited and proud we are able to provide this service to the advisors we partner with because I know it will enable us to help so many people. While investment portfolios are almost always reviewed and re-balanced quarterly, a set it and forget it approach is often taken towards annuities.

               If you have clients that currently own an annuity, regardless of who sold it to them, we can quickly and easily evaluate their current annuity and provide you with a detailed report. We’ll highlight product specifics and pull very detailed information from the Annuity’s Prospectus so that both you and the client will know exactly what they have. But wait there’s more! We’ll take it one step further and provide two recommendations for consideration. Sometimes the recommendation is to stay the course; and other times we suggest a 1035/ rollover to a new annuity that may put your client in a better position to achieve their overall financial goals.

               The only role you as the advisor must play is to provide a copy of the most recent statement and a sentence or two about the client’s goals/ intended use for the monies. Potential benefits we commonly find:

• Lock in gains near all-time highs
• Account value becomes guaranteed death benefit ( minus and fees or withdrawals taken)
• Increase guaranteed lifetime income payout
• Begin a new “roll-up period for those wishing to continue deferral for eventual lifetime income
• Higher guaranteed interest rates
• New Indices and crediting strategies to choose from
• Leverage account value 2 -3 times for LTC with potential tax benefits

For example, most recently I reviewed an AIG Polaris Variable annuity owned by an 82 year old woman. She was widowed with $1.8MM in additional assets and had no intention to ever take income from the annuity. An income rider was attached to the annuity that required 20% of account value to be in a fixed account currently at 1.00% and the other 80% was limited to a short list of volatility managed funds/ sub-accounts. There is currently a 4% CDSC so moving was not a good option; however, we were still able to provide useful advice. The prospectus stated the income rider could be cancelled after 5th contract year, for which she is eligible in August of this year. That was our recommendation since she had no intention of ever using it and will save 1.00% in fees annually and be able to get ultra-aggressive (DB was net premium payments and currently only 4% less than the AV).

               In just a few short months we’ve already helped many improve their situation and I know with 100% certainty there are so many more that could use our help. Their annuity may have been best of the best at time of purchase but just like technology a lot has changed in recent years. Not just product improvement but likely their goals, risk tolerance and situation. I encourage all of you to try out our Annuity Review Service with one of your clients and see for yourselves. Especially if you weren’t the writing agent and not real familiar with the contract specifics.