Annuities - Yay or Nay?

When we mention the word “annuity,” we’re talking about an insurance contract designed to pay out invested funds in a fixed income stream in the future.  The thing is, not all financial advisors recommend them.  The reasons they often give are excessive fees, inferior rate-of-return potential, or limited liquidity.  But Morningstar’s David Blanchett says failing to discuss annuities as an option is a breach of their fiduciary duty.  In other words, they’re not acting in a client’s best interests.  Hear John's your stance on annuities and how he can help you NOT run out of money! 

Transcript

Jessica: 0:05

Welcome to your family your finances the podcast with John Markel of Rose, retirement get more details on the website at Rose retirement.com. Now I know when I mentioned this next word some people get a little antsy, John, I'm talking about the word annuity, the A word of retirement planning and we're talking about an insurance contract designed to pay out invested funds and a fixed income stream in the future. The thing is, not all financial advisors recommend them. The reason they often give our excessive fees, maybe inferior rate of return potential or limited liquidity, but Morningstar is David Blanchette says failing to discuss annuities as an option is actually a breach of their fiduciary duty. In other words, they're not acting in the client's best interest. So, first, What's your stance on annuities? And second, is this something you offer?

John Merkel - Senior Financial Advisor/Founder CEO of: 0:54

My stance on annuities is exactly what David Blanchett said, If failing to discuss annuities is a breach of fiduciary duty. I agree with that. 120%. Now, let me read you something on the state of Texas exam that will back that up. Okay. Okay. Here's the question a client is two years away from retirement and cannot risk losing principal. Once he retires. He made with his advisor, she correctly informed him that the client bulk of their assets should be allocated towards which of the following a a commission stock and variable annuities, b small cap funds and mutual funds, C triple A corporate bonds and emerging stocks or D deferred fixed annuities, or CDs of deposit. The answer,

Jessica: 1:39

I guess I'm gonna go with annuities because we're talking about

John Merkel - Senior Financial Advisor/Founder CEO of: 1:41

hey, man, you got it. Yeah. So the state of Texas is telling us that when you're in retirement, they should be having this conversation, bar none. So if I've got a client come in my office, and I'm a fiduciary, I've got to have that annuity conversation, because there's no other vehicle that we just talked about, that can protect the clients money, period. And you know, you can get into a heated argument about which one's best whether the fees were this or that. That's not what we're discussing. We're discussing the loss of someone's principal income. And what is the only thing that could guard against that? The answer isn't an annuity period. CDs can't do it. Stocks can do it bonds, real estate. None of those can do that. But an annuity can because it works works both sides of the equation work life and death mortality. So this is what baffles me when people bring up the word fiduciary, like you said, they're supposed to be doing what's in the client's best interest. I had a scenario the other day and I don't know if we talked about on the radio one of our shows before, but I had a client that was exactly that. He says, John, I went out of the market. I don't want any market volatility risk. And he went to his current financial advisor who is a fiduciary, and he didn't want risk and he didn't want fees. Okay. Do you know what she suggested he put his money into, I don't know, variable annuity. And that's bad because well, we googled what the prospectus was on the variable annuity. It was 1120 pages. Okay. Do you know me town, the word fee was mentioned in that prospectus? I don't know. 1110. So not only is a variable annuity still in the market, which he can lose his money, right? Because it's going up and down with the market, but also the word fees, it's riddled with them. So here's a fiduciary that says, hey, client, you know, instead of me putting your money in the market, like you don't want me to, I'm still putting them out in the market, and you're still gonna have a ton of fees. So you gotta be careful. I mean, there's a lot of ways people make money on clients as well. The reason why people don't like annuities is because they get a low commission. Okay, let me tell you about that. The reason a low commission. So let's say if an agent does get 6% on an annuity sale, right, so what is that advisor is currently making 1.5% per year on that client? Well, heck, it's only gonna take him four years to equal that 6%, right. Sure, yes. Well, then what's he gonna do the rest of the 1020 30 years? He's that that client? Well, now he's not making any money on that client is he? You see, so if a person makes a commission one time, why would they shoot yourself in the foot when they get paid 1020 30 years. So as far as a fiduciary standpoint, I think that they should list in an annuity every single time at least give them that option. Because you know, number one, they're gonna pay the person less as far as the advisor is gonna get paid less. So they really aren't doing what's best interest of the client, because they're taking more off of their plate and putting it back in the client's pocket. You know, annuities aren't for everyone as far as you know, their portfolio, but I think everyone should at least look at what an annuity offers, because it does offer some things that there's no other vehicle out there that can offer it. So what I tell clients to do is just, you know, come to Rose retirement, we'll give you an upfront you know, suggestion on whether it's right for you, whether it's not for you, and just just have a come to Jesus talk as far as if it is right for you. And so just come to those retirements announce a free consultation and we'll kind of go over what's good for you and what maybe not good for you.

Jessica: 4:57

As you say a little come to Jesus talk let Jesus take the wheel. Well, as we say, Here, come in for that annuity stress test 903-690-7131 903-690-7131. Again, the website, of course, Rose retirement.com. Before we get a break here, I want to hit on the idea of creating that memory bucket list, we kind of started the show with that conversation, how you and your daughter just took a trip. And, you know, I'm curious to know, what are some common bucket list items you see? And, of course, I guess, how much time do we need to devote towards this bucket list to make sure it's possible within that retirement plan,

John Merkel - Senior Financial Advisor/Founder CEO of: 5:32

I would say a pretty good amount of time. As far as you know, if you got a bucket list that you want to do, then you know, you got to get the money from somewhere. So it's my job to say, hey, let's do this over here. You may have to get a second job, you know, stuff like that. So I would say, you know, it's a good conversation to have depends on you know, how flexible the client is, is how fast they can get there, you know, to those goals, but it definitely needs to be a conversation in the conversation we have when we're talking to a new client. Definitely.

Jessica: 6:01

You've been listening to the podcast for your family, your finances with John Merkle of Rose retirement. Get more details at Rose retirement.com financial professionals are not licensed in all 50 states. To find out if Johnny Lee Merkel's licensed in your state, please contact our office. Johnny Lee Merkel is not affiliated with nor endorsed by the Social Security Administration or any other government agency and does not provide legal or tax advice. annuity guarantees rely solely on the financial strength and claims paying ability of the issuing insurance company. By contacting us you may be provided with information about insurance and annuity products offered through Johnny Lee Merkel Jr. NPN number 1584707.