Biased and uninformed, most financial advisors have minuscule knowledge when it comes to selling annuities, while clients are too befuddled and unschooled to make proper buying decisions. If, however, annuities were sold correctly, this perfect storm would fast head out to sea.
That's the hopeful scenario painted by vociferous "Stan The Annuity Man," aka Stan G. Haithcock, who claims title as the nation's top independent annuity agent for both consumers and fee-only investment advisors. Previously, he was a wirehouse FA for 10 years.
As a zealous consumer advocate, Haithcock helps his clients find the best contractual guarantees in sync with their specific needs. Donning another hat, he's an annuities source for large fee-only advisors. He works directly with, and is paid by, the annuity carriers.
His B2B clients include Fisher Investments, to which he provides marketing advice, and Evensky & Katz/Foldes Financial, for whom he helps analyze annuities and speaks to Harold Evensky's personal financial planning classes at Texas Tech University.
Haithcock also talks annuities at private FA events that banks and brokerages put on. The Annuity Man does not, however, consult to financial advisors.
The vehement Ponte Vedra Beach, Florida-based expert is deeply frustrated that annuity advertising's sales messages are, he insists, unregulated and as a result, can "promise anything." A decade ago he was mad as hell and not going to take it anymore.
That's when, shortly after leaving UBS Financial Services, the Charlotte, North Carolina, native called in to a radio show promoting annuities and yelled fraud. Upshot: A bunch of listeners phoned him asking for help with their annuities.
Thus began Haithcock's new career as a consumer advocate. In his previous one — stock-and-bond FA at Morgan Stanley and PaineWebber, before UBS — he didn't deal in annuities.
Now, in video rants on his website, he heatedly shouts warnings to investors about variable and indexed annuities' sales pitches, the outcomes of which, he criticizes, serve to "handsomely" compensate FAs with "high commissions."
In striving to demystify annuities, our sister site, ThinkAdvisor, recently picked Haithcock's brain. This netted, in part, explanations of two of his strategies: laddering annuities by either purchase date or start date; and "IRA Ray Mirror"; i.e., leveraging annuities against one another to reap a better contractual return. Here are excerpts from our phone conversation:
ThinkAdvisor: You've been called "The Walking Middle Finger of Annuity Truth." How does that sit with you?
Stan Haithcock: I embrace it because I'm abrasively factual — I do not sugarcoat these products. My clients aren't buying a dream. If they want to, I won't allow it.
What can advisors learn from you?
When they follow my instructions about annuities, they become better advisors because once guarantees for their clients' income streams are in place, they can better manage the money that's left over.
What's the biggest mistake advisors make in selling annuities?
They look at them as investments. They're not investments. An annuity is a contractually guaranteed transfer-of-risk strategy, and a noncorrelated asset.
So advisors misunderstand annuities?
There's a huge uninformed bias against annuities. Most advisors have no clue about all the different types there are and how to use them. They haven't done their due diligence. They don't know that annuities are customizable. Most think that "annuity" means single-premium immediate annuity. But annuities can solve for many things other than income.
For what objectives are annuities most appropriate?
I use an acronym: PILL. "P" stands for Principal protection. "I" is for Income for life. "L" is Legacy. The second "L" is for Long-term care. There are more than 10 different types of annuities, without getting into institutional products; and they all have different value propositions and uses.
What other mistakes do FAs make?
They're recommending that clients put too much money into annuity solutions and are selling variable annuities and indexed annuities as one-size-fits-all products. They call these hybrids and tell clients that they can get everything under the sun in one product. There's no such thing as a hybrid annuity!
You contend that there's a conflict of interest because advisors earn trips and other bonuses for selling specific annuities. What do you believe is a better approach?
Always show at least three to five different carriers to find the highest contractual guarantee that solves for the client's goal. Never show just one. Some captive advisors can show only one, but even they should encourage clients to get multiple quotes.
Why?
Because annuities are commodity products. It's a very dynamic marketplace: just because MetLife, say, is competitive one month on a certain product doesn't mean they'll be competitive on it the next. You need to access all carriers to get the best guarantee.
You maintain that the annuity industry doesn't regulate carriers' advertising sales messages. What's the result?
They can pretty much promise anything. So, for example, too many people think they'll get market growth on an indexed annuity. They're just not going to. If that product existed, [Federal Reserve chair] Janet Yellen would be buying it for the country. But when you tell the uninformed consumer, "I can get you market-type growth and no losses," they're going to sign up, right? Clients should not be deluded. It isn't a security!
What's the role of indexed annuities, then?
They were devised to compete with CD returns. To tell someone that they can get market upside with no downside is a pretty good pitch. The only true part is that you won't get any downside.
What are ways to be transparent when selling annuities?
It's important to be very, very clear not only about the benefits but the limitations. Every one of these products has a limitation, including what you can withdraw per year penalty-free. Advisors use that as a benefit. But that's just getting your own money back. They also need to be very clear that on all commercial annuities, there's a free-look time period, where clients can get their money back no questions asked.
