Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Annuity Straight Talk podcast. Episode number 161, Brian Anderson coming to you from Finley Point, Montana, your host and creator of everything that's on annuitiestraighttalk.com got. Jeremy Estes is the one that gets you guys in front of it. Leandra Hill is the one that takes care of everything you need once you get here. Grateful to have those guys as part of my team. It's been a great year and expanding to do that. Jeremy's been here for a while and sitting back in the shadows, but he deserves credit nonetheless. Responding to popular comments, concerns, ideas, man, I've been having enough meetings that I'm getting new ones that I got to talk about simple, basic stuff and this is one that can always be done. I've got a newsletter that I did it with in the past. As you think about this, please like subscribe or comment on any of your favorite podcast platforms are on YouTube. We got 21,000 followers on YouTube. YouTube. Send it out, get it out there. Help as many people as possible. If I didn't have the motivation to truly assist people in making good decisions, retirement, I'd probably be done and go do something else. I go back to being a fishing guide, but I love what I do. Nearing 22 years in the business, a wealth of information up here. Everybody thinks it's weird, but yeah, I did pick something kind of weird to nerd out about 22 years ago. I'm going to share my screen. Got a newsletter written for this one and it ties into one that I did before that was just a newsletter, not a podcast. So I thought, ah, it's funny, I get a couple of comments from time to time from people. I don't sell commission products and I'll show you both of these. But here's the new newsletter right here. Commissions versus investment fees. If you want to make an appointment with me, that's the top right corner of any page on annuitystraighttalk.com schedule a call button, get me on the line. Not going to talk about that graphic. If you know, you know. Okay, so there's always been a little bit of infighting in the business. It's like everybody thinks I do it better. If you've been listening to me for a long time, it's not either or, it's both. And everything works. Guys like to level accusations at each other, get into a bait over compensation like, hey, you're making too much money. Or almost anyone out there says, oh, these guys only want to do that because they make more money.
And I'm trying to lift everybody up in the business and get everybody to do what's right for the consumer. And sometimes that involves high compensation and sometimes it does not. I work on a commission basis. That's the products I use, that's what I sell. That's how I get paid.
Most of you that have talked to me didn't buy anything from me. I made nothing to do it. But that's the point. Only I play for the ones I win all that stuff. A lot of the comments that I'm going to talk about right now are guys who say I only do fees. Say it as if they're somehow superior. The commission products would not exist if they were not appropriate in certain situations. So that's a silly position to have. I'm going to explain why anyone who does it is not being intellectually honest. A well rounded financial plan should include elements of various asset classes all configured to meet your needs. Whoever you are and whatever you're trying to do, it's different for everybody. An advisor who disregards any single asset simply because of the compensation model cannot adequately present a viable retirement plan for a majority of people. They might fit a certain niche of people that don't need that, but they can't be good at offering general advice to everyone.
Now, not every advisor is out there that tries to serve the retiree community. It is not to say that investment fees are a bad thing, but neither are annuity commissions. It's just the way the world works. I have never stated a case for one over the other, but everybody's got to keep an open mind to realize the value of each. In certain situations, commissions do not come out of your pocket, but investment fees do. You buy an annuity, the commission comes from the insurance company. That's part of the surrender schedule. But 100,000 goes in, you got 100,000 going to work creating income, protected growth, whatever it would be. Investment fees, those are going to chip away at your investment over time. So if you think about this is why it's always been kind of a both. And if you use an annuity, if an annuity makes sense as part of your portfolio and it doesn't have any fees on it, and you use that in conjunction with an investment portfolio where you're paying a manager to oversee it, then your whole portfolio cost comes down. If you got a guy that's only using assets, I encourage those guys to look at potentially reducing fees for their clients. Now the annuity has to appropriately meet your needs. So I'M not saying to use one just to reduce the total expenses on a portfolio. That's not the right reason to do it. In regards, what I don't like about guys who like try to beat up the commissions is they're not being honest about talking about the full cost of investment fees. But you got to study them carefully to see how it affects your bottom line in the long run. In addition to that's where I come into this other newsletter I did. Okay, you have the fee that's drawing it down, but you have the lost opportunity cost because that money that came out is no longer investments you own and it compounds to a larger effect on your portfolio over time. So this was. Well, I republished it today. I think it was from 2019. It was before I even started the podcast How Fees Affect Investment Performance. And I'm real quick, I'm not going to go over this one again. But you can see that I started this in 1998. It's just a spreadsheet I had. The time period doesn't really make a difference. But from 1998 through the end of 2020, if you didn't pay fees, this would replicate a low cost S&P 500 index fund. 100,000 grows to $555,000 over a 23 year period. That's about a six and a half percent rate of return. Miracle of compound interest. Correct. But if you add a one and a quarter fee, which is pretty standard for a hundred thousand dollars portfolio, without a doubt, if you take that same value and you take out an annual fee, you can see the fees in the right hand column. But your investment only compounds to $415,000. So it's about $140,000 difference. Now it looks like only $1,250 per year, but when you factor in the lost opportunity cost of the extracted amount, it decreases the total portfolio by almost 140 grand. And if you get into the actual fees that the advisor made, 49,469. So on $100,000 portfolio, the guy's making almost half of it back in fees and he's complaining about how much money I make, you understand that those fees and the lost opportunity cost add up to substantially more. You have to. You just have to look at them, analyze them correctly so they make a pile of money off your account and cost you much more in the long run by reducing accumulation. I'm not going to say this is a bad thing, but it should get your attention when you see the numbers. So this is My opinion and if I would be curious if anybody can give me another reason but three reasons to use an investment manager. First would be if your manager can beat the market. And I will tell you right now that nobody does that consistently over time. Cross that one on the list. If they tell you we somebody beat the bargain at a year, they're probably not going to do it the next year. The second one, which is my favorite, if you've got an investment manager that is an effective risk analyst who can help you avoid major losses in volatile markets, position you correctly make moves at the right time to avoid losses in certain sectors and keep a good balanced portfolio over time. I know guys like this, those are the ones I preferred to work with. And third, there are some advisors, there's a little gray area here who specialize in and provide a variety of services. Tax planning, estate planning, expense management, budgeting, all those things. And I like, if you tell me you need to spend $3,000 a month in retirement, I take your word for it. I don't need to see your phone bill, your power bill, your grocery bill, your car insurance, you can add that up on your own. Tell me you spent 3,000, I believe you spent 3,000. Some guys will really dig into it. We're going to really help you out. And I'm not saying all these guys are just like that, but sometimes they will make it sound more complicated than it really is. So the third reason being if they provide a variety of services that you need financially in addition to it, but prefer to, hey, we'll take management of your assets. We're fee based only some of them have minimum annual fees. I don't like this necessarily because if they're going to avoid commission products then you're basically maybe exposed to more risk at times. And these guys are still going to get paid if your account drops, right? Some investment managers use only a model with fees. Other use a combination. I know a lot of guys that'll do fee based for part of it. They understand the value of annuities and I just think it's, it's just, it's more honest approach. So don't beat anybody up. I'm not trying to beat anybody up who does anything. So I'll say the fee only managers, maybe they're working with people who really don't need annuities. Maybe they're not in the market for it, maybe they just really don't want them. But you gotta be careful because you might recognize a reason to use it. And I like, I say this I think I said this last week. I don't think at all this year I've sold an annuity to someone who actually needed it. They looked at it, saw the value, and thought, hey, that's a pretty good deal. I like the peace of mind that gives me. Neither one way or the other is not right or wrong, just appropriate only for a specific group of people. So I'm posting general information about how annuities can be helpful. I'm not trying to sell one to everyone. Commissions are also relevant because in the same way you can use it to determine whether an advisor is self dealing. Annuity commissions range from 1% to, I think, maybe 9% at the top end. And I know there's a lot of guys in this business that sell the highest compensation contracts. I've talked to some of them that just say, I don't care what they need, I'm selling the one that pays me the most. And that's garbage. Gives the rest of us a bad name. Lower compensation contract or none at all would be more appropriate. So that's why education is so important. That's why there's 161 podcasts. Now you guys have an opportunity to really think about it. You got somebody who really cares, who is actually going to try to address your concerns. That's me. And anybody I bring on to work with me is going to have the same philosophy. Is going to do it the same way. Some advisors may avoid annuities that could help a client. And some people buy the wrong ones. A commission is never going to hurt you unless you buy something that doesn't meet a specific need. So in some cases, a guy doesn't have your best interest in mind selling an annuity, you figure out it's just a drag in your portfolio and didn't really do anything to help. So if done correctly, it will only help your portfolio. I've demonstrated that hundreds and hundreds of times. Fidelity's onto it, Schwab's onto it, Vanguard supports it. Edward Jones is getting in the game. I'm not the only one now. And those guys don't even do it. So many investment managers who avoid using annuities are missing the fact that it could help them manage a larger portfolio in addition to making life a lot easier. Isn't that why we're doing this? Make your life easier? And oh, by the way, if it's more profitable, well, I suppose you won twice. All right, year to date. So I think you guys understand this. Year to date, my average commission, I just looked it up because I keep track of it all. 3.36. If anybody's curious, that's how greedy I am. 3.36. You know, to make a good bit of money in this business, we've had a good year. It takes a hell of a lot of work. At 3.3% confidence sensation. Considering the ad spend, the effort involved, writing this, recording it and everything I do to help people out, I am never going to be ashamed of the money I make because I've worked damn hard for it. I work with all types of products. Mostly a lot of spias and mygas. They pay on the lower end, 1 to 3% mostly.
And a couple of them, a couple of those big juicy income deals I've showed them, it's like, damn, such a good deal. Is it my fault they pay 7%? No, I didn't force anybody to buy it. If anyone wants to question my motivation, then it really comes down to specializing in an asset class that people want once they realize how it can help. This should never be a debate. I will never attack another person's preferred method of compensation. They have a specialty, they choose to use it that way. And I only hope that they're specifically serving the niche that they were they set out to serve. It is far more productive for all of us to help everyone understand whether a commission or a fee is appropriate, depending on the situation. No two people are alike. If anyone tells you that one or another is better, then you can be sure that they do not know what they're talking about. Maybe you need a second opinion. This has been episode 161. Grateful for you guys joining me again. Like subscribe or comment on any of your favorite podcast platforms or on YouTube. Schedule a call top right corner of annuity straight talk.com working on a lot of new things toward the end of the year. Got some exciting changes just to make it easier for people to shop and compare and figure it all out. But I am grateful to be a part of this. It's a relief to know that all this effort has been worthwhile. I will be back next week for episode 162. I think we're going to analyze the market. We're going to do it this week but had some illness get in the way. So I appreciate you guys joining me. I will see you next week. Okay, bye.
[00:12:54] Speaker B: You have been listening to Annuity Straight Talk.
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