Episode Transcript
[00:00:00] Speaker A: Hello and welcome, everyone, to the annuity Straight Talk podcast, episode number 155.
My name is Brian Andersen, founder and creator of annuitystraighttalk.com.
beautiful fall day in Montana. Coming here with something I didn't want to have to cover again. As things pop up, I have to do it. So we're going to talk about facts versus fiction.
Want to let everybody know to, like, subscribe or comment on any of their favorite podcast platforms or on YouTube. Share it with your friends, your cpas, your financial advisors. If I'm wrong about anything, please come to me. I would love to correct it. And that's what we're going to talk about this week.
Before I get started, a shout out to Montana marbled meats in Polson, Montana quality Ranch, two butcher shop custom meat products.
Best steaks ever. You guys know my dad raises. Raises them. For me and the rest of my family. These guys are the place to go if you want good stuff. Turned a few clients onto it. Thought I'd recommend it publicly. Give them a call, 406883. Meet me a t. Order a box. Tell them I sent you. Order a box to say, get. Give me what Brian likes and they'll send you some really good stuff. Great for a holiday, good prime ribs. It's amazing. Give them a shout. So this week we have some contention on this subject about whether insurance companies actually use options to create returns and index annuities. Now, if you want to make an appointment, you want to talk about this, if you want to call me, it's, I've got the number, but it's best if you just make an appointment, especially if you have a bone to pick, which is what I want to talk about this week. Give me a chance to catch my breath. I'm busy helping a lot of people catch me at the wrong point of the day and might get cranky. But here we go. Let's share the screen and we'll use the newsletter as a visual aid. So a couple of weeks ago, I think it was last week sometime, I got kind of a contentious phone call. So as my day goes, people have scheduled appointments. I've got things I've got to take care of for clients. I've got follow up call calls and all that stuff. And somebody left me a voicemail early in the day. Hey, I got to talk to you. Call me back. And usually it's, I don't know. I don't know what it normally is, but it's normally not a whole lot. I do my best, but this guy actually called me three times. So he called me in the heat of everything.
The third time he called me was at the end of the day where I was kind of like, all right, I'm done. Ready to go have a steak, chill out, maybe go to the gym, be done with my day. Third time he called me, I said, hey, that's the number that's been pinging the phone all day.
I'll answer his call. So I answered it, and I was thinking, it's like, hey, quick. Hey, if you want to make an appointment, just go figure it out. Top right corner of your. Any page on annuitystraighttalk.com, comma. Not hard if it was necessary. And a lot of those calls are just. It's no big deal. It's just a quick question. So this guy named Ted. That's all I'm gonna say. He didn't call, ask questions. He called the level accusations of me. So, of course, that ruffles my feathers a little bit. At the end of a long day, he said I was spreading misinformation regards to fixed index annuities, and that my efforts amount to either naivete. Hey, you're young, little wet behind the ears. You don't know what you're talking about. Or if that's not the case, he said, I could be a con artist. Them fighting words, I suppose, but.
So he told me, I've been a CPA for a long time, longer than you've been around, and it's probably just that you just don't have a lot of experience. But I got to tell you that you're not explaining these products the right way. Now, judging by his voice, he's older than me, but let's assume he's been in for more than 21 years, like I have. And product, financial, or financial products and services have changed dramatically over my career. And if you. And it's exponential if you go back even further, like, these products didn't exist back in the day. So if he's been in, and I'm taking a shot at it, if he's been in the business as a CPA for more than 40 years, it's clearly way different today than it was when he started.
And somebody who's been a CPA isn't required to do continuing education on training for financial products. If he's still licensed to rat you out to the government, complete tax returns, and do business returns, whatever, fine. So he might know. They might know something about it. There's some really sharp cpas that have some really good angles and do some really good stuff. But that's not what, they don't stay necessarily on top of this, because they got to stay on top of changes in the tax code. That's even harder because that changes all the time. So he accused me of lying about insurance companies that use market options to produce returns on fixed indexed annuities.
I've stated it simply that it's like a fixed annuity or a myga. The insurance company buys bonds, let's say at 5%. They subtract 1% for their spread. That's their profit. The remaining 4% goes to the fixed annuity. With an indexed annuity. These are very simple terms. With an indexed annuity, you can take the 4%, or you can instead choose to chase an option that might right now, give you yield of up to eight or 10%. So it's an alternative deal. He suggested it was done a different way. I'm not going to pretend I know how to do it.
Here's about how the phone call turned out. But the reason I do this is because he probably wasn't looking for to be educated by me. I'm guessing one of his clients said, hey, I found this website, this podcast, or these newsletters, and what do you think about it?
And if it was just some guy who doesn't like me, whatever, fine. But if it potentially affects one person who's on my list and gets my information, I absolutely want to correct the record. I don't know how he suggested it was done a little bit different way, and I tried to boil it down to that, hey, 5% versus a spread is 4%. And he kind of started talking over me, and he wasn't looking to have a conversation. The guy was. He was trying to tell me something, and it was a direct contradiction to everything I've learned about the products in the past 20 years. So now you guys need to understand, I say this as something of a public figure in this space, retirement planning, annuities, index annuities, whatever you want to talk about. I haven't been able to do that without making connections and having the opportunity to learn some from pretty. From some pretty high profile people. I've met a lot of bigger names in the business, and a lot of this is where I learned the information that I share on this website. I continued to update it, to refine it, to add more transparency where it was all possible. It opens me up to criticism, which I haven't had a whole lot of it, and over the years, and not seeing a whole lot of criticism, it's like okay, I'm good. Again, not guessing at it using information I get from other people. So if the CPA had, like, something new to teach me. Holy shit. Thank you. That'd be awesome. That's news. So, in compiling a lot of this stuff over the years, I've talked to insiders within the company. We'd go from salespeople, and then the big ones are the actuaries, the guys who actually calculate this stuff, investment officers. If those guys in my conversations will generally speak about pricing options to keep index annuities competitive, sustainable, I have to think. I guess some of what I've done is based on assumption, right? If the actuary who does this and the investment officer who oversees this are talking about pricing options, I would assume they're using options. You can draw your own conclusions. I suppose so. Forgive me if I made assumptions based on high level, high profile conversations with people. I didn't want to go in there, ask stupid questions when I could connect the dots, and I could connect the dots. So I didn't. I remember Ted saying, I don't know who you've been talking to. Yeah. Who knows? So, nothing satisfied him. He continued to want to talk over me. Whatever. I had to raise my voice at one point. Listen, hey, listen. If we're going to have a conversation, we both need to speak, and we got to get on the same page somewhere. He hung up on me. That was upset. I did try to call him back. And, Ted, I would talk to you again, honestly, because if you have something that's going to contradict what I have coming forward, then that's. That'd be great.
So, long day? I reserve the right. I'm very respectful with everybody here. I give my time, my information, everything I've learned over the years. My intelligence created creativity to everybody. There's a lot of ways you can look at it. So give me the benefit of the doubt and let's have an adult conversation. That'd be great. So after this, I thought, hey, I don't know, maybe. I don't know this. I don't know, maybe I could refine this, or maybe I could offer a little more transparency. I reached out to one of the most responsive and respected contacts. I have to clear it up and see, hey, have I possibly been misleading people? So, Kerry Pector of the retirement income journal, he does not have a dog in the fight. He's a journalist. He's been a friend of mine for several years. He's critiqued what I do. He's offered support, suggestions. He reports on how the industry works, how the products work. He's been an invaluable resource for consumers and professionals alike. And so I just emailed him. I said, hey, this guy says, I got it all wrong. And he gave me this quote and I'll block it up and make it look good for the particle. He said, as I understand it, index annuity returns are based on the appreciation of options on a selected index. The options on a one year contract are purchased with an options budget based more or less on the expected one year yield of the insurer's general account. The FIA owner does lose money if the index goes down, he loses the yield he would have gotten on a myga. In other words, there's an opportunity cost, direct quote with permission to be used by Carrie Pector, which is essentially what I said. You don't lose money, you lose the fixed rate. It's an opportunity cost of what you could have earned. That doesn't sound any different than what I've said because I've almost said in exactly those same words over the years. So I don't know what Ted was seeing, but Kerry's been reporting factual information on all types of financial products and industry information for a dang long time. If I can trust someone to give me something solid, a contact or information, it would be him.
So he also offered to introduce me to a professor of finance at a major university who had done deep research on the topic and worked with insurance companies to create a white paper that explains how the. This works. Bingo. I immediately thought, I got to go get something. Third party. Okay. Now, I'm not going to quote the guy. A link to the white paper is, would be really complex for a lot of people. Unrelay the general information here. So I emailed the guy. Really nice guy. Talked to a couple of people. Oh, yeah, that guy's on. That guy's sharp. He's on top of it. You can believe me or not, doesn't matter. But I'm telling you, this is where I get my information. From. Leading financial journalist actuaries of insurance companies, investment offers, officers of insurance companies, and a professor of finance who has done deep research on this topic. Nice guy.
Based on Kerry's reference, he scheduled a call with me right away. Okay. So I was going to do this right off the bat when I got the phone call, but I wanted to talk to the professor. And so he set it up for today. So I didn't want to just double down on it like, oh, I know this, because it's like, all right, this gives me the opportunity to strengthen what I have, not just double down on it. Right. So it's funny, because I thought I was. I thought maybe we'd have a conversation, a little banter. And I said, I got challenged with this, like, how do insurance companies use market options to create yield on index annuities? And he's. It was really funny. He said. He's like, he was kind of confused by the question. He said, how else would they do it? They have a bond yield on the portfolio and a spread to create profits. What's left is the interest paid on a fixed annuity. If they're trying to beat the bond or the fixed rate, there's no other way to create a 10% yield when bonds are only paying 5%. So I was kind of surprised by his nonchalance, but it wasn't expected. That's what I thought I'd hear. But it was kind of like a, yeah, I'm busy. I got other things to do. That's all it was. That was the answer that I knew to be true. So a quick answer to the question is yes. Insurance companies use options to create returns on fixed indexed annuities. We had a discussion about whether it's in house or with an investment bank. In certain cases, it would go to investment bank. When it's a real crafted structure, we can talk about what the insurance company does to hedge overexposure of yield, but they cannot risk their general account.
That's what makes them stable and solid, is their general account. They cannot risk that.
All they can do with you buying an index annuity is you're giving them permission to use the interest earned, the general account, in order to create a larger yield. The only thing you lose as a contract owner is the opportunity cost of the interest you could have earned on a myga, a CD, or a bond. The principal value of your contract is never at risk. Now, there's going to be pooling of assets. It's not like you.
Investor A is going to get the chief investment officer and the actuaries and all the guys in the room saying, all right, what do we do with Mike's portfolio?
No, it's going to be pooled of everybody else, and you're gonna have different resets on every different days. But they're gonna get pricing for the options. What's it cost? What yield would it create?
I did extensive research on this and a lot of podcasts earlier in the year about how the annuity rates will adjust, how they can be locked, what they can do. It was interesting, because I had a professor from another university saying, hey, we're talking about financial products and the subject of indexed annuities. We don't know, or I don't have any information. I can't find any information about how the products are priced and how they work. I understand the frustration with the lack of transparency, but I gave that guy, university in Texas, another major one, not gonna, he didn't say, you can use my name. None of them did. But you can beat me up if you don't believe me. I don't care. I sent him those three podcasts about adjustable new index annuity rates and how they work. He thought, hey, this is exactly what I need for my finance class, personal financial products. So then when this guy levels accusations at me that I'm a con artist, anybody that works with me, do you think I'm a con artist? I mean, come on. So that I know I sent the first professor factual information that was confirmed by the second professor only because I had to reach out through a third party to get to them and say, am I on the right page here? I asked several other people about it, and they're just, yeah, yeah, of course. Yeah, sure. So there it is. Fixed index annuities are comparable to mygas, cds and bonds. That's the comparison you should make. Can they beat those? Now a lot of guys will do, say, can beat the stock market. There's some really good deals available today, and maybe you don't want, like sit in the rocking chair, collect interest. And it's okay if you do because those are great as well.
But you want to talk about it, you can get on my calendar, top right corner, any page on annuitystraighttalk.com dot. My name is Brian Anderson. Ted, if you want to call back and you want to rebut anything that I said here and tell me something that nobody else seems to know, that'd be great. And by the way, you should probably get in the business or get on a financial talk show or something like that would be great. So I'm open to it. I appreciate you guys stopping by. This has been episode number 155, and let me know what you think. If you have any questions. There's a lot of this stuff. There is more transparency that could be involved. I certainly understand that. We'll see where it shakes out. Let me know what you think and comment on the website, but get a hold of me so you guys enjoy yourself. I appreciate you for joining me. Go ahead and talk to Montana. Marble meets for some quality products. Holidays are going to come up, give them a call. Overnight shipping frozen. Get some testimonials from my clients. So thank you again for joining me. You guys have a great week, and I will see you next week with episode number 156. All right, have a great day. Bye.
[00:17:18] Speaker B: You have been listening to annuity stray talk.
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