Episode Transcript
Speaker 1 00:00:05 This is annuity Straight Talk. Since 2008, your host Brian Anderson, has helped clients nationwide navigate the complex market for annuities With Brian's assistance, hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian.
Speaker 2 00:00:48 Hello and welcome everyone to the Annuity StraightTalk podcast, episode number 67. My name is Brian Anderson, founder and creator of Annuity StraightTalk, StraightTalk and no BS approach to retirement planning with all products available, whether they're right for you or not. That is what I first tried to determine, not trying to sell something to everyone, trying to provide good useful information so you can make good decisions on retirement. Call me at (800) 438-5121. If you want to chat about your situation or make an appointment by hitting annuity straight talk.com. Upper right corner, schedule a call button. Any page there I am. So today I'm gonna go back in history with annuity, straight talk. I'm not gonna share my screen cause I've got a newsletter written that kind of explains this entire story and I'm gonna talk about secondary market annuities. Now I know a lot of people don't call them secondary market annuities for simplicity purposes and the way we use the term back in the day, that's what I'm gonna call them, will argue that they are called annuities but some people don't.
Speaker 2 00:01:45 So leave it at that. But for now that's what we're gonna call 'em. So I would say secondary market annuities kind of put annuity straight talk on the map. Now I started in 2009, late eight, 2008, early 2009 I was a fixed annuity guy. Rates really started dropping and so it was kind of tough and that's when I really went into overdrive trying to figure out, get creative about how to retirement plan when a lot of people were seeing the rates that were out there, just kinda like, ah, I mean completely different than this year where people are jumping in cuz finally have something that they haven't been able to get. It was harder and harder to find good deals for retirees in the annuity market. I was hesitant of selling index annuities. In hindsight it shouldn't have been resistant cause I know a lot of people that got 'em back then.
Speaker 2 00:02:26 They worked out really well. I've changed how they're doing it and again, index annuities work great for enhanced rates over fixed annuities. Especially when rates are low index annuities, you almost kind of gotta do it just to get some better yield out of your safe money rather than locking in like a year ago, locking into a one and a half percent bond, a 2% bond or a fixed annuity. I know one guy, one friend of mine put a substantial amount of money into like a 1.7% municipal bond tax free. But tax free guaranteed loss honestly with inflation rates. So yeah, so for anyone who knows, we always call it the secondary market annuities. It's actually a structured settlement. When someone is injured, like a personal injury settlement, the liable party buys an annuity to compensate the injured person. It's a court ordered settlement that is intended to make the injured person whole.
Speaker 2 00:03:19 That's the purpose of insurance, right? Make you whole. Now in a lot of these cases, circumstances change, the person may be able to go back to work but they've got this long tail payment stream. Maybe they wanna start a business, maybe they wanna go to school, whatever the case may be. If they can demonstrate to a judge, Hey, I wanna sell my payment stream, and the judge says, okay, that's a good enough reason, well they can sell it for a lump sum of cash up front. Now you may have seen JG Wentworth commercials, you got federal and state laws allow that to happen. So it's a legal transfer no matter what anybody says. You might see the JG Wentworth commercials on tv, I have an annuity and I need cash. No, I don't think they're gonna cast me for that anytime soon, but that's my best attempt at singing it.
Speaker 2 00:04:02 So JG went where there's a factoring company, sellers of the payment stream work with a factoring company to get cash up front and the factoring company turns around and sells that payment stream to an individual or financial institution. A lot of the bigger transactions, the packages of a like hundreds of hundreds of deals are sold to pension funds, corporate institutions, banks, all that stuff. And JG Wentworth really works in that space, not necessarily with consumers, but there's some smaller factoring companies that will get 'em out and are looking for avenues to sell those. That's who we got in contact with when these kind of caught our eye right now a series of discounts happens along the way. So the final buyer, maybe it's you pays much more for the cash flow than the original seller receives. It's actually kind of a shocking difference for a lot of people.
Speaker 2 00:04:50 I'll get to that a little bit later. The bottom line is that we're able to deliver rates to consumers that we're well above rates available on what I call primary annuities or the fixed or fixed index annuity. You know stuff I used to kind of say it as like you're walking through the back door in the alley of the insurance company to get these things. Whereas a primary annuity, you walk in the front door, you buy the primary directly from an insurance company, you buy the secondary from another person in different market, it's off the books. The insurance company has nothing to really do with the transaction except they guarantee the payment stream. So life was good for a while. People were getting some really good de solid rates. We kind of found traction as you know, a way to make consistent revenue with the business.
Speaker 2 00:05:32 It was great. Purchasing an income stream often came at a discount of more than 25%. So an income stream that might cost say 200,000 in the primary market. So if you're looking for say a thousand dollars a month for the rest of your life, you go to a quote engine, they say that's $200,000 in the secondary market, you could get it for $150,000 or less. You can say $50,000. Now there's some differences between the payment streams, but that's not the point of of this. Dial it up or down however you like. They're larger and smaller deals available. Some 20, 30, 40,000 bucks. Others a million dollars or more depending on how big the settlement was. And buyer of any type could come looking for that stuff. This market in particular worked a lot differently than traditional markets and the rates were not set by normal economic factors.
Speaker 2 00:06:17 The available deals in this market are finite. There's only a certain amount of them. So when more people discovered the opportunity, the rates drop as more and more people were willing to pay less because it was still a good deal. We kind of considered the spread between the buy and sell rates. We'd buy it at one rate and I could do an example for you, but it's not really that important. So we'd say buy it at a 7% discount, sell it at a 6% discount. And the difference between those two prices was the, the margin that we made most of the time we went through brokers. So the commissions or the compensation was chopped up for the most part. What we made was similar to a regular annuity commission, you know, two, three, 4%. We never made a killing on those deals. I didn't when I was doing it.
Speaker 2 00:07:01 So as the market became more competitive, margin shrunk and the incentive to sell the deals went away for several brokers. A lot of Duke clients also realized that they could use this to leverage and negotiate purchase rates. Well you've got it at five and a quarter, I'll take it at five and a half, which means it's gonna be less money cuz it's a higher rate. And again, not the purpose to explain exactly how all that works. And I guess I get back to that just a touch later, but that's kind of what happened. So as that was happening and margins were shrinking, the deals were also not as compelling for consumers and this makes a big major difference for one reason and the secondary market, you buy what is available and it may not be an exact match for what you need. You might say I need $1,200 a month, but a really good deal is on the list that pays $1,300 a month and it's such a good deal that you take the larger payment cuz it still costs less than what it would going through the front door of the insurance company.
Speaker 2 00:07:56 When the margin shrinks with lower rates, it's harder to find the right match because you're spending more money for something that's not a perfect fit, even if the rate is still just a touch higher. So my first example of an income stream in the primary market, 200,000 secondary market, 150,000. If it's not perfect, hey what the heck man? We're still saving 50 grand when the margin is down to say oh instead of 150 it's costing you 185 or 190, then it has to be more of a perfect fit. So it was harder to place deals in the early days when the rates were super high. We had people, I called them recreational buyers, they didn't even need income streams. They were just buying them and they're lump sums available too that are like, you know, you put 40 in now and you get 60 back in eight years.
Speaker 2 00:08:41 So they had lump sums available that are kind of just like a fixed annuity with some key differences. So all this was happening along the way. I kind of, I knew our business needed to branch out and I didn't want to depart too far from like traditional planning methods. I knew that just because that business was finite, like if we really needed to get to or wanted to get to where we're gonna get, then it was gonna take time and, and we'd have to be able to get back into more mainstream products. So acquiring a structural settlement is a legal process that can take months and a lot of things have been done to change that for consumers, but it's still a process that needs to happen. And a lot of people, because it's a legal process, it's nothing like buying a regular annuity. When I talk about, oh you send a check to an insurance company or they draft from your bank or there's a transfer process between your current custodian, say like Fidelity, TD Ameritrade and the insurance company, none of that happened.
Speaker 2 00:09:37 So I knew we had to kind of get out and branch out. My business partner at the time, the guy who started this business with me was pushing in the opposite direction. He wanted to control as much of the secondary market as possible and it was just harder and harder to do it. I was on my way out and I didn't even know it and I kind of hung around for a couple of years. But I kept pushing into going back into mainstream products in 2018. We split ways, I kept annuity straight talk. He took the part of the business that sold structured settlements. So a lot of people don't know this, but I essentially started from scratch five years ago because even though I had branched out to go back into, I mean I started selling mainstream products, fixed annuities and through this time period I sold more fixed and some index annuities.
Speaker 2 00:10:20 I mean I knew everything else out there, but I still hung onto that cuz it was still, it was a big part of what we were doing. Getting to this point now, like there are several reasons why I no longer sell structure settlements and I don't wanna scare anybody. Okay? And this one's not scary. The easiest one for you is that rates aren't any better than the primary market. Now a secondary annuity with a similar time period might pay interest equal to just a plain old fixed annuity. I've seen it, I've seen it on the list. There's lists available. I'm not gonna advertise those. You can search around and go find 'em if you want, but I don't do the business. And I'll explain more of that. So the fixed annuity takes a couple weeks to close the SMA could take months in a fixture and index annuity, you can choose the amount you wanna invest.
Speaker 2 00:11:00 I wanna invest a hundred thousand dollars with the secondary, you gotta deal on list. That's $61,357. That's just what the discount of price is. And so you might end up spending a little bit more or a little bit less. And if you have a hundred thousand you wanna protect, you spend 61, it's gonna be really hard to match a $39,000 deal to get your whole a hundred thousand dollars in there. It can happen but it would take a while to put it together. So it's not quite as easy. It takes a little bit more work and if the rates aren't higher, what the heck would you do it for? Plus the legal process and stuff, right? Next reason is it's the only part of the financial business I've been, I've dealt with in my career where we've seen so many people get swept up with greed.
Speaker 2 00:11:38 I lost several relationships because of it. It gave me a really uneasy feeling. Every single person wanted to get the most out of every deal. When you see how much is potentially available to be made in each deal, a lot of people would want to cut the other guy out. So there was a little bit of backstabbing going on, right? Factoring companies made the most, everybody wanted to try to figure out how to eliminate the factoring company. Factoring companies started selling to institutions, lower rates pushed us. And even the clients that talked said before, they knew they could negotiate for better pricing. So I was doing, I was getting pinched on both sides of it. And one of the things where it's like it just made everything harder to deal with cuz you know, stress on both sides of the deal. And to be honest with you, it became a miserable place to exist.
Speaker 2 00:12:21 I didn't really like where it had gotten me. My final reason for selling this is one, I don't wanna scare anyone cuz this is an extenuating circumstance. But I can no longer say that the market is a hundred percent safe. It can be mostly attributed to greed or in this case a couple people that were desperate to sell a deal who get in a hurry and didn't complete the due diligence. We did lose one in a lot of cases, several buyers would split pieces of a larger deal. So we had two of four or so buyers in one such case where our clients in the court ordered granting the transfer was reversed. Extremely rare circumstance, but it's not a hundred percent. The insurance company stopped making payments to our clients and sent them back to the original seller. It's a, it was a nightmare for these guys.
Speaker 2 00:13:03 Nightmare. To make a long story short, fortunately like not a ton of money was a, but it was enough. It was a good chunk of money. Long story short, all parties to the deal, the broker, the factoring company outta business gone wouldn't answer the phone. This is a factoring company's fault. Our clients, there was no way they were ever gonna get their money back. So I and my initial business partner, we agreed to work together. This is kind of part of our separation was like, hey, any remaining liabilities for the previous business we'd done, we agreed, hey, we'll work together. We want to do it for the benefit of the people or the the clients and we'll make sure everything. So we've done that, continued to do that. This one, that was probably the last, last one, right? We agreed to work together, we came out of pocket to cover the losses for our clients.
Speaker 2 00:13:44 We actually paid them money. I cannot afford to do that for everyone. I didn't don't even want the possibility of that ever happening again, ever. Like I said, the case above was an extenuating circumstances, definitely not the norm. That was kind of how it worked. Where like you go through, well we cover everything we can cover in the legal process, right? And you think you know everything and then something else comes up. Now most of the things that happened were like, oh, an address changed it or processing time at the insurance company. I had one where an insurance company switched their banking system or something and a few of the payment streams didn't get transferred to the new system. I had a client that was like all of a sudden wasn't getting payments and it's like, okay, I got a call and figure out and we uncovered that, oh we just missed it in the system.
Speaker 2 00:14:30 We're really sorry we fixed it. Right? But there were a lot of things like that. A lot of companies send checks through regular mail and you can't necessarily do ach. It's not always possible. Last year was a big year where a lot of payments were just late and we don't have, I'm not the agent at the insurance company, I can't go do it. And so it was always kind of a a bit of a headache and if the rates aren't better, then why would I do it? But over the years we sold a lot of deals to a lot of people that we know well and truly care about right now between what we did, several hundred active payment streams or lump sum payments that are gonna pay out with no problem at all. But I'm done cuz it's not worth it. Maybe this will give you guys a reason why I don't like to chase rates from b plus companies.
Speaker 2 00:15:11 When I've seen a failure, then I stay away from anything that looks similar. My business is not worth your retirement and I have proof that I'll put my money where my mouth is. So I don't sell structured settlements anymore. Structured settlement payment receivables, whatever they want to call 'em. Derivatives, not quite sure that's the case, but I don't care. I'm outta the fight. You can beat me up for whatever you want. Whoever sees this, I'm here for the consumer, I'm here for the clients, people that put trust in me. I wanna make sure, but because I had to come outta pocket for a fair bit of money so that I can continue to say no one's ever lost money with me, right? So any previous buyers of structure settlements have concern regarding this, please reach out. I'll explain to you why you were in all likelihood, just fine.
Speaker 2 00:15:54 Any others who have considered it or if you've seen it out there can also get ahold of me and I might give you a little bit more details about some of the things I stated above. Again, trying to keep this quick for purposes of the podcast, but bottom line is I'm on your side and I wanna find things that work for you. Those deals certainly work, but again, when you're 3% above primary rates, then I mean a fixed annuity's, five and a half right now, five and a quarter. Imagine if there's one that was eight and a quarter that was just as safe or seemingly as safe it's worth looking at. So we looked at it, we did it, we did it the right way, but I'm not gonna do it anymore. And so anyway, if you want to talk about it, you can respond to the email when I send out the podcast, you can call me at (800) 438-5121. This has been episode 67, secondary Market Annuities. Schedule a call, top right corner, any page on annuity straight talk.com. Thank you guys for joining me for this episode and I will be back next week with episode 68. Thank you very much. You guys have a great day. Okay, bye.
Speaker 1 00:17:07 You have been listening to annuity straight talk. The IS for information and educational purposes only and does not represent tax, legal or investment. The views expressed by on this program are their own and do not necessarily reflects on the adminis talk or his partners. No information presented to today should be acted upon without meeting with the qualified and licensed professional. It's important that you all contract disclosures carefully making a purchase decision. Guarantees are based on the financial strength and claims paying insurance company.
