The perfect couple

By Karlan Tucker

Tucker Advisors

Having started my career in the financial services industry more than 27 years ago and having conducted more than 5,000 interviews with prospective clients, I believe that I have worked with every possible prospective client scenario. Hopefully I can shed some light on how I would work through a typical interview with typical objections.

Let's suppose that Mr. and Mrs. Smith hear about our company on the radio ads we run and then they receive an invitation in the mail to attend one of our seminars. They then come to the seminar, like what they hear and book an appointment.

So I meet with them in the office the following week. My staff kindly greets them as they come into our office, shows them to one of our conference rooms and offers them something to drink. As an aside, one of the professional touches our office provides is to put the clients' names on a welcome sign outside the particular conference room in which they will be seated. It helps to make them feel important. In your practice, never underestimate the value of making a client feel important.

After just a few minutes of greeting and small talk I ask, "What would you like me to do for you today?" I often follow that up with, "Tell me about your situation." As they are answering, I am writing. Soon, I have learned the key facts for which I am looking -- their ages, how much they have in investable assets, the amount in qualified and non-qualified plans, their purpose for the money, and their expectations. I also learn what has happened with their portfolio in the market and their income requirements, both now and in the future. Additionally, I also learn if they have a tax problem for which I may be able to offer solutions. The next step is to give them the big picture of how an FIA works conceptually.

As with so many people, they are very skeptical and critical of annuities. They have never read anything good about them, and their current advisor speaks poorly of them. They have a hard time believing we have never lost anyone's money to the volatility of the market and yet benefit by the market. They are concerned about not getting all the upside of the market, and they don't want to tie their money up. In addition, they want to know who I am and more about the companies I represent. They also say they are not making any decisions today and that they are just exploring their options. Does this sound like some of your most challenging interviews?

They also tell me that they are 59 and 62. He is a retired engineer of his own small company, and they have money. I find out that they have $800,000 of investable assets that would possibly make sense to move to a fixed indexed annuity. They also have $150,000 in savings and a rental property. They have no debt, social security is on the horizon, and they have a small pension of $1,500 per month, plus rental income of another $1,500. They need another $4,000 a month to support their lifestyle and they take this from their portfolio, for a total monthly income of $7,000. For the past year, they have reduced their withdrawals to $2,000 because of the losses they have suffered in the market. Prior to October 2007, their portfolio is valued at $1.2 million. I have just met the perfect couple, don't you think?

Mr. and Mrs. Smith have voluntarily come to my seminar and have booked an appointment. They have kept the appointment by driving to my office. They also have openly shared with me their financial picture.

Do you think a couple would voluntarily come to a seminar, book an appointment, drive to my office and share their financial picture if they didn't have a real need to get some answers? So why do many prospects tell me they are just exploring their options?

Nobody wants to make the wrong decision, and nobody wants to be pressured into a sale. So, the responses are rather typical of what I hear. They are defense mechanisms that prospective clients use to keep from being taken advantage of. From my perspective, though, I love hearing these responses (objections) because they tell me what's necessary to make a sale and how to help them. They also tell me that they want to trust me and potentially buy from me, because if they didn't, in most cases they wouldn't bother with any objections -- they would simply show no interest and leave.

So, now I carefully begin to address their objections and concerns. Let me encourage you to not get defensive when you get responses like this because all they are doing is trying to get comfortable.

The first objection I often hear is that they have not heard or read anything good about annuities and that their current advisor doesn't like them. A powerful technique is to try as often as possible to find common ground with them. So, I would tell Mr. and Mrs. Smith that if I got all my information about annuities from Wall Street advisors and writers I'm confident I would not have a positive view of them either; that they view them as competition; and instead of learning about them, they dismiss them without fully understanding how they work, particularly FIAs.

You don't want your prospects, especially the ones who are skeptical about annuities anyway, to think that you are trying to send them off to some deserted Annuity Island. There is a perceived safety in numbers, and prospects need to know that in the first half of 2009, 303,000 people bought a fixed indexed annuity.1 This information will help put prospects' minds at ease. It's less frightening to move into a new financial arena when lots of your peers have already forged the way and have found it to be a successful venture.

The typical prospect will recognize that neither they nor their advisor have the ability to time the market and to determine when to buy or when to sell. I will tell them that because of the inability to time the market perfectly, as a result, far too often we put up the capital, take the risk, wait patiently and still have nothing to show for it. I will also point out that many, many people have been fully invested in the market for over 10 years and have not benefited at all. The market has been up twice in the past ten years, but if you didn't capture your gains by selling at the high point, you've also given them back twice.

The FIA does an amazing job of solving many of the problems investors face that I just mentioned. You should know intimately how the FIA works and be able to explain simply the concept to prospective clients. Some important talking points: (1) The principal is not put where it is exposed to market volatility; it is placed in some of the strongest companies operating in American bond portfolios; (2) not only are the bonds that are purchased of the highest quality, but you also have the strength of the issuing company backing the bonds; (3) we send only the yield to the market, not their principal; (4) since we are so safe with the principal, we get very aggressive with the yield, allowing us to earn yields of 0 percent to 20 percent for our clients, with typical returns being in the 5 percent to 10 percent range. These may not seem like great returns, but when they are earned on the entire principal and you never have to make up for a loss even for one year, the account grows very effectively.

Because FIAs historically have received a bad rap, you may need to change the perception of FIAs in your prospects' minds. One of the best ways to do that is to change their perception of what the market is capable of delivering over time. In the year 1900, the Dow was at 66 points, and by the turn of the century (in the year 2000), it was at 11,459. It sounds impressive until you do the math and realize that is an annual compounded return of 5.3 percent for that 100-year period.
Not all money is suitable for FIAs. An FIA is not the place to put a client's short-term liquid emergency money. The kind of funds typically invested in an FIA are nest egg dollars that always need to be there for retirement, ensuring that your clients can maintain their standard of living for as long as they live.

Liquidity is an issue with all my clients. I show them how liquid these products are by using as an example some of the longest-term contracts available, with up to 16-year terms. Even long-term products such these are so liquid that even if the market were to give you zeros for many years right out of the gate, you could take back 100 percent of your original premium in less than five years. I often ask my prospects if they have ever owned a five-year CD or if they have had to wait five years or longer to be made whole in the market. Warren Buffett has said, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes" (Reader's Digest, January 2000). That's because he knows it can take 10 years or longer just to be made whole.

Another liquidity feature of most FIAs is that they allow for 10 percent withdrawals of the account balance, beginning in year two. Potentially, the client could take back most, if not all, of their original premium through penalty-free withdrawals in just 10 years. When you give them that information, a great question to ask is, "Do you have a plan in place to spend your nest egg over the next 10 years?" I ask that question all the time, and I've yet to receive a "yes" answer.

Another objection I frequently hear is that FIAs don't get all of the upside of the market. I agree that the FIA will not get them all the upside, but I then point out that in a diversified portfolio, they aren't getting all the upside either. I love proving this to clients. Here's how the conversation would go: "The S&P 500 has averaged 13.2 percent annually for the previous 20 years (1984-2004)2 . The rule of 72 says that you would double your money four times over a 22-year period if you earned 13.2 percent. So, let's assume you put $100,000 in the market 22 years ago and never added another dollar. With four doublings, today you would have $1.6 million. Is that what you have in your account today? Maybe you only started with $50,000; today you would have $800,000. With just $25,000 invested 22 years ago, today you would have $400,000. Since these numbers are all much higher than your balance and since you have deposited much more than your original investment, we know you've not gotten all of the upside. However, you also participate in the downside, which is something the FIA never does."

I'm also often asked by prospects how they can know beyond any doubt that they can trust the companies I represent. We advisors know that none of us can guarantee nothing will ever happen to the companies we represent, and we can't guarantee that it's not possible to ever lose any money. We live in an imperfect world, and some degree of trust is a requirement in every transaction. So, I tell my prospects that the companies I represent did not get caught up in the subprime mess, which has enabled them to remain very strong -- so strong that they are capturing market share from their weakened competitors. I have my own money with these companies. The track record of the FIA is flawless. Not one person has lost any money in an FIA due to the failure of the issuing company. That's a comforting thing to be able to tell a prospect.

It's good for them to know, too, that the guarantees we offer are much stronger than the diversified portfolio they currently have if they are in stocks, mutual funds and bonds. In the volatile world we live in today with stock markets falling by more than 50 percent in as little as 6 months, it is prudent to have a floor under their nest egg dollars.

The next issue I often address is the fact that my prospects will tell me they are not making any decisions that day and they are just exploring their options. I tell people all the time that not making a decision is a decision. More often than not, that decision hurts the client or prospect.

Let's use Mr. and Mrs. Smith's scenario -- my response would go something like, "You sound like me. I also like to explore my options. Could we review for just a minute? The FIA will solve the problems you came in here with. You need to protect your principal from the market's volatility. You need to get back to where you can withdraw the full $4,000 from your portfolio again. Our 10 percent bonus will give you $80,000 right away to help your account recover. We will capture the interest earned annually on autopilot, without having to make a selling decision. For now, we can take your income starting in year two from the 10 percent penalty-free withdrawals. Eventually, we will want to take it from the income rider I have recommended. Once we start the income rider, your income can never go down. It may, however, go up with the market to fight inflation; and it will never run out. Now folks, if this is Plan A, then what is Plan B?" After about 30 seconds of silence (which will seem more like 30 minutes), most people will say they have no idea what Plan B might be and to go ahead and put them in Plan A.

People need help. They want to believe, and they want the solutions we offer. It's our job to help them get comfortable so they can benefit by one of the most innovative financial tools ever created.

I wish you great selling!

1Index Compendium, September 2009
2 Dalbar QAIB 2005