Building your practice through better positioning, Pt. 2 : Telling the index annuity story

By Shawn Moran

Tarkenton Financial


In part two of this three-part series, I share a story I use to explain how fixed annuities are the middle ground between two extremes.

Continuing our discussion about positioning ourselves by way of metaphor and story telling, I want to specifically talk about fixed index annuities and how we can best position them for our clients, and if suitable for them, motivate them to take action.

Unquestionably, these products are complex, but if you find your prospect’s eyes glazing over in the middle of your presentation, perhaps it is time to simplify your presentation and tell the story. I have long felt that fixed indexed annuities are “in between” products that can serve as a bridge between financial extremes. Let me show you what I mean.

There are a lot of areas of our lives where we tend to go to one extreme or the other. Either we are eating in a very healthy manner, or we are living on a diet of Doritos and ice cream. We can get in the habit of exercising on a very regular basis, or we can fall into a rut where the most strenuous thing we do is to bench press the TV remote control.

Investing can be that way, too, which can cause some real problems for our portfolio. Two of the extremes in investing are:

1. Get rich quickly. Here, we get caught up in the hype and hyperbole that can take place when the markets are soaring and our emotions soar with them. We can end up making decisions that, in our more rational moments, we would never make. I have often said that the four most dangerous words in the investment vocabulary are, “It’s different this time.” Investing is a marathon race, not a 100-yard dash. Attempts at getting rich quickly often end in disaster.

2. Going broke slowly. The other extreme we can fall into is to put ourselves in a “go broke slowly” position. What do I mean? Well, there has been a flight of money in recent years into places like CDs and money market accounts because of their safety features. While these accounts are FDIC insured and in that respect are indeed safe, there are two other factors that ought to be considered: taxes and inflation.

According to Bankrate.com, the average interest rate on a one-year CD currently stands at 0.71 percent. Well, if you were in a 25 percent tax bracket, your net yield after taxes would be just over 0.53 percent. The annualized inflation rate for April of this year was 2.30 percent. What that means is that a 0.71 percent CD could, after taxes in a 25 percent bracket and inflation of 2.30 percent, actually lose 1.77 percent of its purchasing power.
Now, to be very clear, CDs are wonderful savings tools that can be great places to keep your emergency and rainy day money. But as a place for your long-term retirement savings? Perhaps not so much. Index annuities are designed to stand between the two extremes, giving you more interest earning potential than in many other interest bearing accounts, without the risk and volatility of riskier financial products.

To sum it up, it is a bit like Goldilocks and the three bowls of porridge: The first one was too hot (the markets feel very hot these days), the second one was too cold (the yield on CDs feels downright frosty), while the third bowl was just right (index annuities giving the interest earning potential we want with the stability that we need).

This second story uses narrative to help your client find a comfortable place between two common emotional extremes. You may find it useful to compare your approach to what I’ve laid out here, and consider how storytelling might be of benefit to you in your client presentations. In my next and final article in this series, I’ll share a story I use to position income riders in my retirement planning work with clients.