Annuity Products: Are They a Commodity?

Hi, I'm Stan The Annuity Man, America's annuity agent licensed in all 50 states. I'm the number one guy here, and my approach to annuities is completely different from most agents. I only look at annuities for what they will do, not what they might do, only the contractual guarantees. I don't sell Variable Annuities. I only sell Fixed Annuities, which come down to Multi-Year Guarantee Annuities, which are CDs, Immediate Annuities, QLACs, Deferred Income Annuities, and Index Annuities with riders. We look at those as well. I'm serious about what I do but don't take myself too seriously.

‌What's a Commodity?

‌Let's look at all carriers. Let's look at the highest quotes. Let's find the best deal for you, which is today's topic. Are annuities commodities?

The answer is yes. What's a commodity? It's like wheat, corn, whatever. It's generic. Annuities: even though there are many types of annuities, they're generic from the pricing standpoint, and you have to shop all carriers for the highest contractual guarantee.

‌Multi-Year Guarantee Annuities

‌Let's go through each product type and tell you their commoditization, why they're commoditized, and how to shop for them. Let's talk about Multi-Year Guarantee Annuities, the CD version in the annuity world. It pays a specific interest rate for a specific period of time that you choose. There are no annual fees and no moving parts. If you've ever purchased a CD, Multi-Year Guarantee Annuities work pretty much the same way. It doesn't mean they're better than CD, or one's better than the other, but they are one and the same from the standpoint of structure.

‌Now, with the commoditization of that product, you look for the highest guaranteed yield. The highest guaranteed annual yield. The only caveat is that you need to look at the carrier's Claims Paying Ability to ensure they're solvent enough to back up that interest rate. In my opinion, you shouldn't buy long-term, Multi-Year Guarantee Annuities in today's current interest rate environment at the time of this blog.

‌Five years is the max that I want you to go to. If you want to go longer than that, you have to convince me why, because I think the yield curve, not to get in the weeds, but the yield curve analysis is where the maximum level of for pro-client to lock-in, where that is. And right now, it's about five years. There's an argument that it's at three years, but the bottom line is you keep the maturity short.

‌From the standpoint of commoditizing lifetime income products, this is where annuities are now commoditized. Period. So, you should never have someone say, "I'm just going to quote one company," or "I'm just going to quote a couple of companies." Think about it like when you go buy a plane ticket. Most of us go and punch in our number, our name, where we want to go, how we want to fly, first class or coach, whatever, and then up pops the best prices in order. From lowest to highest, you can filter it. The same exact thing can happen with annuities.

‌Transfer of Risk

‌With annuities for income, it's a transfer of risk commodity product. You're transferring the risk to the annuity company to pay you for the rest of your life, regardless of how long you live or if it's joint life, it's the rest of your lives, plural. You do have to provide some information to get that quote commoditized correctly, meaning dates of birth and where you live, state of residence, when you want the income to start, and what account type you wish to use. The guarantees will be the same regardless of the count type, but the taxation of that income stream will differ depending on whether you put in an IRA, a non-IRA, or a Roth IRA. But the guarantees are the same.

‌The income products, Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and even Income Riders attached to Deferred Annuities like Variable Annuities and Index Annuities are commoditized. You need to shop everybody. When you go to The Annuity Man, you can punch in the numbers yourself or have us do that for you. You're going to talk to my team and come up with a customized plan on how you want to structure that payout. Typically, with many of these products, you can structure it 35 to 40 different ways. How do you want that money to be contractually structured? Then we shop all carriers.

‌Quotes

‌When I go into a quote, I have no clue what carrier name will finish first. I have no idea, and it changes rapidly. It's a very, very active and fluid world out there in the annuity world. The carriers are bidding on your business. You need to go into the quote process looking for the highest contractual guaranteed number.

‌Once we send you the quotes, we talk about them and look at the quotes listed from the top to the bottom of the lifetime income. Then, we look at the Claims Paying Ability carrier. Then we look at A.M. Best and Moody's and Standard & Poor's, Fitch and Comdex rankings to make sure that you're putting your money with a company that can back up those claims, especially when it comes down to lifetime income. You want to make sure that that company is there to pay that lifetime income stream.

‌Unicorns Chasing the Butterflies

‌One thing you need to leave with is this, and let's look at annuities from a contractual guarantees-only standpoint. Never ever, ever, ever, ever, ever, ever, buy an annuity for the hypothetical, theoretical, projected back-tested, hopeful agent return scenario. Never buy it for unicorns chasing the butterflies. Never buy it, thinking the world is perfect and the planets will align. It never works that way and annuities weren't put on the planet for that.

‌Yes, some types have non-guaranteed return scenarios, and I'm not sure that annuities should be purchased for that. In my world, of contractual guarantees only, and owning an annuity for what it will do, not what it might do, and the will do is the contractual guarantees part. In my opinion, that's where annuities fit.

‌If you need pure market growth, buy it, buy mutual funds and stocks, and go purchase ETFs and do your thing. In my past life with Morgan Stanley, UBS, Paine Webber, and Dean Witter, you know I did that. I understand that side annuities aren't that. They're contracts, and once you have contracts, it's a commoditized world of carriers bidding on your business.

‌Client Example

‌This is interesting. I got a call the other day, and he loves this XYZ company. I'm not going to mention the name, but we represent everybody. It was one of the big companies, and we quoted an Immediate Annuity for him six months ago. He goes, "I really want that company. Let's re-quote it."

‌When we re-quoted it this time, with the same parameters and the same thing he wants to achieve, he answered the two questions, "What do you want the money contractually to do, and when do you want those contractual guarantees to start?" But guess what? This time, six months later, that favorite company of his, that name that he loved, and he sees all their television commercials, it finished sixth. You got to say, "Well, Stan The Annuity Man, America's annuity agent, why does that happen?" It's because that annuity company does not want to attract that person's age range at that time. Now, that will change, but for this specific quote, six months later, it didn't finish first; it finished sixth.

‌Why is that a good story for you to remember? It's because you have to quote all carriers. You do not know where that carrier is from the standpoint of what age range they're trying to attract, so they're commoditized. Never forget that.

‌I know I threw a lot at you. Let me simplify how this should work. The bottom line is I would recommend you talk to my team. I know that's daunting, and you're saying, "You're going to try to sell me something, Stan. You're the sales guy." Blah, I'm not. Have that conversation with us. Go to The Annuity Man. You can book a call with my team. We need to have a conversation about the best way to customize your specific situation. Then we'll send you the quotes. We won't bug you. We'll have a professional conversation.

‌Yes, annuities are commoditized. Yes, quotes change like a gallon of milk every seven to 10 days. Yes, you should shop all carriers, but trust that we won't be the typical pound-you-into-the-table salespeople. We're just not that type. If you haven't caught that from the blog, that's not who we are. Yes, I'm the top agent in the country, but if I never sold another annuity, I'd be fine and happy.

‌I really want to do the right thing for you. I act as a fiduciary on your behalf, meaning I put your interests ahead of anybody's, including mine, of course. You can book a call by clicking this link.

‌There are no expectations on my end, and there's no obligation or cost, but you need to have an honest conversation that's not a sales pitch. You need to have a confidential conversation that involves your specific situation, and we can provide quotes by quoting all carriers based on our conversation. Because once we speak with you and have that conversation, we'll know exactly what to show you from the standpoint of the quote or if you don't need an annuity. With that, I'll see you on the next The Annuity Man blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.