Here’s a call I always hated to get in the past from clients: “Hey Steve, I’ve got this annuity and would like to do something with it. Can you help me?” Unfortunately, my answer was usually, “Probably not.”
You see, annuities and other insurance based products have traditionally been commission-based. A decade ago you couldn’t even find a fee-based annuity product. It’s not that I didn’t try.
In fact, I called dozens of insurance companies.
The conversation would go something like this:
“Hey, I have a client who can benefit from one of your annuity products. However, since 80% of the cost is in the commission, and I don’t take commissions, I will waive the commission if you turn around and invest that amount right back into the product. I’ll just take a small fee and the client gets the benefit of 100% of their money going to work.”
My offer was usually met with silence and sometimes with a snicker. “We don’t do that,” or “That’s not how it works.”
To which I would respond, “Look, I know how it works. I’m just offering to do business with you in another manner. You still make the same amount.”
I’m still baffled that they didn’t have the flexibility or desire to make things work. I mean, business is business.
We won’t work with companies who don’t have your best interest in mind
The problem is that most companies have an army of agents that only promote their own offerings. Some are called, “captive agents.” These are folks who only sell one or two products to consumers. They’re kind of like a carpenter with a large toolbox that only has a hammer inside.
I just hated these products.
They had everything going against them. High fees, high commissions, and costs that were shielded from the consumer. Almost all have penalties for early withdrawal, some which can go on for a decade or longer. And the companies aren’t exactly user friendly. Try getting your money out or even getting the correct paperwork — ugh. The insurance and annuities world can be so frustrating.
3 reasons a fee-based advisor would want to venture into insurance and annuities to help their clients
So, as a fee-based advisor with literally every conceivable investment available, why would I want to even venture into the insurance and annuities world?
Well, for one, many of my clients had old annuity contracts.
Since these contracts were tax deferred, cashing them in usually wasn’t an option. If you did, you would get a nice tax bill, and we didn’t want that. It’s possible to roll an old annuity into a new one without tax. This is called a 1035 exchange. But the insurance companies refused to work with me.
The second reason is that annuity contracts can be sources of guaranteed income. For instance, most CD rates are well below 1% today. There are guaranteed annuity contacts that yield 2.5-3.0%. Not only is this better than a CD, but it’s also tax deferred.
And third, insurance products can also be used as planning tools. Not the way some people use a hammer for everything, but as a specialized tool.
Let’s say I want to maximize my income for the rest of my life, or create a fixed income stream that will never run out. Through the use of an annuity contract, I can structure such a device. Today those income streams yield much more than 3% — more like 5-6%.
Hopefully, you get the idea. I had this toolbox that I was really proud of. It had, not only the basics, but some very specialized tools that my competitors didn’t have — or know how to use.
A FULL toolbox of robust tools will serve you best — and that’s our goal
But there were still a few simple tools I didn’t have that others did. And this really bothered me.
That’s when we signed a contract with DPL Financial, our insurance partner.
DPL is the largest and most successful no-commission insurance firm. They work with companies on our behalf to build no-fee, no-commission products that we can then offer our clients.
Our toolbox is finally complete!
Think of DPL as our insurance back office. They work with companies like Jackson National, MetLife, and a whole host of others to build low-cost products. Think of them as the Vanguard of the insurance industry. Their mission is to cut out as many costs as possible and pass these savings on to advisors like us and our clients.
I was so impressed — and believed in this idea so much — that CSH Investment Management became DPL’s first lifetime member.
We’re the only firm in the U.S. (as of this writing) who have made that commitment!
Real life examples of how insurance and annuity products can benefit CSH clients
Let me give you specific examples of how we can pass on savings to our clients through the use of insurance and annuities:
EXAMPLE #1 – 40% increase of insurance payout without extra cost to client
John had an insurance polity with Prudential. It was an old policy with a $100,000 death benefit. The cash value had built up to around $42,000. Since it was a universal life policy, it was invested in the stock market.
John had two goals. First, he didn’t want to make any more payments to the policy, and second, he didn’t want it exposed to the stock market. If he cashed it out he would pay tax on the $42,000 — not a good result.
Working with DPL, they took that data and shopped these facts out to the dozen or so companies they work with. We found a way to take that cash value and roll it into another policy with a $140,000 death benefit. He doesn’t have any more funding requirements, and we can remove the risk of the stock market.
How can we do that so cheaply? Because we have removed the commission from the cost structure. Remember that commissions typically account for 80% of the cost in a life or annuity contract. We roll the cost savings into his investment, and for our trouble we charge a small one-time fee (which is clearly disclosed).
We increased his death benefit by 40% at no cost to him!
EXAMPLE #2 – A locked-in rate on CDs means growth without the risk of loss
Karen had a different issue. She was tired of the paltry rates on her CDs. If the rates got any lower she would have to start paying them.
So we were able to find an annuity contact that guaranteed her principal and gave her a return of up to 5% per year.
If rates go up in 5 years, we can rewrite her contract and give her a better rate.
If rates fall, then her rate is locked in.
The value of her investment gets stepped up every year and is locked in. The investment is tied to the stock market, but if it goes down, her principal never falls below the locked-in amount.
She has peace of mind and can still make a decent return.
Trusted partners make a big difference in the finance world
As time passes, I expect we will have access to even more products and options. Now when I call with an idea for a product, I have a partner who doesn’t laugh. They say, “Let’s see what we can do. Maybe we can design something for your clients.”
So if you have an old annuity, life policy, or CD, reach out to us!
There’s no cost to you. And if we can’t improve your situation, we won’t do anything. No harm. No foul.
I’m pretty sure we can improve your no return CD situation as well.
So give me or Robbie a call at 217-824-4211 or visit our contact page. We’re happy to talk with you and see how we can improve your situation