Podcast

Episode 122: Getting Smart About Medicare Options With Ryan McMillan

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Brace yourself for another few months of continual Medicare ads on television during open enrollment. I can almost guarantee these ads will cause one of your clients to call you with questions about their coverage. Can you answer the question?

Today’s guest is Ryan McMillan, Vice President of Sales for Senior and Individuals at Bankers Fidelity Life Insurance Company.  Ryan will prepare you to at least help your client ask better questions this year and help them sort through a wide range of options.

Do you want to get regular updates on news from Ryan and other guests of our show? Scroll down and enter your email under “Receive Updates” to subscribe to our newsletter.

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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersEpisode 122: Getting Smart About Medicare Options With Ryan McMillan
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Episode 121: Helping Life Insurance Agents Explain Annuities with Jeff Affronti

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Many older clients who need life insurance can also benefit from annuities. However, many life insurance agents feel they lack the expertise to integrate annuities into a comprehensive plan.

Today, Jeff Affronti, President of FSD Financial Services shares his thoughts on how to best help life insurance agents identify opportunities for annuities and effectively present solutions to their clients.

Do you want to get regular updates on news from Jeff and other guests of our show? Scroll down and enter your email under “Receive Updates” to subscribe to our newsletter.

Thank you to our show sponsors; The Index Standard!

Fixed Index Annuities and RILAs are getting more complex and technical just when fiduciary rules are getting stricter. How do you choose the right index and allocate to them? The Index Standard is your answer. They are an independent provider ratings and forecasts on all indices and ETFs used in the US insurance space. Their process is systematic and unbiased, identifying robust and well-designed indices. We all know finance is complex and The Index Standard has a clear ratings system and uses approachable language to demystify this complexity. Visit theindexstandard.com for more information.

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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersEpisode 121: Helping Life Insurance Agents Explain Annuities with Jeff Affronti
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Episode 120: Riding the RILA Wave with David Hanzlik

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Registered Index-Linked Annuities or RILAs have taken the broker-dealer market by storm over the past several years. David Hanzlik, Vice President, Annuity and Retirement Solutions at CUNA Mutual joins us to reflect on the recent growth of the product and how it may evolve over the next 2 years.

Do you want to get regular updates on news from David and other guests of our show? Scroll down and enter your email under “Receive Updates” to subscribe to our newsletter.

Thank you to our show sponsor; CUNA Mutual!

Built on the principle of “people helping people,” CUNA Mutual Group is a financially strong insurance, investment and financial services company that believes a brighter financial future should be accessible to everyone. Through our company culture, community engagement, and products and solutions, we are working to create a more equitable financial system that helps to improve the lives of those we serve and our society. For more information, visit cunamutual.com/annuities.

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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersEpisode 120: Riding the RILA Wave with David Hanzlik
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Episode 119: Creating Authenticity, Innovation & Empathy In Insurance with Maria Ferrante-Schepis

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How can insurance carriers build an empathetic relationship with policyholders? How do we drive innovation in a stressful time within our companies and practices? Industry veteran Maria Ferrante-Schepis joins us today to share her view of the present and her hope for the future of the business. We hope you enjoy the show.

Links mentioned in the show:

Maria’s LinkedIn profile:
https://www.linkedin.com/in/maria-ferrante-schepis-03b4031b/

Flirting With The Uninterested: Innovating In A “Sold, Not Bought” Category:
https://www.amazon.com/Flirting-Uninterested-Innovating-Bought-Category/dp/1599323699/ref=sr_1_1?dchild=1&qid=1632963818&refinements=p_27%3AMaria+Ferrante-Schepis&s=books&sr=1-1

Maddock Douglas:
https://www.maddockdouglas.com/our-team/maria-ferrante-schepis

Do you want to get regular updates on news from Maria and other guests of our show? Scroll down and enter your email under “Receive Updates” to subscribe to our newsletter.

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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersEpisode 119: Creating Authenticity, Innovation & Empathy In Insurance with Maria Ferrante-Schepis
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Episode 118: Finding Meaning and Making Money with H. Adam Holt

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Today, we catch up with one of our first guests, H. Adam Holt, CEO of Asset-Map to discuss a wide variety of topics. He gives us a sneak peek of an algorithm his firm will release that will find the hidden gaps in your clients’ retirement plans. We also talk about the commitment that Adam and his firm have made to supporting diversity and inclusion in the retirement advice platform ecosystem. We hope you enjoy the show.

Links mentioned in the show:

Adam’s company:
https://www.asset-map.com/

Adam and Derek’s podcast:
https://rethinkfinancialadvisorpodcast.blubrry.net/2021/07/01/1-rethink-change-is-coming/

Do you want to get regular updates on news from Adam and other guests of our show? Scroll down and enter your email under “Receive Updates” to subscribe to our newsletter.

Thank you to our show sponsor, The Index Standard!

Fixed Index Annuities and RILAs are getting more complex and technical just when fiduciary rules are getting stricter. How do you choose the right index and allocate to them? The Index Standard is your answer. They are an independent provider ratings and forecasts on all indices and ETFs used in the US insurance space. Their process is systematic and unbiased, identifying robust and well-designed indices. We all know finance is complex and The Index Standard has a clear ratings system and uses approachable language to demystify this complexity. Visit theindexstandard.com for more information.

 Watch

 Listen

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Show Sponsors

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersEpisode 118: Finding Meaning and Making Money with H. Adam Holt
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Episode 117: Matching Your Practice Model To Your Client’s Psychology with Wade Pfau and Alex Murguia

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Last week, we explored the psychology of building a retirement solution for a client that not only delivers results, but also adapts to the personality traits of your client. This week, in part 2 of our discussion, Dr. Wade Pfau and Dr. Alex Murguia explore how advisors and firms should change their engagement strategy and even their service offerings to meet the exact needs of each client.

Also, do you want to get regular updates on news about Wade, Alex and other guests of our show? Go to https://thatannuityshow.com and subscribe to our newsletter. We hope you enjoy the show.

Links mentioned in this episode:

The Retirement Income Advisor Challenge on October 25 and 26 will allow advisors to learn more about what the RISA is, to take it, and to learn how they can incorporate it into their firms: http://risaprofile.com/challenge

Wade’s new book is the Retirement Planning Challenge. The RISA is discussed in Chapter 1:
https://www.amazon.com/Retirement-Planning-Guidebook-Navigating-Important/dp/194564009X/

General website for the RISA:
www.risaprofile.com/

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Show Sponsors

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersEpisode 117: Matching Your Practice Model To Your Client’s Psychology with Wade Pfau and Alex Murguia
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Episode 116: Finding Retirement Solutions That Stick with Wade Pfau and Alex Murguia

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What makes a retirement recommendation not only work but also stick for your clients?  Could it be a combination of personality traits and beliefs about the market? We were really fortunate this week to have Dr. Wade Pfau and Dr. Alex Murguia on to discuss their research on the topic. They walk us through the tool they have built to help decode what exactly makes our clients tick.

Also, do you want to get regular updates on news about Wade, Alex and other guests of our show? Go to https://thatannuityshow.com and subscribe to our newsletter. We hope you enjoy the show.

Links mentioned in this episode:

The Retirement Income Advisor Challenge on October 25 and 26 will allow advisors to learn more about what the RISA is, to take it, and to learn how they can incorporate it into their firms: http://risaprofile.com/challenge

Wade’s new book is the Retirement Planning Challenge. The RISA is discussed in Chapter 1:
https://www.amazon.com/Retirement-Planning-Guidebook-Navigating-Important/dp/194564009X/

General website for the RISA:
www.risaprofile.com/

 Watch

 Listen

Receive Updates



Show Sponsors

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

EPISODE TRANSCRIPT:

Paul Tyler:

What makes a retirement recommendation not only work, but also stick for your client? Could it be a combination of personality traits and beliefs about the market? We were really fortunate this week to have Dr. Wade Pfau and Alex Murguia on to discuss their research on the topic. They walk us through the tool they built to help to decode what exactly makes our clients tick. Also, do you want to get regular updates on news about Wade, Alex and other guests of our show? Go to thatannuityshow.com and subscribe to our newsletter. We hope you enjoy our show.

Ramsey Smith:

Today’s show is sponsored by our friends at The Index Standard. As many of you who listen to our show certainly know fixed index annuities and RILAs are getting more complex and technical just when fiduciary rules are getting stricter. So how do you choose the right indexes and allocations? You should consider The Index Standard. They’re an independent provider of ratings and forecasts on all indices and ETFs used in the US insurance space. Their process is designed to be systematic and unbiased with the goal of identifying robust and well-designed indices. We all know finance is complex. The Index Standard has a clear rating system and uses approachable language to demystify this complexity. Visit theindexstandard.com for more information.

Paul Tyler:

Finally, we want to thank our primary sponsor and my employer [inaudible 00:01:34] NASSAU financial group. Our tagline is working harder to be your carrier of choice. We support you with best in class service. We seek to keep things simple and we’ll have your back in the years to come. We’re headquartered in Hartford, Connecticut with 27 billion in assets and over a half a million policy holders. We’ve been doing this a long time, 170 years, but we remain humble enough to always try to improve.

Intro:

Welcome to That Annuity Show, the podcast that will make you an expert in explaining annuities to your clients. Give us 30 minutes each week and we’ll shave hours from your client presentations. Now here’s your host, Paul Tyler.

Paul Tyler:

Hi, this is Paul Tyler. And welcome to another episode of That Annuity Show. Ramsey Smith, how are you today?

Ramsey Smith:

Fantastic. Always glad to be here.

Paul Tyler:

Yeah and we’re we’re missing our other two co-hosts, Mark Fitzgerald and Will [inaudible 00:02:42]. They had other commitments, unfortunately, that prevented them from joining, but I know they were actually really looking forward to the discussion we had. By the way, Ramsey Smith, I actually, last night you can’t believe what I did. I actually went to a concert.

Ramsey Smith:

No kidding.

Paul Tyler:

A Sheryl Crow concert.

Ramsey Smith:

Nice.

Paul Tyler:

We have a local theater, that’s pretty well known in Westchester. She was there. We purchased, can’t make this one up tickets two years ago.

Ramsey Smith:

Wow.

Paul Tyler:

We finally showed up. What a different experience. So, go in, show our proof of vaccination, Yes, I am vaccinated. Everybody please get vaccinated if you haven’t. And we wore mask. It wasn’t like a totally packed place, but yeah, it was interesting. Why am I telling you this is because it actually did connect with her show. I mean, Sheryl Crow, I mean, she was great. She’s 59 and [crosstalk 00:03:39] doing this, right? Like, does this change our perception of what age is? And I was listening to one of her songs and I’m thinking, okay, I got to talk about this safe and sound. Okay. I don’t want to be lonely. I don’t want to be scared. And all our friends are waiting there until you’re safe and sound. And you think about our business. That’s what we do. We make people feel safe and sound, especially when they get that age. It’s a bracket. So I don’t know. Ramsey Smith, do you want to set this up? Am I safe and sound in retirement? Can you tee up our desks for our guests?

Ramsey Smith:

Well, one way to get on the right track is make sure that you’re learning from the right people. And we’re very lucky to be rejoined today by, by Wade Pfau, who has become a lion in the retirement industry and Alex Murguia. They work together at Retirement Researcher. Among many other things, they wear a lot of hats. Wade is a fellow Princetonian like you and me, Paul. So we’re always, always glad to have tigers on.

Paul Tyler:

Yeah, look, yeah, go tigers.

Ramsey Smith:

There you go. And you know, Wade has been a prolific writer. His most recent book is the Retirement Planning Guidebook, but what we’re here to talk about mostly today, or at least for this first segment, is to talk about a new platform that Wade and Alex have developed called RISA. And we’re very excited to talk about it because it deals with, very importantly deals with a lot of behavioral elements of the investment process. So with that, Wade, I’m going to turn it over to you. Tell us a little bit more about yourself, whatever I missed. Tell us about RISA. Tell us how about how you and Alex got together and then we can meet Alex too.

Wade Pfau:

Yeah, absolutely. Thanks Ramsey Smith. And so I do, as you noted, wear a lot of hats. My, one of my primary day job would be the RICP Program Director at The American College, where we have a three-course designation on the different aspects of retirement and complaining. And that really just speaks to in general, the research I’ve been doing. I basically write computer programs to test different retirement strategies and that really along the way, and with The American College as well, needing to be agnostic and starting to recognize there’s a lot of different retirement strategies.

Wade Pfau:

I’ve also been working with Alex. Now, I think it’s been about nine years on different functions and things and with McLean Asset Management, the RIA firm we work at and then Retirement Researcher. And now with the RISA that we’re going to be talking about today, it has been a great opportunity and really glad to be here today to talk about that and Alex, if you have an introduction for yourself

Alex Murguia:

Well, hello. Well, thank you for that, Wade. No, actually, just as Wade said, we’ve been working for a number of years. Every time you say that Wade, I’m getting to the age where I can say, “Wow, I’ve been here for X number of years.” I guess I’m officially on the other side of that hill to a large extent, but now Wade and I have had a great working relationship for about a decade now. And it was through his writings that again, he alluded to it earlier, I’m a Managing Principal of McLean Asset Management that I reached out to Wade. I think he was still in Japan. And just started a conversation with him and something that [inaudible 00:06:59] bear is saying Ramsey Smith had noted it and Paul as well. He’s a lion in the industry, but Wade is also one of the most unassuming, nicest folks you’ll ever meet.

Alex Murguia:

I mean, my honor is just to be able to call him a friend. He’s just an amazing, amazing person. And with that, we you hang on to people like that, that’s the reality. And we joined McLean Asset Management and we’ve been running ever since. And you know, we’re intellectually curious. And when we see something that there’s a little [inaudible 00:07:29] in the literature, in the profession, we start trying to fill it. And this is something that we’ve been doing within McLean, where we’ve taken that agnostic approach. I mean, we were frankly, the traditional AUM advisory firm. And now we’ve amplified beyond that simply because we feel that you need to provide the entire purview of services for a client. I mean, not doing so we thought was a gap and we needed to address it, but we also created Retirement Researcher from that, and that spawned from Wade’s writings in Japan, and that was the start of his block, but we realized, “Wow, Wade, we’ve got like X thousand number of readers and we’ve gone all into that to make that, in our view, this preeminent educational site for retirement research” and that’s done wonders.

Alex Murguia:

And we used that frankly, to segue into the conversation. We used that to start an investigation into retirement income beliefs. And so, at heart, I think I’m a tinkerer. I’ve done that through businesses. I mean, [inaudible 00:08:35] fancy, I’d say scientist-practitioner, but the reality is, we like to tinker with ideas and see how far we can push it. And this is one of the ideas that we seem to have a lot of runway.

Ramsey Smith:

So, you know, when I think about the body of work that you’ve already created, it’s sort of amazing that right here, right now, you’ve come up with something, something new. So very interested to hear about how you came up with a project, I mean, you sort of alluded too a bit Alex, but most importantly, what is it that RISA is doing that’s different than what you’ve done before and you know what you’re seeing your peers if you will doing. What is the main crux of what you think this is bringing that’s new and different?

Alex Murguia:

Wade, just because people came to hear you probably me. Why don’t I start with the methodology because then I can get that, that part out of the way, like what started it and then I’ll hand it off to you in terms of the concepts and so forth. Makes sense?

Ramsey Smith:

Sure.

Alex Murguia:

All right. I have just started really to answer the question. It depends. On Retirement Researcher, we were getting asked, our inbox would be full every day with somebody asking, “Hey, should I do this? Should I do that? Hey, should I have this allocation? or “Hey, should I buy this annuity?” or “Hey, should I do this with a bond letter?” And these are just straight up emails that we were receiving and you can’t answer that. You just can’t answer that without knowing the context. And ultimately our answers were always, “It depends.” And that wasn’t satisfying for us and I’m sure it wasn’t satisfying for the person receiving it, but we can’t, from a professional standpoint, we can’t do any, anything more than that.

Alex Murguia:

And so Wade and I were like, “Wait, what, what do you think that it depends really is?” As opposed to having it depends what can we get at is to find out what it really depends on? If you can do this or that?, and that started the study, figuring out what it depends. And we ended up at, we took Wade’s. He has a retirement income optimization map, where it’s okay, this is the sort of the map, if you will, for how to source retirement income. And we looked at it and we wanted to see. There’s nothing right or wrong here. It’s really about preferences. Which path you wanted to go on this map? And that’s the underlying assumption for everything that we’re going to say and talk about, which is, listen, we don’t think there’s this winner.

Alex Murguia:

There are many credible ways to get your retirement income done correctly. I think the person that says “This is the best way,” I think they have to check their assumptions. I think ultimately there are many ways to have a credible retirement income plan in the same way, there’s many ways to earn a living. There’s not one right way or wrong way. It’s just, it really has to do with your preference. So we started asking ourselves, “What are those preferences?” And we scoured the literature and we sort of compiled them into themes. And from there we have a very healthy membership, but at that point, it was probably 20,000 plus. And Wade and I wrote down 800 questions on things that it could depend on and we gave it to our readership.

Ramsey Smith:

Can I ask a question, 800?

Alex Murguia:

Yeah.

Ramsey Smith:

[crosstalk 00:11:53] Is that literally 800? Are you, is this somehow appropriately or did you literally create 800?

Alex Murguia:

I think it was 836, to be honest, something like that.

Ramsey Smith:

Okay.

Alex Murguia:

Because we were like, okay, let’s see what it [crosstalk 00:12:04] Right. No, no, there’s not that many now, but we just wanted to throw everything out there. What does it defend? We’re very thorough, Ramsey Smith. And from that we gave it, but to give you a sense of our readership, right? We actually were telling them what we’re doing. We just said, “Listen, we want you to just rate these questions and let us know if they’re good or not. Don’t answer them. Just let us know if they make sense.”

Alex Murguia:

And it took like probably two hours for them to look through, you do a SurveyMonkey, you send them out, you say, rate them, let us know, that kind of thing. And it came back and then we ranked them and then we reduced it to something like 330, something like that. So we’re not [inaudible 00:12:44] we reduced it to 330. And that was the start of the RISA. Yeah that was the start of the RISA and that was the start of me trying to go back to school for grammar, because I got so much feedback on my syntax on these questions that it just destroyed me personally. But from there we started the study, we gave it out and it came back and wait, I’ll hand it off to you in terms of what we started to find.

Wade Pfau:

Yeah. And I mean, this has really been a work in progress in terms of, as Alex was saying back about 10 years ago and I was still living in Japan, getting into retirement planning. I just started to recognize that you can ask someone a basic question and get a completely opposite answer on all these different fundamental issues like that. Do stocks become less risky over longer holding periods? Some people vehemently argue, “Yes.” Some people argue, “No.” Is there such a thing as a safe withdrawal rate from a volatile investment portfolio? Some people say, “Sure, you can look at US historical data and get your answer.” Other people say, “No, there’s really no such thing as that. And so that line of thinking, I started to who kind of classify, we have this probability-based approach, which is more of a total returns effort of thinking about. It’s like the 4% rule of thumb for retirement.

Wade Pfau:

You have a portfolio of 50% to 75% stocks. You invest in the total returns basis and you take distributions. And then on the other side, I called it safety first, where you’re looking more at “No, let’s build a floor for a core retirement expenses, essential versus discretionary, and then invest for the upside beyond that”. And that just kept going. I mean, we’ve had the Financial Planning Association talks about systematic withdrawals, which is the kind of what we call total returns, time segmentation, which is that bucketing approach, where I try to invest in bonds for the short-term stocks for the long-term, and then essential versus discretionary, which is the flooring idea that we talk about in the context of income protection or Risk-Wrap.

Wade Pfau:

And that’s kind of now leading to where we are today, where we know there are different retirement styles, but there was really never anything to assess, which is appropriate for which person. If I’m somebody approaching retirement, am I comfortable investing in a 60-40 portfolio and taking distributions from that and relying on market growth? Or am I somebody who would prefer to have contractual protections?

Wade Pfau:

And so as Alex was saying about the 800 questions into 300 questions, and then now into where we’re at today, we recognize there are six factors that can help to identify someone’s style that they’re, they express distinct characteristics people have. And then of those six, two of them are, are particularly important. They help us to really start to outline people’s styles in terms of how they approach the retirement decision. One of those, we gave the name of the probability-based safety first. It’s I’m comfortable relying on market growth, or I prefer to have some sort of contractual protection. And then the other big factor was like commitment or optionality.

Wade Pfau:

I want to commit to a strategy and feel like I can check that off my to-do list and, and have something that I know is going to work for my plan, or I really just want to keep my options open as much as possible. [crosstalk 00:16:03].

Wade Pfau:

And then as we start looking at that, we see, well, these retirement strategies that we’ve known about, they really start to make sense in the context of different combinations of these preferences. And then you can also build up this story with the, I said, there are six total factors. So the four secondary factors help to tell that story as well, but you can see how the existing retirement strategies we have really fit into that kind of dynamic and framework.

Paul Tyler:

This is fascinating. I mean, Alex, to your point questions, oftentimes I find are more powerful in the answers. You know, answers are usually easy to find. Did you ask the right question in the first place? So wait, as you look through the results, did you kind of look through and say, “Wow, our model matches some of these other more famous personality models, like the [inaudible 00:16:56]

Alex Murguia:

[crosstalk 00:17:01]

Paul Tyler:

Yeah. The disk. Yeah, the ocean. Was there anything you found that sort of said, “Ah, this, this kind of matches this personality test and I put this together and this explains it.”

Alex Murguia:

You had a gentleman on the show a few weeks ago that talked about the Big Five and things along those lines. What we did with this and my background is a Doctorate in Clinical Psychology. I was more a researcher than a practitioner. And I did quite a bit of Psychometrics from that standpoint. And what I always prefer is to just ask directly how they feel about a certain subject. I like to be very localized as opposed to not that it’s wrong or right, but you’re an extrovert, so you’re high on [inaudible 00:17:48] will equate to a 30% fund allocation. I’m not a big fan of that. From that standpoint, we prefer to be a lot more localized with what we’re asking. So the questions that we asked were not that general. And frankly, we did ask quite a number of psychological variable questions such as numeracy, Dunning-Kruger, which is self-awareness. We created our financial bias scale, self-efficacy with regards to retirement income, but that’s another sort of realm if you will, from that standpoint.

Alex Murguia:

So the long answer is no, we didn’t find those kind of connections, but because we didn’t really source for them, but we were able to find preferences that were quite strong and were more trait like, from that standpoint as opposed to states.

Wade Pfau:

Yeah. And where this fits in as well. So we’ve had like the risk tolerance questionnaire idea, but that was really always an accumulation tool. It’s we know, I mean, Harry Markowitz, who developed modern portfolio theory and it kind of recognizes, it was never designed for the household problem. It was really how do I seek a risk-adjusted return if I’m only investing, I don’t take distributions from the portfolio and there’s not really a sense of, and I have a finite, but unknown retirement that I’m trying to take those distributions over. And so the risk tolerance questionnaire, it was not designed at all for retirement, but it was the only tool out there. And it really presupposes. Everyone wants a total return investing strategy and there was nothing else out there about. Well, no first, I mean, we’re not saying there’s no role for risk tolerance questionnaires, but first, what’s your style?

Wade Pfau:

How do you want us source retirement income? And then at some point, most of the retirement strategies will include an investment component and you need the risk tolerance questionnaire for that component, but that’s not the starting point. You first need something broader to recognize how does somebody want to source a retirement income strategy? Do they like what resonates with them? The story behind total returns, the story behind bucketing, the story behind having safe, reliable, protected, lifetime income through the annuity. You really want to get a sense of that as a starting point to have that conversation. And then the rest will be able to be built up from there.

 

Speaker:

Yeah [inaudible 00:20:07] to follow up on that, that question as well, apart the way we look at, it’s not so much from the Big Five personality, but more like a strength finders, if you will, that help you sort of begin to think about what role within your employment you may thrive in. I may be butchering that, but yet something along those lines.

Alex Murguia:

Well, we’re trying, we’re playing with that concept with regards to retirement income. How do you want to earn retirement income? And there’s four strategies. And so these factors, probability, safety, first, optionality commitment. Really that was our aha moment. We initially wanted to just quantify retirement income beliefs. We wanted to have the right to say, there is such a thing as probability-based, there is such a thing as safety first, we can quantify that and there may be some safety first cops here, and we concede nothing is completely safe, from that standpoint.

Alex Murguia:

But our view is contractual obligations are more certain if you will, on a relative basis than the probability of some asset will go up, so you can take a sustainable withdrawal. I just want to get that one out of the way. But by being able to really capture these preferences, our aha moment was, wow. These actually lead to strategies. These strategies that are out there make sense. And we didn’t envision that at the beginning, but it just like slapped us in the face, while we were going through it. Wouldn’t you just say Wade, when we were like, I remember that meeting, we were speaking to each other and we were like, “Wait, take a look at this. Can you believe this?”

Wade Pfau:

Yeah, I think it’s probably worth walking through that of just that, that process we went through with how these factors identify strategies and also how some of our strategies are more behavioral in nature that were developed to meet certain preferences that might fall outside the natural realm of like correlated preferences.

Ramsey Smith:

Let’s do it. You tee it up, let’s go.

Wade Pfau:

Yeah. Yeah. I mean, so there is a correlation. If you like to have a lot of optionality, you also tend to be more probability-based, which is you’re more comfortable relying on market growth. So you do have this first category, the optionality and probability-based, that’s a total return investing strategy. That’s having that diversified investment portfolio and taking distributions and investing from a total returns basis is with secondary factors. There’s also an element of you have more of an accumulation mindset where you’re focused on portfolio growth, more so than predictable income. You have more of a technical liquidity mindset and you’re more of a front loader. You prefer to like, get your spending done early in retirement when you know, you’re still healthy. And that’s one of the core strategies.

Wade Pfau:

Then the other core strategy from that, we call income protection. And that’s these elements of your safety first. So you desire are these contractual protections more so than relying on market growth. You’re more comfortable committing to a strategy with the secondary characteristics. You have more of a distribution mindset. So you’re thinking more in terms of having predictable income over just having like the highest possible growth for your portfolio. You’d like to have a perpetual income floor. You think more in terms of true liquidity, which is just even though a brokerage account may be liquid, if you’ve already earmarked it for some other use, you can’t really say it’s truly liquid for your financial plan.

Wade Pfau:

And then also you have more of a backloading preference. Like you have more longevity risk aversion. You’re worried about outliving your assets. And, therefore, you want to put more effort into ensuring that if I’m 90 years old, I still have some money left.

Wade Pfau:

And that’s the flooring income protection, more the world of either like a SPIA or a DIA or a fixed index annuity with a principal protection and a living benefit attached to it. And those are the two core strategies.

Wade Pfau:

And then the other two strategies are more this like behavioral idea, like bucketing, time segmentation. That was always a play on, on the behavioral aspect of people kind of thinking if they can leave their stocks alone for a few years, because they have bonds to fund their short term expenses, they’ll be okay.

Wade Pfau:

Well, that corresponds to people who want contractual protections, but they also want optionality. And those two ideas don’t always coalesce. I mean, if you want a lot of optionality, it’s hard to sign a contract. But time segmentation really was a behavioral strategy developed to help meet those desires, those conflicting desires. And you do that again with you make the contractual protection, not with lifetime income, but with just a short-term, holding individual bonds to maturity covering the upcoming expenses-

Speaker:

Could also be a [inaudible 00:24:35]

Wade Pfau:

…letting your stocks ride. Yeah. I mean with annuities as well. You’re probably not thinking there in terms of lifetime income, but a fixed index annuity as an accumulation tool, [inaudible 00:24:45], those can play an important role in that sort of strategy as well.

Wade Pfau:

And then the other behavioral kind of strategy is, is Risk-Wrap. And that’s you want to rely on market growth. You also want to commit to a strategy. You also there do have more of this back-loading preference, you have more longevity, risk aversion, so forth. And that’s the whole world of differed annuities with living benefits. You can still have upside potential, especially with like a RILA, with the variable annuity that allows for a more aggressive asset allocation as you want it, even in some cases within an FIA, but this is probably more focused on, you’re going to be willing to accept some downside risk to get more upside potential.

Wade Pfau:

Because you do have more comfort relying on market growth. You are more probability-based, but you are more also want to commit to a strategy. You have the back loading. Your longevity risk-averse. You don’t want to outlive your assets. So you want that lifetime income protection. And that’s exactly really the story of deferred annuities with living benefits and how they’ve developed, especially since the 1990s to meet these kinds of conflicting type characteristics that people have.

Wade Pfau:

And so these preferences and that we identified is just like where Alex and I were saying it. It’s really amazing how well they align with existing retirement strategies and how we can then tell that story. And that’s then helping to better place people and the type of approach that’s going to resonate with them. Or at least it’s going to be the starting point for the conversation. They might disagree. And for whatever reason say they want to do something different, but at least you’ve got a great starting point for a conversation about here’s what your results show. This may be, how you best prefer to source your retirement income. Let’s look at it this way.

Speaker:

Wade, just because you’re on a role, you may want to consider too the whole concept of everyone gets a seat at the table and just the frequency distributions of this. How is this representative across a normal population?

Wade Pfau:

So right now we’re working with the Alliance for Lifetime Income. They’re doing a national survey. So we can talk about this from the perspective of the US population soon. Right now, our perspective is the 1500 readers at the Retirement Researcher, who are not necessarily a random sample of the US population. But what we were seeing was approximately about a third of the population is total returns. And that’s important to just reflect upon for a moment because really the whole so much of consumer media and the way retirement planning is pitched to the general population. It’s very much focused on total returns and that kind of approach really only fits about a third of the population. And then about a third of the population is income protection and that’s more of the, like the full annuity type story, you’re really more committed to possibly annuitizing the contract and getting the lifetime income that way.

Wade Pfau:

And then about a sixth of the population is more of a time segmentation bucketing approach. And about a sixth of the population will have more of a preference for, what we call the Risk-Wrap, which is getting that lifetime income through the deferred annuity with a living benefit.

Ramsey Smith:

So this is fascinating and it’s fascinating because we talk so much about out the importance of financial education and I’m sure all of us in our conversations with whether with advisors or with consumers, we sort of, empty our coffers of all the years of experience we have between the four of us. I’m sure we like we give people everything we have because we want the best for people, right?

Speaker:

That’s what this podcast we’re doing right now.

Ramsey Smith:

Right. Exactly. But, but what’s often strikes me is you’ll have a conversation with somebody. You’ll give them the absolute best most objective advice you can think of. And then you find out later what they did and you’ll find the thing, sometimes they do nothing. Sometimes they do everything. Sometimes they just take some part of what you advised. And ultimately it’s not really a conflict of intellect, right? It’s a conflict of style, right? [crosstalk 00:29:00] And so that’s sort of, what’s interesting about this finding is like the most important thing to figure out is before you do anything in is like, well, what style of person am I talking to so that we can have a conversation that’s likely to yield to some action.

Alex Murguia:

I think that’s a 100% percent [crosstalk 00:29:15] I think quickly what happens. I think what we’ve gotten used to, I think advisors tend to be more engineer like, and optimizing for the highest balance sheet number at the end of life, kind of, but the reality is-

Ramsey Smith:

And the highest AUM in the interim.

Alex Murguia:

…yeah, yeah, yeah. You said it. I mean, but there’s this optimization and the reality is, is there’s two sides to that coin. The advisors are obviously a human being. They have their own profile. They have their own preference. And so they when somebody walks through that door, are they optimizing for the preference that they want? Remember the underlying assumption for the entire argument is there are many ways to get this, right?. Okay. So when someone walks through your door, are you just, and, and this goes for, if you just sell annuities and nothing else as well. But [crosstalk 00:30:04] Are you just telling the story that optimizes for your own profile business model suck for your own profile or are you taking the time to just empathize with the client and figuring out how does that person want to optimize retirement income? Let me open up my toolbox and now provide the right solution set. That’s there it is. That would be my comment to your comment.

Alex Murguia:

In addition to empowering the individual, to let them know that, “Hey, you don’t just because you walk through the door of somebody doesn’t mean that whatever they tell you is, is the way to go. There are many ways to do this correctly. You have your certain style, figure that out, and then you can begin the process of analyzing.”

Ramsey Smith:

What they’re telling you is good or bad, right? Again, it comes back to this sort of style conflicts. So you bring up this very interesting notion of like it sounds like you’re focusing on determining the style of clients, but I wonder if it makes sense to also determine the style of advisors as well.

Alex Murguia:

There is absolutely, we’ve given, as word has gotten out, we’ve gotten a lot of inbound.

Ramsey Smith:

Yeah.

Alex Murguia:

And so I’ve noticed folks that want to take this, we, we demo it. And so we give it to people. So folks that come from the insurance side, the annuity side of the business, guess what quadrant they’re at. Folks that come from the investment side of the business that are professionals, guess what quadrant they’re at? [crosstalk 00:31:27] You’re absolutely right. Now you could say, is that because of, or do these people naturally, gravitate towards these industries because that’s their own personal proclivity. As an aside, I’m income protection and Wade is more in the Risk-Wrap. And so I don’t think lesser of him. No, I’m kidding. But you know, it’s fine.

Wade Pfau:

Yeah. I mean, each strategy has a story and it’s really which story do you resonate best and find most compelling. And yeah I do. when I’m presenting this to advisors, I say it’s important to understand your own style as a starting point, and then understand whether, I mean, when we do get pushback on this thus far, it is from people who do believe there is just one superior retirement strategy and that all the others are garbage. And so trying to say, someone should try something else is inappropriate to even talk about that. [crosstalk 00:32:21] But I’ve seen that from total returns people. I’ve seen that also from like time segmentation people. Haven’t seen it a lot yet from the annuity world, but no, that’s we’re starting from the point. I mean, I have my personal preferences, like Alex said. I resonate better with the Risk-Wrap story with the deferred annuity, with the upside potential, but still having the living benefit.

Wade Pfau:

I don’t resonate with the time segmentation story. I don’t think that if I had five years of bonds to cover me that my stocks are going to be perfectly okay with a five-year holding period before I have to tap into them. But I still think it’s a viable strategy. And if that’s what someone resonates with, I’m comfortable talking about it as a viable strategy. So advisors need to think about if you really want to serve one strategy, that’s fine. And then you can kind of use this to identify who’s the most appropriate people for you to be talking to, or like the approach, we have taken and [inaudible 00:33:16] let’s try to be more holistic and be able to serve all the different styles so that we can meet people where they are and give them the right strategy.

Ramsey Smith:

Paul, you’re on mute.

Paul Tyler:

Sorry. Yeah. A little bit of work going on the other, other side of the house here. So this is really interesting. So we’re going to have, we’ve got kind of uncovered two tracks. One track is Paul has his identical twin, same age, you know, same assets, different personalities. Wade and Alex, what I’m hearing is, it may be much more easier for each of us to have a very different structured retirement portfolio for our personalities to actually embrace and adopt. Wade am I right in, in stating that?

Wade Pfau:

Absolutely. And before that conversation was more, maybe you should be 70% stocks and your brother should be 30% stocks.

Paul Tyler:

Yes.

Wade Pfau:

But this is, no, it goes a lot further than that.

Paul Tyler:

Yeah. So Ramsey Smith, we could almost do a separate conversation here and talk down the track you’re headed with the advisor. Does that make you know?

Ramsey Smith:

Sure. Sure. We can make this a two-parter. We can go the chapter two.

Paul Tyler:

Why don’t we do this? I mean, Alex, you want to just so far our listeners, we got you here. We’ve got a lot of great content. I want to make that when people get to wherever they’re going, they’re listening to stuff. They know that they can, there’s got something else next week to listen to. Alex, [inaudible 00:34:49] it up? So you did a little bit, but like what did your findings really focus on in terms of like the advisor selection?

Alex Murguia:

Sure. There was another part of this where I think Ramsey Smith had asked me, does this resonate like with the, is this similar? Does it echo a DISC or does it echo Big Five personality traits and things along those lines.

Alex Murguia:

As part of the study, in addition to retirement income beliefs and something just cause I got to get in there. With regards to the RISA, not only did identify styles, it was actually predictive of annuities. If you were income protection and along those lines, there was a significantly high probability that you had that strategy. So there was a lot of validation going on in that as well. But as part of the study, sorry about that segue. As part of the study, we also included a lot of psychological variables and we noticed, and again, I’m a big fan of being very localized when we ask a question.

Alex Murguia:

So instead of just general self-efficacy, I want to know about retirement income self-efficacy for that standpoint or instead of overconfidence, I want to know specifically about this particular subject matter. And so we included in there because I think you have to control for these factors when you do these types of analysis. And we also control for age, gender, marital status, net worth, and the RISA factors were significant controlling for all of that. And we did compare it with loss aversion. Loss aversion just trailed away, pretty quickly, but we included a lot of psychological variables. And so we created scales around that, created them, validated them, etcetera, etcetera. And we did, we created a retirement income self-efficacy scale and what we were getting at there and different from like general confidence. Confidence is more generalized across many items.

Alex Murguia:

If you will, I’m a confident guy. I can do anything. Self-efficacy is a concept that’s a little more localized with regards to what you’re measuring. I’m confident, but you know, when it comes to self-efficacy for home repairs, forget it. I’m just not there from that standpoint. So we created a scale around retirement income self-efficacy. How well do you think you can overcome the challenges that you will see with regards to retirement income? So we’ve created a scale around that. We created an advisor utility scale, an advisor usefulness scale, which is how useful is an advisor from a cost effective standpoint. Sure everyone can say, look, an advisor will help you [inaudible 00:37:21] advisors, et cetera, et cetera, et cetera. We wanted to just put it out there. “Hey, how useful do you feel an advisor is relative to the cost?”

Alex Murguia:

I don’t know about you folks, but you know, anyone that walks through McLean and we’re talking, if they really don’t believe an advisor is useful, you can show any Morningstar study you want of advisor [inaudible 00:37:39] and all of that. I’m not persuasive enough to convince anyone differently. So I just want to know where they’re coming from. I think that’s a better angle, at least from our standpoint.

Alex Murguia:

So advisor usefulness, advisor self-efficacy as a side note, we created a financial bias scale. We took a bunch of heuristics and actually we thought we were going to get a lot of different biases, but they just seemed all closer together within the financial, within the factor analysis view. So there really was a big like financial heuristic scale we created, numeracy, how well they are with the [inaudible 00:38:11] concepts, a concept known as Dunning-Kruger, which is, you don’t know what you don’t know kind of vibe. Where you ask from the numeracy, how well you think you did. So we took that and we measured inertia. Once you know that you have to deal with an issue, how quickly do you turn that around?

Paul Tyler:

So, sorry. [crosstalk 00:38:30] go ahead. Yeah, let’s cut. Ramsey Smith makes sense to cut here. I think, but we’ve flooded appetite to listen next week’s episode. Does this make sense? [crosstalk 00:38:40] All right. And so I’m going to, we’re going to leave you hanging. Okay. This is our cliffhanger. Okay. So stay tuned. Same podcast channel, same annuity station.

Paul Tyler:

Exactly. And we’ll be right back and we’ll continue this discussion. And I can’t wait to hear the next session. So thanks and thanks for joining us and tune in next week. Thanks a lot. Alex, Wade, thanks so much. And we’ll continue from here.

Outro:

Thanks for listening. If you’ve enjoyed the show, please rate and recommend us on iTunes, Stitcher, Overcast, or wherever you get your podcast. You can also get more information at thatannuityshow.com.

Ashley SaundersEpisode 116: Finding Retirement Solutions That Stick with Wade Pfau and Alex Murguia
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Episode 115: Building Real Policyholder Relationships with Molly Black

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Carriers spend a lot of time talking about building strong policyholder relationships but how many actually have? Molly Black, Chief Product Officer at Life.io joins us today to talk about how her company makes those relationships a reality. What can we learn from their software design that we can apply to our own practices today?
Also, do you want to get regular updates on news about Molly and other guests of our show? Go to https://thatannuityshow.com and subscribe to our newsletter. We hope you enjoy the show.
Links mentioned in this episode:

 

Thank you to our show sponsor SE2!

SE2, an Eldridge business, is a leader in the US life and annuities insurance technology and services industry. SE2 uniquely combines the maturity and peerless industry knowledge of its 125+ years of life insurance industry heritage with its end-to-end digital platform to enable the rapid launch of new and innovative products through existing as well as digital channels.

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Show Sponsors

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Nicholas BreniaEpisode 115: Building Real Policyholder Relationships with Molly Black
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Episode 114: We Love Annuities with Sheryl Moore

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Summer is almost over. What’s the outlook for the annuity industry as we head back to our (virtual) offices? Sheryl Moore is the perfect guest to provide us with predictions and savvy forecasts. She graciously joins us today to talk about changes in carrier ownership, product design changes and regulatory evolution.
Also, do you want to get regular updates on news from Jerry and other guests of our show? Go to https://thatannuityshow.com and subscribe to our newsletter. We hope you enjoy the show.
Links mentioned in this episode:

 

 Watch

 Listen

Receive Updates



Show Sponsors

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

EPISODE TRANSCRIPT:

Paul Tyler:
Summer is almost over. What’s the outlook for the annuity industry as we head back to our virtual offices? Sheryl Moore is the perfect guest to provide us with predictions and savvy forecasts for the rest of the year. She graciously joins us today to talk about changes in carrier ownership, product design changes and regulatory evolution. Also, do you want to get regular updates on news about Sheryl and other guests of our show? Go to thatannuityshow.com and subscribe to our newsletter. We hope you enjoy the show.

Paul Tyler:
SE2 and elders business is a leader in the US life and annuities, insurance technology and services industry. SE2 uniquely combines the maturity and peerless industry knowledge of its 125 plus years of life insurance industry heritage with its end to end digital platform to enable the rapid launch of new and innovative products through existing, as well as digital channels. They also happen to be great partners of Nassau Financial Group, the anchor sponsor for That Annuity Show. SE2 is helping them transform their company for the next generation of service.

Paul Tyler:
We’d also like to thank our sponsor CUNA Mutual Group, built on the principle of people helping people, CUNA Mutual Group is a financially strong insurance investment and financial services company that believes a brighter financial future should be accessible to everyone. Through its company culture, community engagement and products and solutions, the company works to create a more equitable financial system that helps to improve the lives of those they serve and our society. They’ve been also been great collaborators on this show. For more information, visit cmannuities.com.

Paul Tyler:
Finally, we want to thank our primary sponsor and my employer by day, Nassau Financial Group. Our tagline is working harder to be your carrier of choice. We you with best in class service, we seek to keep things simple and we’ll have your back in the years to come. We’re headquartered in Hartford, Connecticut with 27 billion in assets and over half a million policy holders. We’ve been doing this a long time, 170 years, but we remain humble enough to always try to improve.

Intro:
Welcome to That Annuity Show, the podcast that will make you an expert in explaining annuities to your clients. Give us 30 minutes each week and we’ll shave hours from your client presentations. Now here’s your host, Paul Tyler.

Paul Tyler:
Hi, this is Paul Tyler and welcome to another episode of That Annuity Show and we’re rapidly approaching the end of the summer. I tell you, it certainly doesn’t feel like that from the pace activity in the industry, at least our company. But Ramsey, good to see you.

Ramsey Smith:
Always glad to be here.

Paul Tyler:
Excellent. Well, I don’t know. It feels like I’m living in Atlanta here in New York today with the storm weather coming through here. Mark, how are you?

Mark Fitzgerald:
Well, I’m doing great. How are you doing today?

Paul Tyler:
Excellent. Excellent. Ready to sell more annuities here in the next… When everybody gets back from Labor Day with you. So mark, we have a great guest. Do you want to do the honors this time?

Mark Fitzgerald:
Absolutely. And speaking of the ability to be able to sell more annuities, we have none other than the annuity rockstar with us, Sheryl Moore, who’s been on our show a couple times in the past and I think everybody in the industry really knows the work that she does and the research that she provides and appreciates all of her insight in the marketplace. So Sheryl, very, very happy to have you out with us again today.

Sheryl Moore:
Thanks for the warm welcome mark. I appreciate it. And Paul Ramsey, I appreciate you too. Letting me on the show gives me another opportunity to educate people about these products and make sure that people understand how they really work. So thank you. I’m very appreciative.

Paul Tyler:
Oh, thank you. Yeah. And I don’t know, Ramsey, do you want to lead off?

Ramsey Smith:
Sure. So first thing I want to say is Sheryl, it’s just great to have you on the show. So the key thing about the show is we’re lucky enough we provide a platform and we’re lucky enough that great voices like yours come on. So you are doing us a service here. Thank you. Thank you very much for that. So look, you have the benefit of, of seeing so much of this industry, you have a fantastic network, you have unparalleled data and so that there’s a level of access that you have that many of us don’t. So we’re hoping to sort of tap into some of that today and hear your thoughts on so many things that are going on.

Ramsey Smith:
So one of the things that we talked about just prior to the show was what’s happening in terms of the change in ownership structure in the industry. So we’re seeing some movement away from traditional stockholder companies. For example, we’re seeing a greater footprint for private equity companies. What are you seeing? What do you think are some of the pros and cons there for the industry going forward?

Sheryl Moore:
Well, I got to be honest with you Ramsey. This is a scary time for me because I’m seeing so many companies getting out of the annuity market and out of the life insurance market too. And just to help benefit our audience, I’ll give a simple example of why this is. So when I got started in this industry about 23 years ago, the insurance company that I worked for had fixed annuities that had minimum guaranteed interest rates of 5% and they were crediting double digit interest rates at that time. Now, since then, the double digit interest rates have come down just because the investments have required that. But if you’re an insurance company that has a block of annuities on their books that’s paying a 5% minimum guaranteed interest rate, But the 10 year treasury, I think when I looked at it this morning was at 1.26%, do you really want to be taking a loss of almost 4% on that business?

Sheryl Moore:
Now take into account the structure of a stock held company and ask yourself do your stockholders want that? Are they comfortable with the idea of you losing money on this huge block of business? So we’re seeing insurance companies shed those in force blocks of business and sell them off. Private equity firms often have the ability to achieve higher returns on their investments because of their expertise. So we are seeing some more PE come into the business, but quite honestly, I’m scared because when we see less companies, that means less choices and less competitiveness as well.

Paul Tyler:
Well, and Sheryl, do you think that the timing is driven by the nature of the capital or do you think just to continue where you were headed, is it really a matter of timing like who owned the companies and blocks of businesses that were issued 10 years ago in a totally different marketplace and really the only option is to exit and let somebody else sort of manage the block from here?

Sheryl Moore:
I think it’s really a perfect storm of the market environment. I mean, we have so many investment companies that are not able to achieve of same returns that they used to be able to more than a decade ago, certainly before 2008 when the market collapsed. But we also have these historical low interest rates on safe money instruments, general accounts are not kicking off a lot of interest for insurance companies. And that spells opportunity for a lot of these bigger investment firms that think that they can get in here and create a higher return and create some value. So I also think that a lot of insurance companies are just getting to the point where it’s like we’ve been hoping it’s going to be get better, we’ve been hoping it’s going to get better and things are not improving.

Sheryl Moore:
And especially when you look at come countries like Japan where they’ve been in a negative interest rate environment for years. So looking at that as a potential for the future for us, a lot of stock held insurance companies are just saying we can’t do it anymore. There’s got to be another solution. And if you’ve got a bunch of investment firms that are saying woowoo over here, we’re interested in buying, it’s really a unique and symbiotic relationship that’s occurring, but market environment is really what’s driving it in my opinion.

Mark Fitzgerald:
How much play do you think demand is coming into it as well? So if you look at the demographic out there and more and more folks going to retirement, obviously the demand for these products is increasing. You think that’s going to bring a lot more private equity in looking to wire or start up even?

Sheryl Moore:
Well. I’ll tell you where I see more of that, Mark. Right now, one of the biggest trends in the indexed annuity market and starting to creep into the structured annuity market is what I call hybrid indexes. These are often proprietary, sometimes bespoke or created specifically for the annuity, often volatility controlled, but I call these hybrid indexes because they usually are multi acid indexes which are created from one or more other indexes and then have a cash or a bond component in them. And the reason these are popular is because these are usually brand new indexes without a lot of history and so the option pricing is favorable and we’re seeing a lot of investment banks that are sponsoring those indexes or creating those indexes and certainly companies that have private equity ownership have been able to achieve some economies of scale with those hybrid indexes because of their investment arms and what they can kick off in terms of returns.

Sheryl Moore:
So I tend to see a correlation between private equity backed companies and those hybrid indexes being more popular. But I’ll say that’s a trend that’s affecting the entire index annuity industry as a whole and creeping into the structured annuity market.

Paul Tyler:
So Sheryl, if I’m an independent agent, how should I feel about private equity firms? Should I be worried?

Sheryl Moore:
Paul, I think it’s basically like any other insurance company. I mean, personally speaking, I don’t like to say who I do business with, but I have business with companies who have private equity backing and I have one of them who does a fantastic job. And in fact, I’ve owned business with them since before pro private equity firm bought them and I’ve never had problem with them. And everything has been run since they were bought by the PE firm like it was prior to the PE firm buying them out. So that said, I also have some business with a company that I used to work for who is now owned by private equity and they lost my annuity at one point, so. And let me tell you that was a really interesting conversation when they were trying to convince me I’m an old lady and I don’t know what I’m talking about because I don’t own an annuity with them.

Sheryl Moore:
So I would just say it’s just like choosing any company. Doesn’t really have to do with the private equity backing. There are good companies and there are bad companies. I think if you’re an independent agent, the best thing you can do is really network with other agents and ask them hey, I’m considering getting appointed with this new company that I don’t previously have a contract with. What’s your experience with them? How have they treated you? How have they treated your clients? What has been your experience with them crediting rates on the in force business that exists with that company? So really independent agents have to advocate for themselves today and this is no exception to that.

Mark Fitzgerald:
So how about going back to the bespoke indices that you were talking about a moment ago, I mean, in the last four or five years, they really exploded in the marketplace, really hitting broad bases of product lines out there. Do you think that those will continue to evolve, develop, go into more and more products out there?

Sheryl Moore:
Yeah. When they first came out, I was telling everybody, this is a fad, this is a trend. It’s going to go away as soon as the market comes back and the 10 year treasury is up to a reasonable level because the way that our businesses is very cyclical and the index annuity market has shown in the past. You remember when we had like 145 different ways of crediting interest on an indexed annuity? I remember at one point, I’m not going to name the carrier, but they start with an A, and they really needed visual aids to help describe how their indexing method work. And I’m like ugh, come on guys, it shouldn’t be that hard. I mean, we need to keep this story simple.

Sheryl Moore:
Well, eventually everything went back to the S&5 500 annual point to point with a cap because that’s what’s most simple in our market in terms of indexing. So that’s where I was projecting things will go and I’ll still stand next to my prediction. It is going to go back that way. It’s just going to be a lot longer time before we see that, Mark. So for anybody who’s saying I don’t understand these and I’m just sticking to my S&P 500 or my Dow Jones Industrial, I’m going to say, this is going to be a trend that’s here to save for quite a long while. And if you start to see the 10 treasury ticking up in a meaningful and significant way, we may see less of it, but keep it real, Mark. I mean, when you have your insurance company’s name associated with a product like an annuity that most people have never heard of, but then you can get a big popular brand name stamp of approval from a giant investment bank that almost all Americans have heard of, what seems bad about that from the insurance company standpoint?

Paul Tyler:
Yeah. Well, look, let’s talk about one other market and markets seem to just be going up and up and up, right? I think that certainly is going to fuel the indices. Same time, we talked about this before the show, Sheryl, there’s a lot of inflation. Go out for dinner, it’s gone up. Go out, try to do any home pair, prices have gone up. Question one, is this permanent, right? Or is this a short term effect in your estimation two. How’s our industry going to respond to it because if you’re living on a fixed income, what do you do in a situation like this and can we deliver products that actually help cushion what may be a longer term event we’ve got to prepare people for?

Sheryl Moore:
Well, I’m not an economist, but I did take econ, several different econ classes in. And so I can tell you this is cyclical too. I mean, we’re going to have an end to interface eventually in regards to your question out? Can we get the message out? Can we help more people? Man, we’ve been really crappy at that. I mean, telling the annuity story and educating people on what annuities not and then what they really are instead of what they think they are, I mean, I’d love to see a concerted effort from the whole industry to band together and just have this big campaign. But even the trade groups that we have that are supposed to be doing that in my estimation are still falling short of what I’d like to see. So there’s never been a better time to be selling annuities, but does that mean that you’re going to get a receptive response to your message? Not anymore today than a year ago, but I am grateful for this secure act.

Sheryl Moore:
Now people aren’t necessarily really excited because they’re going to be able to have annuities in their 401ks, but one really great positive effect of secure is that it has resulted in more annuity educational content in the public domain, in the newspapers and the trade journals like Wall Street Journal and New York Times. So at least it’s saying the word annuity and people are like whoa, well, if the Wall Street Journal is bringing up annuities, maybe I should look into that. What is that?

Sheryl Moore:
But can we address those needs for people with fixed incomes who are suddenly having to do more with less? We can, because I’ve seen the product innovation already kind of transition to help with that. So we have income writers that have increasing income features. We have income writers that offer more income if you’re taking income right away in the early years than in the later years. There’s so many different features that I’ve seen over the past five years that have really been targeted to help people in that situation. So I’d say the positive thing is that we have really outside the box thinkers and very creative people and product development in this industry. I would just say that from a communication standpoint, we’ve still got a lot of work to do.

Ramsey Smith:
So you mentioned the secure act and we used to talk about the secure act and awful lot on the show, maybe like a year and a half or so ago. It virtually has not come up in a while, which is too bad because everything that it has to offer is still there.

Sheryl Moore:
Right.

Ramsey Smith:
It just sort of has moved down, moved out of focus, but I’m glad you brought it up because you know, there’s two parts to the puzzle, right? One is that the there’s the legislative support for it. And then you actually have to have 401k providers and HR departments kind of all over the country actually making the products available on their platform. And so I’m curious if you’re seeing any of that, because sooner or later, to make those decisions, they’re going to need data? And I imagine when you start getting those calls, that’s probably a good sign that things are heading in the right direction. So curious to find out what you’re seeing so far.

Sheryl Moore:
I would counter Ramsey that there’s actually a third arm that we need to take into consideration. And that’s the product manufacturers. And I say that just because for example, so many people got excited about fee based annuities and it’s like woo, we have this new type of annuity that we’ve never had before in the fixed insurance market. And hopefully this new distribution will embrace these annuities and that really didn’t happen. And it’s because we need to tell that, we need to do a better job telling the annuity story. I would say, likewise, for the secure act we need to see sales happening or insurance companies aren’t going to be developing these products.

Sheryl Moore:
Now we do have a few companies who have already developed implant annuities and certainly Wink is looking to track that data once we have a significant amount of data to be tracking. But what’s interesting is you do have to wait on all of that administrative groundwork to be laid and you do have to wait for the sales to start coming in. So it’s kind of like this hamster wheel, right? And we’re not seeing that yet. But as I said, when secure first passed, whoa, hey guys, temperate. Don’t get too excited. We have a lot of groundwork we’ve got to do before this is actually going to go off without a hitch. And I would say, just dealing with the requirements for RISA, from an insurance company standpoint is a huge lift. And you have to take that into consideration with all these other priorities that you guys have been talking about on the show.

Paul Tyler:
Yeah. So, okay. Ramsey, you opened the door so regulation. Okay? So secure act.

Ramsey:
That’s what I do, Paul

Paul Tyler:
Best interest and now DOL. So what’s in store here?

Sheryl Moore:
So when the DOL first proposed the fiduciary rule, I kind of felt that little bit of anxiety in my heart again because I remember all those late nights and hard work that I did on 151a from a grassroots legislation standpoint. And I was like oh man I’m not ready to go through this again. But now that we’re so far out from that date, I’m really to the point where I’m like it’s okay, because if there’s one thing that our industry has proven over the past 23 years that I’ve been doing this it’s that we’re resilient. We can handle challenges, but we continue to swing with the punches and figure it out and thrive. Annuity sales have continued to increase despite all of those things. We might have hiccups here and there, but like I said, more people are living longer and have the need for guaranteed income for the rest of their life lives than we’ve ever had before and more people are hearing that story than they ever had before.

Sheryl Moore:
So those sales are ultimately going to come through. We’ll have some interruptions, some distractions to prepare for some of this DOL business, but eventually we’ll get back to normal and we’ll do even better than we did before. I’m optimistic. And for the people who are saying oh no, I might have to disclose my commission, I think most Americans are pretty reasonable. I mean, Mark, are you aware of the fact that the last time you bought a car that the salesperson got paid a commission when you bought it?

Mark Fitzgerald:
I think everybody has to realize to some extent there’s profit in any sale that goes on out there. Right?

Sheryl Moore:
Yeah. And you felt okay about it, right?

Mark Fitzgerald:
Absolutely.

Sheryl Moore:
Yeah. I mean, Paul, when you bought your last home, didn’t you realize the real estate agent got paid a commission and you felt all right about it?

Paul Tyler:
Yeah. There’s something about commission. It’s interesting, commission and financial services are just, it has this energy and the media and conversations they have with people. No, Sheryl I’ve had the same thing where I had, well, share a story. A good friend of mine who’s a oral surgeon said he is going to buy some survivorship life insurance. He said Paul, but you believe the commission is going to be like $6,000 or something on this? I said, well, how much did it… If I go to an orthodontist and put get my kids’ teeth, get them in braces, how much did the wire cost? She said you can’t compare that. I’m like but it is.

Sheryl Moore:
Yeah.

Paul Tyler:
People need to make money. People have to make a living. Would it feel reasonable for, if somebody comes out to your house, a plumber shows up in my house, they cross, the minute they walk in the door, I’ve got a bill for $300. Right? So how much are you willing to pay for somebody to actually think about your future, your family’s future and protection? I think you’d probably pay a lot more than what you’d be paying if you actually saw what they’re making.

Sheryl Moore:
So you’ve probably noticed I have some ink on me. I like to tout that I am insurance because I don’t fit the typical stereotype of the older white guys that represent this industry unfortunately. No offense, white guys.

Paul Tyler:
None taken.

Sheryl Moore:
But I like to compare it to tattoos, right? Because I go into my tattoo artist and let’s say he charges me $150 an hour. There are a lot of people who’d be like whoa, $150 an hour, that’s crazy. I’m not going to pay that. Well, you know what? This is going to be on me until the day I die and then some. I’m paying for it one time. Do I think it’s worth more than $150 an hour? I do. So what do you think peace of mind for getting a paycheck every month for the rest of your life is worth? I mean, you’re paying that commission one time, but how much is that piece of mind worth? And we’ve all seen the research on how people who own annuities have happier retirements, live longer, are able to spend without having anxiety. So Ramsey, what was that statement that you made just before our call? I thought it was brilliant.

Ramsey Smith:
Wow. I’m trying to remember.

Paul Tyler:
I think there were a lot of statements. [crosstalk 00:24:23]

Sheryl Moore:
… price worth or something like that.

Ramsey Smith:
Oh. Oh yeah, yeah, yeah. Yes, of course. So yeah, one of my frustrations and I’m a capital markets person by training, right? So I always think about things in terms of fair value. And what’s interesting to me is that people react so viscerally to sometimes discussions of annuities. They do it without really having sort of a benchmark for where quote unquote fair value would be. So you could go to you go to two advisors, right? And you could give one of them something priced below fair value, meaning you’re actually buying, you’re paying less for it than it’s worth meaningful. Meaningfully, you can do the same thing with another advisor and give them something that was priced at fair value or might has some commission in it.

Ramsey Smith:
And my belief is you’d probably get more or less the same response from both of them, right? Because they don’t really… They’re reacting to sort of a perception as opposed to having the ability to actually calculate what the true value is. And to be fair, the true value is actually is not a simple thing to determine for a lot of reasons, but I think that’s what sort of frustrates me is that people react without really understanding where value is. And going back to your point about the value of peace of mind, I think that there’s very little understanding about just how valuable and unusual a true guarantee is.

Ramsey Smith:
So when you talk to people, we talk to people that are advisors and put people into the stock market and they make a lot of money in the stock market. I think that’s great, you give people the peace of the peace of mind to actually take the risk, but ultimately, it was client who took the risk that really earned those access returns because they took the risk. The person that told them to do it didn’t take any risk. Right? So the life insurance industry actually takes on a lot of risk in order to relieve clients of that risk. And I think that that is undervalued. I think that’s service is undervalued and that’s something that’s always frustrated me a little bit. So a long winded answer to your question.

Sheryl Moore:
No, I loved it because it actually brings up another issue for me that I think is really important. A lot of people look at annuities as an investment alternative. So they’re comparing it to bonds and stock fund and saying well, I can do the same thing and it’ll cost less money or it won’t have surrender charges. And it’s like hold on guys, you’re losing one important fact. This is insurance. This is guaranteed lifetime income. Can you do that with your bond and your fund? No. And so I think that you have to make sure you understand what the annuity is before you make that statement and it’s intangible. How do you put a dollar amount on that? I absolutely agree with you.

Paul Tyler:
Yeah. Sheryl, how do you think the combination of best interest standards in DOL will change the relationship between the carrier and the agent? Now, go back to the example you told us where the company lost your annuity. Why as insurance agent do I put… I probably represent 10, 15 carriers. I probably put most of my business with five, line share with one. The one I recommending to you is one where I know that if it gets lost, I can pick up the phone, call the vice president of something and they pick up my phone. They solve the question for you quickly. Now, going forward, is this all going to be spreadsheet? And I’m looking at the sharpest right at the sharpest time. Forget about the relationships, forget about the ability to go and fix things if things, God forbid, go wrong.

Sheryl Moore:
I’m scared that it will get to that point, Paul, because the people outside of our industry are going to think that is the answer, right? Because they don’t understand that sometimes some companies lose your annuities. I have life insurance with a company who suspended my policy and I didn’t get premium notices or annual statements for over four years. So it’s like I don’t think those people understand our business much less those things that can happen. And really, you need to take those things into consideration because the company that put those policies in a suspended status for four or five years, they had the most competitive life insurance product in the entire industry.

Sheryl Moore:
And so spreadsheeting in that situation put me in a really precarious situation. And in fact, one of my employees owns business with that company and was supposed to get a call from them two days ago and is still waiting. So what’s the value of that, Paul? How do I put a dollar amount on that? How do I spreadsheet that? I hope that doesn’t happen. But the other thing is, I will tell you that I largely believe our independent agents don’t even realize that they shouldn’t be spreadsheeting, that those things should matter.

Mark Fitzgerald:
Do you think it’ll ever revert back to, I guess in general less because the dynamic of spreadsheeting is definitely broadened, right? It started off with the income riders, now it’s looking at all the different indices and spreadsheeting them on a weekly basis. It seems like looking at the back casting on it. You think that will ever revert back where that’s going back to the fundamentals of a product structure?

Sheryl Moore:
Mark, that’s a really good question, but I’m very pessimistic about that because the independent agent distribution is about competitiveness and competition fuels innovation. And spreadsheeting, really it’s about that. And I would say even back in ’98, ’99, when I started in this business, insurance agent sees what actually spreadsheets migrates. Does anybody remember that? You’d have the Excel spreadsheet that got PDFed and it’d have hot annuity rates and list maybe the company’s rating and the surrender charge and the withdrawal provisions and the rate. So at least they recognize at that point, it’s not all about rate. There are other things you’ve got to take into consideration, but we’ve complicated this product. We really have, especially with adding income riders.

Sheryl Moore:
And so the easiest way to sell anything is to mention a rate, right? I mean, CDs are sold on rate, [inaudible 00:30:59] are sold on rate. Man, do you really want to have to explain that benefit based value compared to that account value and how you can’t access the one, but you can the other? Probably not, but you could talk about the 7% roll up or the 5% of the benefit base you’re going to get for the rest of your life. So I don’t want to make it sound negative. It’s the easy way to sell. Does that make sense?

Mark Fitzgerald:
Yeah. I guess. And the challenge I think is with when you had a standardized indice, let’s the S&P, right, and you had a standardized measuring point of participation rate or cap, pretty easy to spreadsheet. Who’s got the best power rate? Who’s got the best cap? With the bespoke indices, obviously there’s a lot of different variable components to it. How do you think the best way for an agent to really grasp and understand the differences between all of those is in terms of making their selection process?

Sheryl Moore:
So I’ll just say when I benchmark products, I go through two part process. Really I want to see the product features not withstanding the indexing. So what’s the company ratings? What are the surrender charges? Is there a market value adjustment or not? What’s the commission on the product? But then I want to go into a second level of benchmarking and look at the indexing. Now, two year point mark, there are 126 different indexes that are bespoke or hybrid indexes today. That doesn’t even include the gold commodity, the S&P 500, the Dow Jones Industrial Average, the Russell 2000. So there are so many choices today. How do you even benchmark those? I would say the best way to do it if you really are dead set on doing it is don’t compare a product with a participation rate to a product with cap rate.

Sheryl Moore:
I mean, you have to make sure you’re using the right moving part and grouping them together from that standpoint. But I’m going to tell you if you are comparing the price of rice in China index to the S&P 500, that’s not a fair comparison because the Price of Rice in China index was created less than a year ago and the S&P 500 is what? Like 75 years old. Does that sound right? I mean, so it’s not a fair comparison just because we don’t have experience for the option seller to rely on on a lot of these bespoke hybrid indexes. And here’s how I’ve seen that make a difference and where insurance agents should pay attention.

Sheryl Moore:
So one big company who I’m not going to name had a cute little acronym for their hybrid index because they had a super long name like most of them do. And an initially when it came out, it had 100% participation rate, no cap rate, no spread rate. Who couldn’t sell that? I mean, hey, I’m on it like blue Bon. I’ll sell that all day long. You get all the markets gains, not subject to a limit. But what happened was the option seller saw some experience coming in on that index all of a sudden before you know it, it’s like oh, we’ve got to add a 1% spread rate to that product. I’m sorry guys.

Sheryl Moore:
And as the market environment continued to get more and more challenging, that 1% spread rate went up to two and three and four and five and then finally 6%. And then the product manufacturer is like wait a minute, we signed this exclusive deal with this big investment bank to be the only ones who get to use this special index that was made just for us until XYZ year and now they’ve got us locked into this 6% spread. What were we thinking?

Sheryl Moore:
And so what they did was they worked with the investment bank to reprice the index and change the components around so there was different ratings on the bond index maybe before the bond index or the bond part of the index only took up 10% waiting and the stock index is accounted for the other 90%, but now that we’ve retooled it, the bond index takes up 90% of the constituents on the index and stock part, or the equity is only 10%, but the participation rate is 100%, the cap rate is nonexistent and the spread rate is nonexistent. Is that the same annuity? Is that the same index? I don’t think our insurance agents know. Do you guys think so?

Ramsey Smith:
So I can tell you, so first of all, good getting back to the hybrid industry. So I can say that I’m responsible for a few of those, so full disclosure, right? In my prior business. To answer your question, no, that’s a different index. I mean, mean, there may be some similarities in the calculation methodology, but if you change the weightings, that drastically then it essentially becomes a different index. And so, I mean, that’s one of the challenges. Again, I used to sell those indices and I believed in what I saw and still do in the indices that I was focused on. But at the same time, there’s just so many of them and it is. I remember when there was one way back when in 2012 and now there’s 126. So it’s not an easy thing to sort of figure out how to evaluate that many indices because they are complex and I can see why it would be a challenge for an agent who’s not necessarily of a capital markets background to be able to navigate those.

Sheryl Moore:
Don’t get me wrong. I don’t think they’re a bad thing. I don’t. I just think that you need to do a little bit of research on them because they’re so brand new and certainly what I am suggesting is don’t just say because the S&P 500 has a cap of 4.5% that this hybrid bespoke index that has no cap but a participation rate of 55% is going to outperform it because that’s not necessarily true.

Paul Tyler:
Yeah. Yeah.

Ramsey:
Well, that’s where marketing comes in. There’s a lot of marketing there.

Sheryl Moore:
You bet.

Paul Tyler:
Yeah. It’s how to make complex things simple, right?> That’s our career/.

Sheryl Moore:
Right.

Paul Tyler:
Wait, well, Sheryl, this has been great. We’re sort of at the top of the half hour here. I don’t know, Mark, final thoughts, questions for Sheryl?

Mark:
Yeah. I guess kind of a sneak peek, what do you see kind of Q3 ending up and Q4 coming into play given everything that’s going on right now?

Sheryl Moore:
Well, we’re getting into conference season here and from what I’m hearing from everybody, they’re looking forward to actually going face to face at some of these conferences. That’s going to have an impact on sales in itself just from people being out of the office. But we talk about the Delta variant coming up on COVID 19, that’s going to have a negative effect. Certainly the S&P 500 is at the highest point that I’ve ever seen it and anytime the market’s headed up, we actually tend to see money flow away from them fixed insurance products and over to variable or securities products like structured annuities or VAs. And so that’s going to affect the fixed side of the business.

Sheryl Moore:
But the other thing we can’t dismiss is that the 10 year treasury is at 1.26 guys, and that’s not really conducive to [inaudible 00:38:17] sales or fixed annuity sales or even really indexed annuity sales. So I would say as a whole, looking forward. Sales are still going to be down. They’re going to be up from this time last year just because it was a crummy time, but they’re going to be down. It’s going to take a while for us to rebound.

Paul Tyler:
Yeah. Ramsey?

Ramsey:
So I share your concern about the outlook for interest rates in the coming years. On the inflation side, I do think inflation will be an issue for the next year or two, I think we’ll sort of settle back in and that will also sort of create that additional gravitational pulling rates down the road. Yeah. I just hope that… I hope that despite all that we find different ways to sort of leverage the connectivity insurance companies have to the needs of clients, right? So sometimes there are other services provided that aren’t necessarily as balance sheet intensive. So there’s maybe room for exploration there. And I have high hopes for what the secure act will bring with in plan annuities, so, and as I said earlier, I think that you are going to be part of that, Sheryl. Full confidence. And as that grows you to be a factor. So we look forward to seeing that.

Sheryl Moore:
Thanks Ramsey.

Paul Tyler:
Yeah. This is great. Well, Sheryl, first of all, we love annuities and we love you. So hey, thanks for sharing your time. Yeah. Listen, thanks for sharing your time, your wisdom and expertise. We love it. We love your LinkedIn posts. These are great. It’s like Sheryl, I’m actually getting alerts now. Sheryl Moore post. Okay, go Sheryl. So anyway, hey listen, thanks for all you’re doing. Thanks for coming on here and look forward to having you come back. I’m sure this fall we’ll have some interesting topics where we love to get you on and get your discussion, either your opinion or get you to help discuss with some of other friends in the, in the industry. So thank you.

Sheryl Moore:
Well, I would always love to come back on so say the word and I’m back fellas. Thanks so much for having me.

Paul Tyler:
Okay.

Mark Fitzgerald:
Awesome.

Paul Tyler:
Excellent. Hey, thank you Sheryl. We’ll put links in the show notes to your site and thank you for all the research you’re providing us as well as a customer of yours and all of you listeners, listen, stay tuned and tune in next week for another episode of The Annuity Show. And if you’ve got questions for Sheryl, you know where to find her. Thanks. Thanks so much.

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Episode 113: Income Allocation Planning with Jerry Golden

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How do you create more income with less market risk and lower fees and income taxes than traditional retirement income plans for your client? Jerry Golden, President & CEO at Golden Retirement joins us today to talk about Go2Income and the service that his tools provide for advisors that do just that.
Also, do you want to get regular updates on news from Jerry and other guests of our show? Go to https://thatannuityshow.com and subscribe to our newsletter. We hope you enjoy the show.
Special thanks to Bruno Caron for joining us as a co-host!
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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Nicholas BreniaEpisode 113: Income Allocation Planning with Jerry Golden
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