The X’s & O’s

There is a lot of buzz in the media about annuities. Some claim that annuities are the greatest investment for your money and others claim that they are terrible. We break down the ins and outs of annuities today and give our opinions on how you can properly use one.

Listen to the podcast episode…

The Hosts:

Brent Pasqua, Matthew Theal and Joshua Winterswyk




Matthew Theal: Welcome to the Retirement Plan Playbook. I’m Matthew Theal, joined as always today by Joshua Winterswyk.

Matthew Theal: Josh, how’s it going over there?

Joshua Winterswyk: Great. Excited to record our 11th episode.

Matthew Theal: Yes, this is a big episode for us today.

Matthew Theal: Brent, how are you doing, and tell the listeners what we’re going to be talking about.

Brent Pasqua: I’m doing outstanding today, and it’s one of the topics that I’ve been waiting for months and months to record. It’s something that I wanted to do since day one, so I’m excited about that, and today we’re going to be talking about the ugly truth about annuities.

Matthew Theal: That sounds like a great show, so why don’t you start by telling the listeners a little history about annuities?

Brent Pasqua: Annuities are a contract between you and the insurance company, and a lot of people think that annuities are relatively new, but they’re not. Annuities have been around for hundreds of years actually. Now, in America, they were actually started around 1812 and they were offered to the public by the Pennsylvania Company, but they really started to take and pick up steam around 1918 when the Teachers Insurance and Annuity Association, which is now known as TIAA CREF, introduced these. They really started to introduce these types of annuities to teachers to offer them pension plans and so forth through their annuities, and then, in 1952, TIAA CREF offered the first variable annuity.

Matthew Theal: Yeah, that’s really interesting. I think that’s misconception number one about annuities that most people have is that they’re some new product or that they’re an investment, but, two things you said, one, yes, it’s actually an insurance contract and, two, they’ve been around for hundreds of years.

Brent Pasqua: Right, and there’s just so many different types of annuities, and that’s what makes it confusing, and hopefully, today, we can try to go through those to clean up some of what you may not know about them.

Matthew Theal: Yeah, absolutely, so there’s three types of annuities, like you mentioned. The first is fixed annuity, which I’ll talk about, and a fixed annuity works quite like a CD, so what you do is you write a check to the insurance company, so call it, we’ll say $500,000 and, in return, you would get an interest, call it three, 4% just like a CD, and you have a structured contract term, call it three, five, 10, 15 years just how like a CD works. The difference is they’re not really quite as liquid as CDs.

Matthew Theal: Josh, what’s an indexed annuity?

Joshua Winterswyk: An indexed annuity is a hybrid between a fixed annuity, so Matt mentioned like a CD, or certificate of deposit offered at the bank, and a variable annuity, so it has downside protection, so it is a product that has downside protection, but upside growth potential that’s tied to the stock market. Did I do that well on that definition, Brent?

Brent Pasqua: In a fixed indexed annuity, you really have two options. You have the fixed option and then you have the indexed option, and you can allocate your monies inside of your contract to either one of those or to both of those. The indexed side of it generally, and most annuity contracts will follow some kind of index, and, generally, that for the most part is usually found with the S&P 500. People will pick that index. It’s in a lot of annuities, but, nowadays, and I’m sure you guys have seen this also, there’s a lot of these strange, new indexes that they pick out that they throw in the annuity contract that you probably don’t know very much about, and they’re telling you to allocate some of your money towards those indexes, and there’s not very much history on them, so, an indexed annuity, you could follow both the fixed side or the indexed side or you could follow either one or both inside of your contract, depending on how you want to allocate those monies.

Joshua Winterswyk: Do you see that the fixed indexed annuities though more often are they tied to an index like a stock market for higher growth than the fixed rate?

Brent Pasqua: Yes, because you have the ability to earn a higher interest so that… and that will get into our caps and how they work, but yes.

Joshua Winterswyk: Okay. Matt, do you want to touch on the next annuity?

Matthew Theal: Yeah. The third type of annuity you could come across is a variable annuity, and variable annuities are very unique. It’s really two different things actually. One, it’s an annuity contract structure where you’re investing in mutual funds, so think of like maybe we have a box and, inside of that box, we’re putting mutual funds in there, and that acts as your growth engine, so, if the mutual funds do good, then your performance does good. If they do bad, then the performance of your annuity does bad. One thing with variable annuities is they typically have much higher fees than if you were to just invest in mutual funds outside of an annuity, one, because you’re paying for the annuity, but then you also still have to pay for the mutual funds, so, usually, the fees on variable annuities could go up to anywhere between two to 4%.

Joshua Winterswyk: Correct, many layers of fees.

Matthew Theal: Yes, absolutely. Anything left to add?

Joshua Winterswyk: I think that one of the misunderstandings that the media and the public does or does not know about annuities are that annuities are, in general, there’s no way to say that annuities are bad. You can’t say annuities are great. You can’t say annuities are bad, because the reason that people purchase an annuity is for tax deferral. If you were going into an annuity and you’re using it for… exactly what it’s for, it’s being used for tax deferral, but there’s other things that it could be used for. You could have a steady stream of income, like you said. You could get a fixed payment over a period of time, but where it starts to get expensive in these variables in the indexed annuities is when you start adding a bunch of these riders. You can add a bunch of features that you probably are never going to use, that you probably never are going to need, and then all of a sudden your fees start getting into that higher end of that spectrum of what you said around 4%.

Brent Pasqua: Kind of like buying a car. You have a base model. The fancier you want it, the more features are. In the insurance world, you call them riders, and it keeps tacking on fee after fee after fee, depending on how complex you want the variable annuity to be.

Joshua Winterswyk: Yeah, and, in a car, you may use those features, but, in the annuity, probably unlikely that you would use a lot of them.

Brent Pasqua: Yeah, it seems like they’re very specific to someone’s needs, not general, like this feature is good for everybody.

Joshua Winterswyk: Yep, and a lot of times they seem stacked on top of each other.

Matthew Theal: I think it’s interesting that you mentioned steady stream of income to go back. There’s actually only two ways you can get income out of an annuity. The first is to annuitize your money, and what most people don’t realize, when you actually annuitize your annuity, you’ve handed your money to the insurance company for the rest of your life. There’s no way of going back.

Joshua Winterswyk: Yeah, when you annuitize, your beneficiaries aren’t going to receive anything.

Matthew Theal: Right, and the second way is you could put an income rider on it, and that income rider is a separate feature like the two of you were just mentioning, like maybe adding in heated seats.

Joshua Winterswyk: Right. Right.

Brent Pasqua: Or more horsepower.

Matthew Theal: Yeah, more horsepower. There you go.

Brent Pasqua: Yeah, chances are you probably aren’t going to flip that on.

Matthew Theal: Right. Josh, who sells annuities? How do I get one of these?

Joshua Winterswyk: Financial advisors sell annuities, and I think, more specifically, insurance agents sell annuities. You have to have an insurance license to actually be able to sell as a financial advisor an annuity, but there’s also just insurance agents that sell annuities standalone as well.

Matthew Theal: Yeah, I’m a financial advisor and I don’t have an insurance license. Therefore, I can’t sell annuities. I’m also a certified financial planner, and I don’t have an insurance license. Therefore, I can’t sell annuities at all.

Joshua Winterswyk: Neither do I anymore.

Matthew Theal: Yeah, you have to have an insurance license to sell annuities, so, theoretically, in the state of California at least, the person selling you a life insurance policy, if they’re not securities licensed, the only investment, and I’m using air quotes, type vehicle they could potentially sell you is an annuity, which is why you probably get sold on one when you go to purchase life insurance. The tricky thing though is advisors can actually end up wearing multiple hats where they’re an investment advisor, but they’re also an insurance agent who has the ability to sell annuities, and that’s where the conflict of interest gets going.

Matthew Theal: Brent, anything to add?

Brent Pasqua: Yeah, it’s complicated here because your advisor could be telling you that they’re a fiduciary, but they could be telling you that while they’re selling an annuity, which really under their insurance license are held to a suitable standard, so, even though they may be talking about securities in that same meeting or stocks and bonds in your portfolio while they’re also talking to you about the insurance product that they’re trying to sell you, they’re not under the fiduciary standard anymore. Now, they’re under a suitable standard, so, in the same conversation, they are wearing multiple hats, and that’s where it really can get dicey right there.

Matthew Theal: Yeah, absolutely, and I think the whole licensing regulation is a very complex topic. I mean, we could dive into it in another podcast if listeners would like to learn all about it, but, for the purposes of this episode, just understand, if you’re purchasing an annuity, you’re buying it from an insurance agent.

Brent Pasqua: Right, and you can see just the complexity just between the difference in the annuities and then the difference of advisors selling them. A lot of research has to be done before making that big decision of buying this sort of product.

Matthew Theal: Right. Brent, talk to us a little bit about how fee-only advisors have evolved this.

Brent Pasqua: Let’s talk about the landscape about how annuity has picked up steam, so, at the turn, around 2000 or so, annuities, really their sales started to pick up and started to increase. More insurance companies got in the landscape of selling annuities, and what happened was, as commissions started to pick up, they would offer at that time 10, 11, 12% commissions on products, so, if you sold an annuity, you could make a 10 or 11% commission, which is a tremendous number. That’s huge, and that continued on. We saw commissions go down in the mid-2000s. The insurance companies then said, “We are going to be able to offer the products to advisors to offer to their clients, but we’re not going to compensate the agent.”

Brent Pasqua: When that happened and they started offering these products and they stripped the commissions out of them, the products for the clients became so much better, so, basically, what then was happening was, from 2015 on, anybody who was going to be selling an annuity, who was getting compensated for it was going to be selling a much inferior product to their client because now there’s all these much better life insurance products, annuity products that the client can use, but it’s not going to compensate the advisor or the insurance agent, so an insurance agent or a broker who’s getting compensated for it, do you think they’re selling the fee-only one? Probably not.

Joshua Winterswyk: They’re going to make a lot less money.

Brent Pasqua: Yeah. They’re not going to make anything and not have up front commission on it, and if that’s the case, then it… Really, the landscape really started to change at that point. Now, here’s the sad part. In 2018, the Fiduciary Rule didn’t pass. They squashed it. Obama came out. Trump came in, and all of that started to change. Now that that is out, but these products and insurance companies have picked up steam where they still have a lot of these annuities and they’re still making more of them to be able to offer to the client, that doesn’t compensate the advisor, but is that much better for the client?

Matthew Theal: I think you’ve really summarized why it’s in the client’s best interest to seek out working with a fee-only financial planner. You’re going to lose that conflict of interest of commission and, in turn, you’re going to even get better, offered better investment solutions.

Brent Pasqua: Yeah, just better products, and I think the scare of making every advisor being held to the fiduciary standard promoted the insurance companies to give advisors the tools to be fiduciaries, like you were saying, which just equated into a lot better financial planning products for clients.

Joshua Winterswyk: You guys know this. It’s an extremely strong opinion that I have that at this point, from 2015 on, anybody who sells an annuity or insurance product that pays them a commission is only doing it for themselves.

Matthew Theal: Yeah, I mean, that’s well-put. Like you said, I mean, these contracts are going to offer 10% commission, so, if you want to make 100,000 a year, you have to sell $1 million in annuities. If you want to make 200,000 a year, you have to sell 2 million in annuities. It’s quite possible that you could sell $5 million in annuities and make 500,000 a year. That’s more than what doctors make.

Joshua Winterswyk: To me, there really are zero benefits to a commission-based annuity. There’s none, and that’s why the mindset is so much different when working with a fee-only advisor because you really are putting your client’s best interest at heart. If you weren’t, then why wouldn’t you not just go sell annuities and go make a ton of money? It’s so much easier to go make a ton of money, to go sell these products and get paid six, seven, 8% commissions and, guess what, you have a steady stream of income coming in and… but here’s the problem. It’s not in the best interest of the client. It’s not the right thing to do, but yet so many people, I mean, the majority of our industry in the landscape is just selling these things during these steak dinners.

Matthew Theal: If I was selling annuities, I’d be driving a Tesla and not a Prius. Yeah.

Joshua Winterswyk: That’s a good point.

Matthew Theal: Brent, let’s walk the listeners through, because it could be hard for them to tell, and people are not honest, what the sales process looks like. How does an individual get sold an annuity that has a commission that has worse product features?

Brent Pasqua: I think just even start before that about the process is just also understanding how many people have annuities. I think, the last statistics, almost half of American households have an annuity, so how do they get them, right? It’s much easier to understand if you’re a Baby Boomer because chances are, if you’re a Boomer, you have received nonstop in your mailbox over the last seven or eight years invitations to go to these free dinners. There’s a certain point where you get to your age at 52, 53 or so or beyond and, all of a sudden, you get on the list, and people are now selling you and inviting you to go to these steak dinners.

Brent Pasqua: Here’s how it works. The company, your local insurance company that you work, that’s a local company that works as advisors and works with clients in your community sends out three, four, 5,000 mailers out in your local area. They set up a night where they’re going to offer this presentation and for you to sign up and go to this steak dinner. This process, generally, the mailer costs the company about two to $3,000 to send out.

Joshua Winterswyk: The mailer is the postcard.

Brent Pasqua: The mailer is the postcard that you get in a mail that’s inviting you to go, and there’s some variable costs that go into that, and then they have to pay for the dinner, but when you’re at the dinner, they’re giving you a presentation on a topic that sounds really attractive, and the mailer looks good and it makes them seem like they’re this big conglomerate, and there’s these special speakers and they know all the answers to tax-free income or those Social Security hidden messages, and there’s just all of these cliche types things that hook you, so you go to the dinner, whether you’re motivated by the dinner or you’re motivated by the topic. They get the room full of 25 or 30 people, and, when they’re there, they’re selling you on these different types of topics and they’re hitting the points that they put on the postcard and, at the end, they’re having you sign up for this meeting with them.

Brent Pasqua: At the end, probably four to seven of those people, maybe 10, are going to sign up for meetings, but what you’re signing up for is to go meet with the advisor, and they’re going to give you some type of report, a report that’s red money, green money, yellow money, blue money. It doesn’t matter. They’re trying to sell you some kind of basic report that they’re going to provide you when you come into the office. You come in the office, and they know from that process that they’re going to sell two or three of those people maybe one, maybe zero, but they’re going to get a couple of people probably from that and, when they do, because right now commissions on insurance products, let’s say, over the last seven or eight years have ranged from six to 8% on annuities… Would you guys say that’s fair? Is that just where things are at now?

Joshua Winterswyk: Yeah.

Brent Pasqua: They know that if they just roll over $100,000 that they’re going to be making six to $8,000 in commissions just on 100,000. If you roll over 200,000, now you’re making 16, now you’re making 12, and that’s a pretty good return on investment, and what they do is just do it over and over and over again, and if you do have an annuity and you’ve been through this process and your advisor agent isn’t calling you, here’s why, because your 40 seminars ago. They’ve moved on to the next seminar.

Brent Pasqua: This is a business process where they go through month after month after month after month, and multiple times a month, they do these seminars and they’re just there to sell you the annuity, get you in the office, close you, will see you in a few weeks, bring you back in and then, a few months later, they might bring you back in and then after that, then a couple of years later you’re gone.

Matthew Theal: Yeah, well-put. At these dinners, are they given rib-eyes or skirt steak?

Brent Pasqua: Usually, you don’t really get to pick of your… the whole menu, I’ll tell you that.

Joshua Winterswyk: They’re a fixed menu.

Brent Pasqua: Yeah, they’re trying to keep costs down, but it’s not hard to get an insurance license and it’s not hard to run this type of business model.

Matthew Theal: Do you have to have a college degree to have an insurance license?

Brent Pasqua: No, and I looked up a local firm who’s doing a lot of these steak dinners, and five of the six advisors have disclosures against them, and that means… Who would work with a company where they have five of six advisors have disclosures? Disclosures are things like felonies, client complaints. There’s multiple issues that they’re… that they’ve had on them. Look up your advisor agent especially before you go to their steak dinners.

Joshua Winterswyk: Research.

Brent Pasqua: Yeah.

Matthew Theal: Do your research. That was great, Brent, so let’s start discussing some of the sales pitches. They have you in the office, and the insurance agent or advisor, depending on how many licenses he has, how is he getting the prospect or prospective client to sign the annuity contract?

Brent Pasqua: Usually, annuities are really based on fear. It’s a fear-type sell. It’s, “What happens if the stock markets crashed and all of your retirement goes down?” or, “What happens if you’re not going to have enough money to live off because the market drops 20%?” It’s that whole thing.

Brent Pasqua: Let me ask you this, Matt. If I ask you, if a you’re retirement client, you’re sitting across from me, I said, “Do you want to lose 20 or 30% of your retirement?” what would your answer be?

Matthew Theal: My answer would be, “No, that sounds awful, Brent.” I do not want to lose 20 to 30% of my retirement money.

Brent Pasqua: Exactly, so these are the types of questions that they ask you that gets you thinking that, “Hey, I don’t want to lose my money. I’ve worked hard for this, I’ve saved my whole life. I don’t want to lose. I don’t want to be in the streets when I’m 80 years old,” so they go down this rabbit hole where they’re focusing you on the negatives and, “This is how you’re going to protect your money. Get a bonus now. You have upside protection without the downside risk. Here’s a 10% free bonus that we’re going to hook you in with,” but, guess what, it doesn’t work like that.

Matthew Theal: It’s fear selling. It’s pretty much like when you’re trying to bid on a house and the realtor calls you and tells you, “Oh, you know what, there’s someone else bidding on it. Yep, you better up your offer a little bit.”

Joshua Winterswyk: It is a well-oiled machine. I mean, just saying bonus sounds good. Do you want a bonus? I mean, at work, that’s positive, right? I got a bonus. Do you want a bonus?

Brent Pasqua: Yeah, I mean, what could be better? I could have upside potential of the market without any downside risk and I get a bonus, and I don’t have to worry about my money going down 20%. It sounds like a perfect scenario. It’s far from that.

Matthew Theal: Let’s debunk the bonus real quick. All right, it’s safe to say probably the average annuity contract length is 10 years. Can we use that?

Brent Pasqua: Yes. Sure.

Matthew Theal: Average bonus is, what, five, 10%? What do you want to use?

Brent Pasqua: Either one. They’re both probably. 10% is the most common. It’s the most commonly sold because it comes with a bigger commission, so, most people who hear bonuses, they hear 10 because they’re getting… the insurance agent is getting paid more.

Matthew Theal: Your bonus over 10 years is really just an extra 1% return…

Joshua Winterswyk: Each year.

Matthew Theal: … on your annuity each year.

Brent Pasqua: Yeah, that annuity bonus can be misleading. Matt, do you have anything to add to annuity bonuses?

Matthew Theal: No, other than that they are a really bad investment and a really poor return on your money, I have nothing else to add.

Brent Pasqua: That’s definitely a disadvantage of an annuity or can be.

Matthew Theal: Yeah, absolutely.

Brent Pasqua: Great. Do you want to get us started on some other disadvantages with annuities?

Matthew Theal: Yeah, another disadvantage of annuity is the free withdrawal. On a decent fixed annuity contract, the surrender fee might start at 10% for two years and then drop to nine, then eight and seven and six. It works on a sliding scale, so what that would mean is, if you want to access your money, you have to pay a surrender penalty, and what that is making up for is the commission paid to the, essentially, insurance agent.

Brent Pasqua: Yep. Yeah, it’s having the ability to earn upside potential without downside risk, and you could take out 10% in most contracts, 10% of your money, sometimes it’s lower, but if you want above and beyond that, guess what, you’re going to be paying a pretty hefty penalty.

Matthew Theal: We didn’t touch on that. You could take out 10%, meaning, that’s called the… what they call the free withdrawal, right?

Brent Pasqua: Yeah, you get that free withdrawal limitation every year that you can take it out.

Matthew Theal: You can, “Hey, we’ll give you 10% of your own money.”

Brent Pasqua: Yeah, that makes me really happy.

Matthew Theal: Hey, thanks.

Brent Pasqua: Yeah, but, again, the exchange, and we talked about this in another podcast, the exchange isn’t like when you’re working with a custodian, you could just transfer over or take a withdrawal and it’s pretty seamless. It’s paperwork, processing, faxing back and forth. I don’t know who faxes nowadays still, and it’s processing these forms, getting into the insurance company. They have to process. They mail you most of the time a check. It’s a daunting task, and it’s a headache that, when you probably need your money, you don’t want to deal with it.

Joshua Winterswyk: I think all those processes are just so you don’t take the money out. They don’t want you to take the money out.

Brent Pasqua: Oh, yeah, exactly.

Matthew Theal: I just thought of something. We’re out here. We’re on the West coast. Why are most insurance and annuity companies in the Midwest? Is there a reason for that, Brent?

Brent Pasqua: I’m sure there is. I don’t know what it is. I could research it out though and write about it.

Matthew Theal: Yeah, because I mean there’s not a ton who are based on the West Coast, and I don’t even think… There might be a few up in the New York region, but-

Brent Pasqua: Yeah, tons of them are in the Midwest. There’s not a lot of new insurance startups in the Silicon Valley.

Matthew Theal: No, I don’t think so, not on the annuity side at least. Okay, so this is going to be one of the more complex disadvantages that we explain, but there are some really tax downsides to annuities, the first being that if you take after-tax money, that’s when you’ve already paid tax on when you purchase an annuity, so an example of this would be maybe you put your savings account in an annuity, you’re getting tax deferral, so you’re not paying tax on that interest, but when you do pull your money out, your gains are being taxed as ordinary income.

Matthew Theal: Josh, did I hit that right?

Joshua Winterswyk: Yeah. Yeah, and I think I just want to add, too, because if your money is in a savings account, you probably get a tax form at the end of the year from the bank saying you earned-

Matthew Theal: 12 cents?

Joshua Winterswyk: Yeah. Yeah, I think the minimum is like $10 for you to get one, but let’s say it’s $15 of interest that you earned that year, and a lot of times that’s when an annuity is sold is saying, “We’re going to get you more interest. We’re going to defer that interest also,” which is a “benefit,” so, yeah, no, well-put, and when you take it out it can cause headaches, definitely.

Matthew Theal: Right, and then the other way you’re going to get sold an annuity, and this to me makes zero sense, is they’re going to sell you an annuity and you’re going to put your retirement money into it, but if you do that, you are losing the tax advantage of annuity.

Joshua Winterswyk: Right, so, basically, you’re taking a tax-deferred option in your IRA or 401(k) and then you’re putting it in an annuity that’s already tax-deferred. Anybody who’s doing an annuity that’s doing it that makes the most sense is for tax deferral, but your IRA is already tax-deferred, so that doesn’t make sense, and I still don’t understand why so many people stick their IRAs or money into even variable annuities. It’s like why?

Matthew Theal: Yeah. It doesn’t make sense. People, if you want to annuitize your IRA or you want to buy essentially annuity with your IRA money, just go to a portfolio manager and ask them to create some kind of bond or CD ladder. That’s essentially what the insurance company is doing with your money. Yeah, I mean, we could do a whole podcast about what the insurance company is doing with your money while you’re signed into that contract for 10 years.

Joshua Winterswyk: Yeah, that’s just something that really baffles me is the retirement money. I mean, it’s like you’re paying for a double wrapper. There’s no double tax benefit for the IRA money or retirement money in an annuity. A lot of times, it baffles me when I see that, and it actually frustrates me and makes me want to help even more because someone was wrongfully sold that product, but, again, we can go on that topic for hours.

Matthew Theal: Right. I think that’s something that’s interesting because we have spent probably a good… I don’t know. How long does this podcast run, Josh? 30 minutes?

Joshua Winterswyk: Yeah, we’re about 35 minutes in.

Matthew Theal: We spent a good 35 minutes in a way bashing annuities, but, I mean, they are positive and they do have a purpose.

Joshua Winterswyk: It’s not a bash to me. Nobody could say annuities are great or annuities are bad. You can’t say that. Annuity is a fit for a lot of people, and there’s a place for them. It’s just regarding are you using it for what it’s intended to be, and most people are not. People aren’t using it what it’s for. What they are using them for is they’re just being sold an inferior product by an agent who wants to make commissions. That’s all.

Matthew Theal: Right, and a lot, too, the companies that we do work with, because we do outsource annuities to insurance companies, and they are fee-only products and they’re far superior than the products that you’d get sold if you went to a steak dinner, you can’t put your IRA into an annuity. They won’t allow you to do it. That’s how big of a no-no it is.

Brent Pasqua: Yeah, they don’t take qualified money into their products.

Matthew Theal: Right, so it’s only money that would be in your savings account or your stock brokerage account, after-tax money.

Joshua Winterswyk: After-tax money. They’re very complex. I mean, there’s so many things that go into… so much planning that you have to do to even consider an annuity. It not the magic pill that everyone gets that’s going to cure their financial planning needs and retirement needs.

Brent Pasqua: The annuities that are fee-only, that fee-only advisors work with are so clean. They’re just basic. There’s a couple of features here. It’s in black and white. There’s not a ton, too, that goes with it, and it’s very simple to understand. It is not those complexities and buried legal language that’s in those commission-based products.

Joshua Winterswyk: Yeah, so, when you do need one, there are great products out there now that can…

Brent Pasqua: Absolutely phenomenal…

Joshua Winterswyk: … absolutely help the client..

Joshua Winterswyk: … that aren’t going to tie up your money, that you have some rate locks in there. You can get out of it if you need to. There’s phenomenal new annuities that came out, and that all really started after 2015.

Matthew Theal: No sign-on bonus because there’s no commission, yeah, they’re really good, low surrender fees, much higher cap rates. If you want to go on the variable side, I believe the insurance cost on the variable side is 25 basis points.

Brent Pasqua: It’s so small, and some… I think one of them has a $20 monthly fee.

Joshua Winterswyk: Yeah. Yeah, really, really cheap and a good option for people that need them.

Brent Pasqua: Absolutely.

Matthew Theal: Really affordable. Brent, tell us, we know you have a lot of experience, how did you get into the industry? Tell us the story.

Brent Pasqua: I think it’s important to understand that anybody who started in this industry let’s say five and even, more or less, 10 years ago, they really all started either two ways. They either started on the broker side or they started on the insurance side, and these are the types of companies that are recruiting you when you get out of college. They’re the big conglomerates that are either wanting you to become a broker or they’re wanting you to come sell some insurance.

Brent Pasqua: When I started, I started on the insurance side. That was big back then, and that was… really had been picking up steam, so I learned and had a lot of experience in going through that, but as soon as 2015 hit and all the fiduciary rules changed, it was a complete game changer for fee-only advisors, for the landscape of the industry, and what I think is really awesome is that, nowadays, the colleges have now picked up financial planning as degrees. They are offering to get kids ready to take the CFP for when they graduate, and a lot of these kids coming out of the schools are now looking at fee-only advisory as a profession and not immediately jumping into insurance companies or the broker world where they’re going to get stuck for 10 years going down this rabbit hole of not really knowing what to do in the best interest of the client, and then they have to figure it out, and it takes them 10 years to figure it out.

Brent Pasqua: A lot of people had and went down this way, and now it’s not working like that, and I think it is so cool that these kids are coming out of school with their degree, getting their CFP and being able to be fee-only. That is awesome.

Matthew Theal: Yeah, one of my close friends, we graduated college 10 years ago, and he became an advisor like I did, he didn’t last in the industry though, and he ended up at a really poor, I guess, firm or shop, and he asked the senior advisor a question on a client he was working on, and he said, “Hey, I can’t tell which product is best for the client. Can you help me?” and he said, “Here’s what you do, buddy. You sell the client the one with the highest commission first and then, in five years, you go back and you sell them this one and tell them we need to make a change,” and he…

Brent Pasqua: That’s the financial…

Matthew Theal: … he quit that job.

Brent Pasqua: … metric YTB, Yield to Broker.

Matthew Theal: Yeah, Yield to Broker. Exactly. He quit his job, and now I think he’s a LAPD officer.

Brent Pasqua: That’s cool.

Matthew Theal: Yeah. Yeah, really cool. He’s doing good. Anything left on today’s annuities? I think we covered a lot and gave our listeners a lot to think about.

Joshua Winterswyk: I think that, just to summarize, that, for me, is that there are a lot of new, great financial products out there, so annuities do play a role for certain people, but it is very specific, and there are a lot of new great products out there to research, and I think that, with the fiduciary ruling that eventually didn’t pass, but that introduction to the industry has helped, and I think just to piggyback, too, to see that more colleges are promoting fee-only advisors and the CFP is just exciting to see because it’s all just helping clients in a better way, which ultimately it starts from the top and it’s trickling down to, eventually, help the clients, putting their best interests first, so just very excited for the next generation as well.

Brent Pasqua: Yeah, this is something I’ve wanted to talk about and I could still talk about for hours and hours just because there’s so much that go into it and it is something that really gets me going, and the reason why is because it’s black and white. You’re either doing the right thing or you’re doing the wrong.

Brent Pasqua: Nowadays, with all that’s there to offer, if you’re selling a commission-based annuity, to me, you’re doing the wrong thing. I do not believe in it because it’s just a hook to get paid, and, the steak dinners, don’t go to them. It’s not worth it. They’re just trying to sell you something, and, chances are, they can. They’ll get you hooked in. I mean, if you want to go to a free dinner and walk away and not have to go to a meeting, then great, that’s fine, but you got to be careful when you go to these things because they’re just going to hook you. It’s a business model that works. It’s a business model that’s successful, and that’s why you get so many of these invitations because they’re out there and it’s a well-oiled machine.

Matthew Theal: Here’s what you do if you want to get one of those steak dinners. I believe this strategy will work if you’re looking for a free steak dinner.

Joshua Winterswyk: I’m excited to hear it.

Brent Pasqua: Yeah, I’m holding my breath.

Matthew Theal: Go to the presentation. All right? Put an AirPod in one ear. Listen to your favorite podcast while the guys are yapping.

Joshua Winterswyk: Would that be the Retirement Plan Playbook?

Matthew Theal: Yes, exactly. Then, when the food comes, say you have to run and ask for your food to go. Tell the agent, “Hey, that was a great presentation.” Fill out his little fact form. Put all fake info. “I have to run. I have to work,” whatever, make your excuse up, “but I have $2 million, and I’m seriously very interested in what you’re talking about. Call me to set up a meeting.”

Joshua Winterswyk: That was like the ultimate troll.

Matthew Theal: They’ll be so excited and they’ll call that fake number a million times trying to get your $2 million. That’s what I would do to get the free steak, if you really want it.

Brent Pasqua: Here’s the thing. To be honest, it’s not worth it. It could end up costing you so much, and it can change the outcome of the life that you want to live in retirement because chances are it’s not going to provide you what you thought it was.

Matthew Theal: Well-put. Do we have anything to recommend today?

Joshua Winterswyk: Yeah, I’ll start. My recommends for today’s show is noise-canceling earphones. I went on a flight, my longest flight I’ve ever been on, and Matt and Brent both recommended that I get noise-canceling headphones, and I think I said earphones, but noise-canceling headphones, and, awesome, I put those on. I watched movies with them. I slept with them on, and I didn’t hear any noise on that 10-hour flight, which was just awesome, so I highly recommend if you’re taking a flight more than a couple hours to get some noise-canceling headphones.

Matthew Theal: That’s a worthy investment right there. Brent, do you have anything?

Brent Pasqua: My RPA recommend of this podcast would be fitness studios. I have two that I go to locally, and I absolutely love it. I love going to an hour class, getting a workout where I don’t have to think about what I’m doing. They control the whole class. I’m very competitive, so I like competing, competing against myself and anybody else that’s in there working out in the class. I think it’s an outstanding way to get your maximum fitness for the hour that you have. I think it’s a great use of time. I used to go to the gym. It’s kind of pointless to stand there in the mirror lifting some weights. I like going to fitness studios. That’s just my preference.

Joshua Winterswyk: Do you still have your gym membership, like your regular gym membership?

Brent Pasqua: No. No, I dropped it.

Joshua Winterswyk: Got it. Oh, wow.

Brent Pasqua: Yeah. I dropped it. It’s a waste of money. I mean, if I’m not using it, why would I pay for it?

Joshua Winterswyk: Yeah. Yeah. Yeah, I’m a big fan of the studios, too.

Matthew Theal: What studios do you go to in Rancho Cucamonga?

Brent Pasqua: I go to Orangetheory Fitness, and I go to Pedal strength and studio, and love them both for different reasons.

Matthew Theal: Yeah, since you started that, you’ve really gotten in shape and you look great.

Brent Pasqua: Yeah, I just keep going a few times a week and I love it. It’s a good stress reliever, too.

Matthew Theal: Yeah, you’re the thinnest guy in the office now. Josh?

Joshua Winterswyk: Great job. All right, my recommend is another show. This one’s on HBO. If you aren’t watching Succession, I highly recommend that show. It’s about a family-run business and a media empire kind of like if they took maybe… They’re trying to blend the Fox Empire maybe with let’s call it The New York Times or something like that, a media empire, and they’re trying to decide who in the family should run the business once the dad passes away. A really, really great show, really well-done, season two just ended, binge on that show, get caught back up with it so you could watch season three next year.

Matthew Theal: Perfect.

Brent Pasqua: I got that cued up.

Joshua Winterswyk: Great show you. You’ll love it.

Brent Pasqua: Yeah.

Joshua Winterswyk: If you like business, you’ll like that show.

Brent Pasqua: Yeah, I’m going to. I’m excited to watch that.

Joshua Winterswyk: Anything left?

Matthew Theal: We’re good.

Brent Pasqua: Yeah.

Matthew Theal: All right, thank you for joining us on the Retirement Plan Playbook. As always, please leave us a review on the podcast page on the iTunes Store. You can find more about the podcast at, and if you have any questions about today’s episode or any questions you want us to go over in general, just drop us an email and we’ll hit it on the next show. Thank you.

Joshua Winterswyk: Thank you.

Brent Pasqua: Thanks.

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