The Life of an Annuity Application


As a case manager, I regularly receive calls from agents asking me how to fill out an application. Each carrier’s application is different and requirements vary by state. Adding to the confusion, some carriers happen to be more strict than others with their requirements. Some focus more on suitability, so an error on the application can set the process back a week. Others merely require initials on all changes or updates to an application, and still others are flexible and will accept changes and updates over the phone.    

I receive an application after our IGO (In Good Order) team has entered it into our computer system. I start by reviewing the application to determine what, if any, changes need to be made, while our contracting team reviews licensing requirements and ensures there will be no contracting hold-ups when the application arrives at the carrier.  

We go over your application with a fine-tooth comb, and some carriers even trigger a second review on all applications. We make sure the most current forms were used, and we look for blanks that should have been filled in or information that is unnecessary or not specific to the state in which the business was written. We check calculations on suitability to make sure the math is right, and we search for corrections that were made but not initialed. We also compare questions on the application to make sure questions are answered the same way that each time. We then call or email you, the agent, to get the necessary corrections made. 

The point of this process is to prevent the need for the client to re-sign or initial the application. Not only is it unprofessional to call the client and ask them to re-sign an application due to an overlooked error, it also holds up issue by days or sometimes weeks.  

The Bottom Line: Our goal is to help you deliver top-of-the line service to your customers. As a team, we can work together to submit clean applications and get policies issued in a timely manner.

For financial professional use only; not for use with the general public. #E1503-589 Rev. 3/15

igo application

Baseballs and Tomatoes


Recently, I heard a great story about a man coaching his 7-year-old’s baseball team. At practice, he was pitching to all the kids, and each would step up to the plate with their bat to take a few swings. As many kids tend to do, they’d stop their swing the moment the bat made contact with the ball. The result was more of a bunt than a hit – the ball would almost fall off the bat and trickle on the ground for a couple of feet. This would happen batter after batter. The coach tried to get his players to swing harder, get the bat in a better position, step into their swing, etc. Nothing changed.   

Since his players couldn’t seem to grasp what he was trying to teach them, the coach changed his own technique. He took the baseball in his hand and asked the batter what he was holding. The child looked at him as if it was a trick question. “It’s a baseball, coach,” the young boy said.  

The coach said, “No, it’s a tomato. I want you to think of this as a tomato and smash it!” The next pitch came, and the batter took the “home run swing” that the coach was looking for. From then on, each batter got up to the plate and swung so hard they nearly turned themselves around. But, they made good contact and got the ball out of the infield. 

The players’ success had nothing to do with their technique – it was about their mindset. The coach changed the way the batters thought of the ball. Instead of thinking of it as a hard object, each boy began thinking of a lighter, more fragile object he could easily bust up. Once their mindset was changed, success followed quickly. 

I bring up this story for two reasons: First, baseball season is back in full swing (pun intended). Second, it reminded me of the problems many of us have when talking to our clients about their future. How often do we discuss rate of return, fees, style drift and other financial terms that are likely over their heads? Not that those things aren’t important, but we have to focus on the clients’ needs and how we can help address them. 

We have to make it easier for our clients to understand the risks of living too long. It’s time to ask questions about how they’re going to live if they run out of money or need long-term care. More importantly, we have to change our story about how we can help them mitigate those risks. It starts with changing our own mindset … then changing the conversation. 

The Bottom Line: Think of positioning your clients’ needs in a new light. If you can change their mindset about the problem, you’re more likely to find a successful solution.


What Fiduciary Should Mean to You


As the NCAA tournament unfolds, many people have been asking me about my experience at Indiana University during our run to the national championship. Frequently, I get asked how it felt to be on the bench during a game played in front of 70,000-plus people. Was it easy to stay focused on the game? How did the players maintain their poise? And, the pressure must have been intense, right? 

Well, I’ll tell you. When you are “in the moment,” all the distractions seem to vanish or become far away from your focus. Even 70,000 people at high decibels won’t faze a high level athlete. You tend to be focused on the task at hand and the execution of the game plan in order to succeed. 

At the end of the day, that’s the same philosophy we need to have when it comes to our clients. If we are solely focused on our clients, we will not be distracted by factors that cause us to stray from our mission: securing the finances for our clients.   

The discussions around the fiduciary standards heats up and cools down. However, if we are truly “in the moment” with our clients, we have nothing to fear. It’s when we focus on our business model that we become incongruent with our clients’ needs and objectives. As financial professionals, staying focused on our clients and aligning our recommendations with them in mind keeps us within the fiduciary standard. Fiduciary is not a business model but a way of doing business.  

I encourage financial professionals to not be afraid of the fiduciary standard but embrace it. If we really are acting in the best interests of our clients, we won’t see a day-to-day change in the way we do business. It’s important for our broker-dealers and institutions to understand the proposed standards don’t require us to do business differently. True professionals, successful professionals, already conduct themselves in this manner.  

The Bottom Line: Fiduciary is not a business model. It’s a level of conduct where we focus on our client.  Many of us are already there.  


Are You Limiting Your Clients’ Potential?


At the moment, the average seven-year fixed annuity is yielding right around 2.5 percent. To CD consumers, this rate sounds surprisingly appealing. In my experience, I feel that far too many advisors and their clients set their eyes on a fixed, multi-year guarantee annuity as being the one and only alternative to CDs and/or other investment vehicles for money they want to keep protected. Fixed indexed annuities are overlooked, even though they provide the exact same principal protection while offering the potential for gains in the neighborhood of 5 percent.

Let’s look at some facts …

  • In the last 30 years, the S&P 500 has had positive growth 24 times 
  • Out of those 24 years, growth has been 5% or more 18 times
  • Conclusion: The S&P 500 has seen growth of 5% or more 18 out of the last 30 years (60%) – this is an important statistic, so please keep it in mind

A conservative consumer may feel comfortable earning a 2.5 percent fixed rate on their money for seven years. However, the facts above support an indexed annuity’s propensity to outperform a traditional fixed annuity over time. 

Here’s why: Assuming premium of $100,000, a traditional seven-year fixed annuity with an annual yield of 2.50 percent will result in an ending value of $118,869. No more, no less. Currently, our best seven-year fixed indexed annuity annual point-to-point cap (S&P 500) for a $100,000 premium is 5 percent. According to the facts stated earlier, the S&P 500 has seen growth of 5 percent or more 18 out of the last 30 years, which is 60 percent. 

So, if the seven-year indexed annuity lives up to expectations and performs at this 60 percent average, we’d be looking at hitting the 5 percent cap four out of seven years. This would equate to an ending value of $121,551 – earning the client an additional $2,600 more than the fixed annuity. 

Of course, we can’t guarantee the indexed annuity’s performance, but one argument for an indexed annuity over a fixed annuity is potential. If we hit the annual cap five out of seven years, this will result in an additional $8,700 more than the fixed annuity. Hitting the cap seven out of seven years will give them an additional $21,800. 

The Bottom Line: I challenge you to take the time to analyze the facts and benefits behind a fixed indexed annuity. If you aren’t talking about them with your clients, someone else will. 

The Right Tool for the Job


I’m not the handiest person around, so it’s no surprise I don’t enjoy fixing things around the house. When I do tackle a project however, the experience is completely different when I have the right tool instead of using something that just gets the job done. The right size socket as opposed to an adjustable wrench, for example.

When it comes to your clients, helping them select the best options on a fixed indexed annuity (FIA) can make it the right tool for retirement income.

We all know that over a longer time horizon you will achieve better returns in the stock market, which makes variable annuities (VAs) with subaccounts attractive to many clients. During the accumulation phase of building up your portfolio, VAs are an attractive piece of the puzzle. However, coming down the stretch or at the beginning of the withdrawal period, there are several things that work against the variable model and favor a fixed indexed option.   

First, we all know that an ill-timed negative year can have a major impact on the value of the account. An FIA takes the negative year off the table. Are you giving up the potential for a larger gain? Yes, but if your client no longer has the time horizon to weather a double-digit negative year, it’s a small price to pay. If you’re saying, “That’s why we have a roll-up and a guaranteed lifetime withdrawal benefit,” I agree.   


The fees in the VA are going to be higher than the FIA. The rider fee may be similar, but when you factor in mortality and expense fees, as well as administration and investment fees, your VA could be charging you 3 percent, 3.5 percent or even more. An FIA will limit your fees to somewhere around 1 percent annually. In distribution, fees become even more critical to your portfolio. If you’re taking a 5 percent lifetime distribution and being charged 3 percent per year, are you going to have greater than 8 percent annual returns? If you’re using the income rider, does it allow for a portfolio that can generate that type of return, or does it give you limited investment options associated with the rider? I think you would have to agree that your VA is no longer an accumulation vehicle.  

Sequence of Returns

Just as important as the fees is the sequence of returns. If you’re arguing that you are using the VA to maintain an account value or grow the asset during distribution, a double-digit negative year can make than prospect almost impossible. Obviously, a repeat of 2008 would be devastating to any allocation, but even during the early years of distribution, a 15 percent decrease would be difficult to overcome. Add in the fees, and what would it take to see an increase in income or maintain your account value?

Fixed Indexed Advantages

Now that we are looking for an annuity that works as a distribution tool, why is an FIA a better option?  FIA offer your clients:

  • Higher rollup rates than you will find in VAs, which allow for greater guaranteed income potential
  • Higher distribution rates, which allow for higher guaranteed payments in retirement
  • Increasing payout options that aren’t tied to the account value, eclipsing the income value
  • Fees only associated with the benefit of having a guaranteed income that you cannot outlive
  • No negative performance impacts to the account 


The Bottom Line: An FIA can be the right tool for the income portion of your client’s annuity portfolio. The right product and rider can be an efficient income generator to meet their income needs for a lifetime.


Fixed Annuities