This is a real case from an advisor who brought me a $1,000,000 case.
People who have a lot of money may not think they need an annuity. They have multiple advisors and multiple recommendations coming from every which way. In addition, many consider themselves savvy investors.
Here it is: The impossible case.
The Client’s Profile:
- Age 70 years old and retired
- Total portfolio is $6 Million with 40% Stocks, 20% Bonds, 40% in a brokerage account and mutual funds
- Has a $150,000 pension, no debt, and will literally never run out of money
- No longer married, no kids, and plans on giving everything to charity when he dies
The client is not afraid of running out of money, he has done very well in the market, and is really just looking for something safe that can give him a 7% return. He considers himself to be conservative investor.
The advisor has spoken with him at length, and provided an indexed annuity as an option. In fact, they looked at 6 different annuities before I even got involved, but in the end, the prospect was just not impressed. Basically, he didn’t feel that there was enough upside for him to make the move. Not one of the 6 annuity options was attractive to him.
The Advisor’s Mistake:
The advisor had been lead down the rabbit hole of getting into a conversation about rates of return. This is because that is what the client was saying he wants. However, If you look at this case closely, based on the client’s profile and portfolio, then you would learn that the RATE OF RETURN SHOULD NOT HAVE BEEN THE FOCUS OF THE CONVERSATION.
The real conversation that needed to be highlighted WAS RISK. When you're speaking with a client of his age, net worth, and investing experience, the conversation should not have been about making money. The conversation should have been about NOT LOSING MONEY.
The fact of the matter is that 100% of the client’s portfolio has risk. At his age, a downturn in the market could potentially wipe out millions of dollars. Those are dollars that this client will never make back in his lifetime because of his age. Time is not on his side.
With all the facts we had, I suggested the advisor steer the conversation from rates of returns to REDUCING RISK. When he took the conversation from needing a 7% rate of return, to highlighting all of the unnecessary risk the client was taking, the client’s attitude suddenly changed. It was clear that not losing money was more important to him than getting the 7% he originally thought he needed. Fortunate to say, the prospect now has a good portion of his portfolio eliminated from risk and the advisor has a million dollar annuity case on the books.
What’s the moral of the story?
Sometimes you have to take a step back and shift the focus from what the client is saying they want to what the client actually needs.
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