But My Broker Says

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My broker says he can outperform an annuity, can he? I would like to know how!

Quite often when annuity agents present an annuity strategy to potential clients, the client will take the annuity information and present it to their broker, who is managing their money with their brokerage firm, in order to get advice on adding an annuity to their retirement portfolio.

Here’s the problem. When you call your broker and ask him or her, “what do you think about annuities”, what they are hearing is, “what do you think about taking a cut in pay”?

A few years ago, one of my clients went to their broker after I presented an annuity option to them. During our next meeting, this client informed me that they had passed along the annuity information they had learned from me to their broker. They said, “our broker was concerned about…and was also concerned about”. This is very common.

Brokers are paid on assets under management, meaning they are paid, usually, 1% per year (varies by situation) to manage the money you have with them. For example, if someone had $100,000 with a brokerage firm, the broker would be paid $1,000 per year to manage the client’s money (you may have noticed, the more money you have under management with the brokerage firm, the more attention you get from your broker – but that is a topic for another article). If the client moved $50,000 to any other investment outside of the brokerage account, the broker would lose $500 per year in income. You can imagine how this could add up, so the broker hones their skills with asset retention.

The interesting part is, if we go by a common definition of an annuity as, “guaranteed lifetime income that is backed by someone”, then you, become that brokers annuity. In other words, using the previous example, the broker is making $1,000 per year off you, which is backed by you. Part of the brokers business is to continue to make sure you are backing their income.

The name of the game for brokers is to keep you on their books.

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