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Be Proactive with Objections – Understanding Fee Products VS. Spread Products


As we embark into new horizons in the insurance industry and potential regulatory changes, we consistently need to remind ourselves the reason we act as financial advisors. For many of us, we want to make a positive impact on our clients’ lives so they enjoy a happy and successful retirement. Unfortunately, there are many who do not have this moral fortitude and view their business as a marketing machine, chugging and chugging along to make a paycheck. I challenge all of you to be more self-aware and understand the immense responsibility you hold in your hands.

Math and science prove that, if there is not an annuity as part of your retirement portfolio, then your plan is sub-optimal – that is, less than it could or would or should be. Many of you encounter objections from popular “talking heads” around the media and your clients may even bring their own marketing material to a meeting with you. Look, many of these so-called experts can influence your clients to have a negative perspective on annuities. The fees are too high with an annuity! Where are the hidden fees?! There has to be a fee with an annuity and they are all high, don’t talk any more about annuities! Sound familiar?

As you may have noticed, fees structure and compensation for advisors has been a hot subject as of late. In the immediate regulatory landscape, the most important thing to do is to focus on the needs of our clients. Ignore the noise. After you discuss longevity with your client and talk about how an annuity can hedge against longevity risk, the inevitable question will arise about fees. Here’s how I want you to react…

Mr. and Mrs. Client, thank you for coming prepared to our meeting today and I appreciate your diligence and product knowledge. A lifetime income annuity (otherwise known as a SPIA or DIA), is not a fee product, it is a spread product. A spread product does not access any fees (every policy has a policy fee, but this is already calculated into the declared payout rate) and I do not receive any commission directly from your principal investment. The commission I make, is paid for by my company, and it does not come from your principal. The insurance company offers a payout rate based on your investment size, age, gender, and their assumptions about your life expectancy at that time. If the amount the insurance company pays out to the consumer is more than the company’s return, then the company loses money. So, in order for a company to make money, they must price the policy properly to earn more on their investments than the total cost of the policy – the payout over the client’s lifetime, the commission, and the responsibility to service that policy for the rest of the client’s life.

Compare that to a variable annuity that has mortality and expense charges, investment management fees, rider fees, and surrender charges. Variable Annuities are fee products. Some index annuities have fees for their riders. Fees do NOT mean the product is bad. You simply have to weigh the fees vs. the guarantees that the product offers. If the guarantees, or value of the product don’t justify the fees, fine, don’t buy or sell it.

Still not sure about the difference of fee vs. spread? Think about a book that you buy from Amazon. A book is a spread product. All the printing, graphic design, handling, content development, updating, sourcing, and editing is all included in the price of your book. When the book is sold for $24.95, if all of those expenses are not covered, then the author does not make any money. If the author is able to get all of his/her expenses for less than $24.95, then the difference is the profit to the author. Essentially, the spread is the cost of goods sold of the product.

For many people, they want complete transparency when understanding their financial plan. Make sure that they are not fooled by unqualified talking heads that do not provide a thorough and customized financial plan. Ignore all the noise and focus on the #1 priority, your clients. There are 78 million Baby Boomers that need your help and advice, so go out and make an impact!

Tom Hegna Tom Hegna, CLU, ChFC, CASL, is an author, speaker and economist and host of a popular public television show. As a former Fortune 100 senior executive, Tom has dedicated his entire career to helping retirees obtain a “happily ever after” retirement. He has been featured on FoxBusiness, American College Wealth Channel Magazine, Round the Table, Advisor Today and GAMA Magazine. Tom is also a retired U.S. Army Reserves Lieutenant Colonel. He currently lives in Arizona with his wife and children. For more information on Tom Hegna visit

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