[INTRODUCTION]

Welcome to this episode of the Elite Advisor Blueprint Podcast with your host, Brad Johnson. Brad’s the VP of Advisor Development and Advisors Excel, the largest independent insurance brokerage company in the US. He’s also a regular contributor to Investment News, the Wall Street Journal, and other industry publications.

[00:00:25] Brad: Welcome to the Elite Advisor Blueprint, the podcast for world-class financial advisors. I’m Brad Johnson, VP of Advisor Development and Advisors Excel and it’s my goal to distill the best ideas and advice from top thought leaders and apply it to the world of independent financial advising. In today’s conversation, I sit down with a legend in the world of financing, Mr. Roger Ibbotson himself. In 1977 Roger published the first edition of Stocks, Bonds, Bills, and Inflation, a collection of historical returns dating as far back as 1926. In a sense, he was ahead of his time as no one had compiled this historical market data all in one place before in a way that was easy to understand. Based on the positive response from this landmark study, he founded Ibbotson Associates in the same year which he later sold to Morningstar in 2006 for $83 million. Roger is currently Chairman and CIO at Zebra Capital Management and he has also served as a finance professor at the Yale School of Management for 30 years.

Today we dive into his most recent work, a white paper titled Fixed Indexed Annuities: Consider the Alternative. In it, Roger examines how today’s historically low-interest rates and bond returns are putting many retirees in danger of not producing enough income from the fixed portions of their portfolios through retirement. He gets into the biases both consumers and financial advisors often have when they hear the word annuity and why his math shows that fixed indexed annuities may prove a viable alternative in many retirement portfolios.

Here are a few highlights that we get into. First, Roger’s story on how he built a database in 1977 that ended up becoming his seminal book, Stocks, Bonds, Bills, and Inflation and launched his company, Ibbotson Associates. Next, we cover why it’s so crucial to shift your clients’ portfolios away from market-based returns as they approach retirement age and how the industry standard on equity mix might not be the best answer in the future. Then we get into the reasons why the bond market has become less and less appealing over the last several decades as a way to de-risk portfolios. More importantly, what you can do about it.

[00:02:30] Brad: From there, we get into some behavioral finance and why many clients expect markets to continue to behave in the future as they have in the past. Whether that’s the current bull market and believing the market will continue to go up forever or a bear market, similar to the financial crisis of 2008 and ‘09 where investors are permanently scared to safety. Lastly, Roger and I end with one of my favorite exchanges in our show’s history where he surprises me with a twist on analogy of how bond performance since the Jimmy Carter days has been similar to Michael Phelps swimming with the current and the challenge of creating bond yield in an increasing interest rate environment. I promise his analogy will make you laugh.

Okay. Before we get to the show, Roger went above and beyond for all of you Blueprint listeners by offering you a free download of his just-released white paper, Fixed Indexed Annuities: Consider the Alternative. It’s available at BradleyJohnson.com/45. As always, show notes that include links to all the resources, books mentioned, and people discussed are available there as well. So, that’s it. As always, thanks for listening in and without further delay, my conversation with Roger Ibbotson.

[INTERVIEW]

[00:03:42] Brad: Welcome to the Elite Advisor Blueprint. We have a very, very special one here today. We have Roger Ibbotson, Chairman, and CIO of Zebra Capital Management with us. Welcome to the show, Roger.

[00:03:56] Roger: Glad to be here.

[00:03:57] Brad: Well, I’m humbled to have you on the show and I have to give a special thanks to my friends over at Annexus that really were matchmakers on this conversation so thanks to Ron Shurts, Don Dady, Eddie and Andy over on the team. They got us connected here and we’re going to dive deep on indexed annuities today which I have to ask you, did you ever think in your story and career studying the market, you’d be diving on a podcast talking about indexed annuities.

[00:04:23] Roger: Well, I really didn’t even know what they were quite a while ago when I worked on Stocks, Bonds, Bills, and Inflation. So, I guess no, I did not ever think that but now that I’m getting into this, I can see the needs for it.

[00:04:36] Brad: Well, great. We’re going to dive deep so I have to say I always do research for my shows but when you pull up a guy’s Wikipedia page and it says American academic, you know you better really do your homework so I’ve spent a lot of time digging in on all of the studies and the statistics you’ve done and there was something that popped up. Before we get into your white paper which we’re going to spend the bulk of the conversation on, I just had to ask you because I was curious, so you founded Ibbotson Associates in 1977. I got that right, didn’t I?

[00:05:07] Roger: Yes.

[00:05:08] Brad: Okay. And then in, let’s see. One of your competitive advantages was you created this database that stretched to all the way back to 1926 included long-term capital market returns and I’m just so curious because I feel like I’m old because back when I started I was using fax machines to communicate. You’re creating databases back in 1977 of all of this market data so I just have to hear the story. How did this come to be? What drove you to create something that probably didn’t exist back then?

[00:05:40] Roger: Well, first let me say I didn’t actually collect the data in 1926. I’m not that old but, yes, you’d be right. It wasn’t until the late 1970s and really there were these studies by James Laurie and Larry Fisher at the University of Chicago that showed what happened to the stock market over long periods of time, but everybody asked them to update those studies and they really never got around to updating those studies and people wanted to know how the stock market had done. So, that’s what brought me into this whole game here because it was such a need. People at the time had no idea what happened to the stock markets over the long-term.

And then also we were so interested in risk at the time and so we went and compared them to bond markets. And so, people had no idea about the difference between stock recurrence and bond recurrence over the period as well and everybody was talking in academics about risk premiums so that should be some extra return from the stock market over the bond market. And so, we just didn’t have the data at the time so that’s what gave me the impetus to put this data together in the form which was your books and software and so forth build around stocks, bonds, bills, and inflation and that actually became the impetus to starting up Ibbotson Associates.

[00:07:03] Brad: Wow. What was that like? I mean, you’re 1977. Are you in libraries, just flipping through all types of old charts? How did you go about doing that?

[00:07:13] Roger: Well, fortunately, I was at the University of Chicago and a lot of the data was there in libraries but part of it was on computer and so forth and I’ve nearly had to process a lot of this data because the data was actually really available, just hadn’t been processed. So, yes, there was a real need and once it was done, people could understand the relationship between stocks and bond markets and inflation and all those premiums that got out of the things like the small stock premium, what they call the equity risk premium, with the stock versus bonds there or the horizon premium, how long-term bonds do relative to short-term bonds or one of the real interest rates, how things compare with inflation. So, all that data came out of it and really it was a forerunner, for now, all these data is routine and everybody just thinks it’s been around forever but really it wasn’t around before we really did this in the late 1970s.

[00:08:09] Brad: So, you essentially were the original Yahoo Finance before it existed then, right? You’re the guy compiling all this stuff that people had because it wasn’t just go out to Google and type in a stock ticker. You literally had to go back and compile all of this research because people just had never done it before?

[00:08:26] Roger: That’s right. I put it together and there was so much interest in it. I couldn’t handle it. I was a professor at the University of Chicago, but I couldn’t handle all the request for this and that’s why I set up my firm Ibbotson Associates at the time which by the way later was sold to Morningstar in 2006.

[00:08:44] Brad: Yes. And so, let’s dive deep into really I call your newest frontier which is FIAs. And so, for those listening in, I’m actually holding it up to the camera, so you just released this white paper, Fixed Indexed Annuities: Consider the Alternative, and what’s interesting just the timing of what’s going on right now, you couldn’t have timed this white paper I don’t think. I mean you’re the academic, but I don’t think you could’ve timed it a more important time when you look at what’s going on out there right now. I just pulled an article from Financial Advisor Magazine and it said earlier this year, I think it was January or February when the market volatility finally came back that it had been missing all of last year. Typically, as you know, there’s a flood to safety to bonds and they said this was the first time in a number of years where the Barclays aggregate bond index was also dropping at the same time where all of this volatility was going on, on the equity side. So, can you speak to what’s going on out there and I think that’ll be a nice transition into really what you uncovered in your white paper here?

[00:09:47] Roger: That’s why that I wrote the white paper because we sort of saw a need here because the investors really wanted to be part of the stock market in many ways. We had certainly recognized that and saying in Stocks, Bonds, Bills, and Inflation that stocks outperform bonds over the long run, but investors are really afraid to participate completely in the stock market because there’s talk about maybe they’re overpriced, they’re getting more volatile. So, they want to participate but they’re afraid to really go all in and they wanted to find another way of doing it. Now, the other thing that I really studied here was the approaching retirement and that’s where I had written in the annuity space and I had written this monograph with the CFA Institute of Lifetime Financial Advice: Human Capital, Asset Allocation, and Insurance. So, it was giving lifetime financial advice, how are you supposed to manage your investments over your lifetime?

And when you are young, you got a lot of wage income and actually the present value of what we call human capital. All the present value of wage income you’re going to get over your whole lifetime. And so, that’s almost like a bond, that human capital. So, when you’re young you’re really on your financial capital, have to load up on equities because you don’t have enough equities in your portfolio. And so, young people need to have a lot of equities in their portfolio but as they sat aging, they don’t have that human capital wage income going forward. They have decided replacing their financial capital with something less risky and this is particularly important as they start approaching retirement because these are very sensitive views as you started approaching retirement. It can affect your whole wealth status as you get into retirement. And so, as you start approaching retirement, you really need to de-risk that portfolio and so what that monograph showed that you need to have a mixture of more potentially bond-like investments to that portfolio.

[00:11:49] Roger: But as you mentioned, the problem today is that especially with bonds today, bonds today have such low yields. The yields in bond markets are less than 3%. So, bonds have been traditionally the way you would approach this. You would bring more bonds into the portfolio and by the way, bonds have done great over the last decade and really over the last several decades. In fact, interest rates were so high, they were double digits in the early 1980s and a bond return is a combination of a yield plus a capital gain or loss. So, you get that yield and then you get a capital gain if yields drop or you get a capital loss actually if yields rise. But the last 30 or 40 years we’ve had continual drops in these yields. You’ve got these capital gains so anybody who’s been in the bond market over the last few decades have done just great. The problem is potentially as we move forward here.

[00:12:53] Brad: Yeah. It’s interesting because I kind of compare it to this teeter-totter and you have the super high-interest rates and inflation in the Jimmy Carter days that as you get to where we are today, now the low, was it July of last year was the lowest that we’ve seen interest rates historically in a really, really long time? I mean, do you remember when we hit rock bottom there? It was within the last year or so, right?

[00:13:18] Roger: It was recently. I don’t actually have the dates on that but I guess the key is it’s not likely to go much lower and if interest rates start rising, you’ll get the yield today which is 2% to 3% but you’ll get potentially a loss than a capital loss in the bonds because you’re basically locked in a low yield as yields rise and that means price of the bonds go down.

[00:13:44] Brad: Yeah. And so, what’s interesting, I have to throw this out there because obviously a podcast for financial advisors I started in the indexed annuity space in 2007. The product was invented in ‘95 and really I feel like it’s really just hitting the mainstream because if I would’ve talked to an asset manager in the 2007 range and said indexed annuity, they probably hung up the phone. That was about the view of the product back in those days and what’s interesting today though is I still think some of that stigma exists. Being a guy that’s lived in this world forever, can you expand on maybe why is there this image or perception when you look at the math in your white paper, it gets very clear that there’s a huge opportunity here that a lot of asset managers are missing but I feel like there’s this stigma in the industry where they’re still having a tough time getting comfortable with annuities when it comes to asset allocation? Can you hit on or share your thoughts there?

[00:14:42] Roger: Well, I mean, there is something legitimate there in a sense that I would say that fixed indexed annuities are not for everybody. They’re really for the long-term investor and the problem with fixed indexed annuities for some investors anyway is you’re actually committing yourself over 9 or 12 years or some contract period and although you have liquidity, you can get out. You have to pay a penalty if you get out early but for the long-term investor, it’s a much more appropriate investment here. So, yes liquidity can be a problem and that’s why I say it’s not for everybody because this is not for the part of the portfolio that you need any immediate expenses and so forth. This is the part of the portfolio that is planning for your retirement. In fact, the nature of annuities is that annuities, this accumulation of annuities can be converted then into payout annuities that pay out during your retirement period.

[00:15:42] Brad: And so, I guess I should probably also just at a high level explain what an indexed annuity is because there are multiple annuities out there that exist and oftentimes they get confused. So, you actually do a great job in your white paper right at the front-end, a fixed indexed annuity is a tax-deferred retirement savings vehicle. And then I’m going to share one other little snippet and then we’ll dive in and see where you want to roam around in the white paper. In simulation using dynamic participation rates and uncapped indexed crediting designs, a generic large cap indexed annuity using a large-cap equity index outperforms long-term bonds with similar risk characteristics and better downside protection and you back tested this over the period 1927 all the way through 2016. So, this wasn’t cherry picking best case scenario. This is literally going back a long ways historically. Are there any other things that you would share just about indexed annuities that you uncovered in your research that says how you would define them to the audience?

[00:16:38] Roger: Yeah. Well, part of the confusion is annuities really have two general forms. One is the accumulation deferred annuities that we’re talking about here and the other is the immediate or payout annuities that take place during retirement. So, we’re talking about the accumulation stage here. We’re talking about the accumulation. Fixed indexed annuities are a deferred accumulation annuity. They can, of course, be converted to a payout annuity and actually protect against the longevity risk of retirement. Any annuity actually can go through that conversion but we’re really talking about the accumulation stage here. So, that’s what I was measuring here over that period 1927 through, in this case, through 2016, that 90-year period, I was measuring the accumulation of buying a fixed indexed annuity or its accumulation and comparing it to the stock and bond markets.

[00:17:38] Brad: Yeah. So, let’s go in. I’ve got a few highlights here and I would love to get your commentary. So, what you did was you back tested over a three-year rolling period, the FIA versus 60% of the S&P 500 uncapped which is there’s a number of products out there today that have similar crediting methods and then like you said versus the S&P and then also versus bond market. So, the first thing and I’m going to hold it up to the screen here, so you can see which section I’m talking about, I found this very, very interesting so it’s actually Page 13 for those of you that listen in and download the white paper.

So, there’s this diagram right here, Roger, if you remember that where you basically show historically from 26 through 2016, long-term government bonds versus indexed annuities and the thing that I found very interesting especially how bonds are utilized typically an asset allocation, I think a lot of advisors say, “Hey, we’re going to put some of this. You use a lot of 60-40 allocations in this study so we’re going to put this percentage over here so that if the market has some volatility or dropped, your bonds are actually the safe part of your portfolio.” Well, what your study actually uncovered was 13% of the time at least between 1927 and 2016 they returned zero to negative 5%. Can you expand on the reason behind that?

[00:19:00] Roger: Yes. I was comparing annuities to stocks and bonds of course and both stocks and bonds can move money and you are showing up the chart that actually showed that bonds can lose money, and the reason why bonds can actually have negative returns is because you start out with that yield and then you have a rise in yields that leads to a price drop and you have a negative return. So, bonds are risky, and you may think of them as – even treasury bonds are risky. They may not default but because of interest rates change, bonds are risky, and they could have these negative returns. Now, the other thing I should describe about fixed indexed annuity is the fixed indexed annuity is protecting the portfolio, the fixed indexed annuity cannot lose money over any three-year period. That’s what the insurance company is providing here.

The insurance company is saying, “We’re going to give you some equity participation, but equities of course mostly go up. They can drop even more dramatically than bonds but if during any three-year period we end up with a negative number here, we’re going to just give you zero or perhaps some low-interest rate here but not a negative number. You will not be able to lose money over any three-year period with a fixed indexed annuity.” That’s why actually it has better risk characteristics than bonds because bonds can lose money and fixed indexed annuities have about the same volatility on the upside but not really on the downside here because on the downside they’re protected here, and they have – you just can’t take any losses here. That’s what the insurance company is ensuring.

[00:20:47] Brad: Yeah. Essentially you have that 0% floor, right?

[00:20:51] Roger: Yes.

[00:20:52] Brad: So, and that’s what, once again for those joining on video I’m going to hold up basically the green chart here. It was really interesting because I highlight the 13% of the time that your study showed that bonds actually lost money over that time period. And on the FIA front, you just eliminate anything below zero and essentially you just added over there to the third column and the math’s almost equivalent. So, I thought that was incredible and I love how you just summarize that in a fairly simple way because that’s a lot of data but two simple charts to show that right on Page 13.

[00:21:23] Roger: So, one of the reasons that we get these kinds of results here though on the annuity is we’re showing what would’ve happened with an uncapped annuity where you’re getting participation on the equity market without being capped. Some annuities actually have caps and they might not get those very highest returns to show. If you’re capped, you typically don’t get even higher which has equity participation rate, but you’ll be capped in terms of the high returns. Getting these extra high returns are particularly important though because they ultimately over the contract area are responsible for a big part of the return.

[ANNOUNCEMENT]

[00:22:00] Brad: Hey, Blueprint listeners, I have a special opportunity for you this week. I mean, I wouldn’t interrupt the middle of an interview otherwise. We are hosting for the first time ever at AE Headquarters an event unlike any other that’s taking place May 30 through June 1. It’s completely focused on how you as a financial advisor can make the leap from traditional old-school marketing to the new digital frontier. We’re going to focus on how to break away from old-school tactics and learn what’s working for some of our top clients from across the country when it comes to new strategies on Facebook that are driving prospects to your events and even better, it doesn’t require you to pay for dinner.

Here’s a bit of what we’ll cover at the event. First, we’ll have the actual Facebook marketing expert who helped run Trump’s Facebook marketing campaign during the election. I might add this isn’t a political conversation where he’ll be discussing right or left, just doing a deep dive into the tactical strategies that drove results for the campaign. Next, we’re going to have a digital marketing firm that is consistently filling our client’s events with 40 plus prospects per evening. What’s incredible is they’ve only missed this number four times in over 400 plus campaigns in the last three years and all attendees are being invited directly from Facebook ads with an online registration process to attend an educational event with no dinner being served, no direct mail whatsoever being used. They’ll show you exactly how they are doing it including something on Facebook called a look-alike audience which is a tool you can utilize to literally clone your top clients. More on that and how they do it at the event. Then of course, once you get a qualified attendee to actually show up, it becomes about the automated follow-up process you have in place to get them from your event to your office, and then once they get to your office to becoming a client. We’ll have an Infusionsoft expert in to share exact campaigns working today in financial services. And by the way, if you aren’t familiar with Infusionsoft, you should be as it is changing the game for our clients.

[00:24:00] Brad: Lastly, we’ll have two of our top performing offices which gathered 233 million and 97 million organically in 2017. They’re going to share their real-world marketing ROIs, how they consistently keep the calendar full, and the key to scaling your firm, so you are no longer a salesperson or an asset manager that has to show up to work each day but rather a CEO. So, if you’d like to see if you qualify to attend, it’s as simple as taking five minutes to fill out a short application online at BradleyJohnson.com/TheCatalyst so we can understand more about your business and make sure that the event best fits you. And for those that qualify, we’ll fully cover your cost to attend including your flight, your hotel, and your tickets to the event. And if you play your cards right, maybe we’ll even crack a bottle of wine or two at my house. You never know. With that being said, this is the first time we’ve ever done an event fully focused on digital marketing, so I promise you it’s going to fill up fast. I’ve actually already seen a few registrations coming in. So, go fill out the application at BradleyJohnson.com/TheCatalyst to save your spot today and I’m going to be looking forward to the chance to meet a few of you face-to-face.

[INTERVIEW]

[00:25:13] Brad: And something I just want to throw this in there now and I find the same thing that you hit on a little bit earlier as far as what I would say an asset messenger or financial advisors call it – one thing we talk a lot about on our side when we’re coaching financial advisors is math versus emotions and one thing I know you know a lot about is math. So, we see a lot of times though people let the emotional kind of they have certain prejudices versus certain products or tools as it applies to financial services. And one of the things, I was just talking with one of our top clients the other day, he said, what I try to do as an independent advisor as a fiduciary is just essentially not show any favoritism to the financial tool, just express here’s the pros and cons on each one and one of the things he shared that I would love to hear your opinion on if you kind of feel the same way is he will simply have a conversation with the client the other day and he said, “Here’s the deal. If we’re trying to eliminate some volatility and some downside risk in your portfolio, most of my industry, most of the people in my chair would use bonds to do that.”

And as I look at the current or the interest rate and financial environment as it exists today, I can like you said get you about 3% probably on this bond portfolio and by the way as an asset manager then I charge you 1% to manage that. So, you make three. I take one off the top for my fee so that’s option A. Or option B, I look over here at another fixed asset class, an indexed annuity, and when I look back historically and you’ve got the math right in here, 3% to 6% range of reality as far as the actual return and by the way, there is no fee coming off of that because I don’t obviously manage an indexed annuity so there’s no 1% fee coming off the top and that’s option B. So, he’s kind of doing a side-by-side and he’s saying, “I’m just looking at the math and the math tells me I’m taking option B which is the 3% to 6% return with no fee.”

[00:27:12] Brad: So, I wanted to share that with you because I want to see, is there anything off base with there? I know that’s not the full story, that’s very high level but what are your thoughts on that simple A/B comparison based on the current environment?

[00:27:22] Roger: Well, I have a couple of comments. One on the behavioral aspects which I’ll get back in a second but first on the fee part of this, I’m not really saying there are no fees because the insurance company obviously covered their cost here. And so, these fees are embedded in the insurance price and how much equity participation you get in the equity product. So, there is a fee. It’s not that the fee – and I was very aware of it and that’s why we actually presented everything on a net basis, a net of fees in the white paper. I will say that’s one of the things people talk about is the complexity here or the transparency issues about the insurance products because, yes, obviously, the insurance company has to get paid at some point, but you don’t see it quite the same way.

In fact, the fees are really much lower, mostly go away if you hold it over the whole contract period. If you have to get out early, if you want to get out early, you’ll see that fee more directly because you’re going to have to pay a penalty on getting out early. That’s why I say this is for long-term investors who are really using this and planning for retirement because so I’m not saying there is some actual cost actually involved here. There are costs of course but they’re not that high for the investor who actually invests over the whole contract period. And actually, then ultimately, they can convert it to this payout annuity which actually protects against their longevity risk, the other form of annuity. Let me say one other thing about me.

[00:29:04] Brad: Yeah.

[00:29:05] Roger: Because the other part of the question you asked about behavioral, that’s really why we have these kinds of products because they’re really based on behavioral finance. They’re based on what people really want. People are concerned about equity markets, but they also are concerned about the low yields of bond markets. They don’t want to lose money as they head to retirement. That’s their great fear here. These are very important use for them and they don’t want to lose money in approaching retirement. So, from a behavioral perspective, these products are tailor-made specifically meet what people really want and that’s why we have the principal protection here and that’s why we have the equity participation. These are the facets to the product that actually are tailor-made. But once you tailor-make a product that gives people exactly what they want, by its very nature it’s going to be a little more complex and that’s where some of the complexity and the transparency issues come in. But I don’t think that is a bad here. I think of it actually as something that’s actually matching what people really want here. If you tailor-make a product, doing exactly what you want, you have to make it more complex to actually meet their needs.

[00:30:22] Brad: So, I guess, we’re really going to move into kind of the return profiles anyway, so I think you’ll probably hit on it here. So, for those listening in that go out and download the white paper, this is Page 16 and 17 and, Roger, I’ll hold it up here for you. The FIA scenario analysis, if you remember this section, this, like I said, you couldn’t have timed this white paper at any more interesting time because the Fed just raised rates and they’ve said I believe they’re going to raise rates three more times. It’s kind of the projected analysis and what you do a great job of here at the bottom. So, Exhibit 11a, rates are unchanged over a three-year period. So, let’s say the interest rate environment does not bump up as the Fed says it’s going to and you do an expected three-year annualized return and you do a side-by-side here. You do a 60-40 stocks and bonds portfolio. You do a 60-20-20 stocks, bonds, FIAs with bonds and FIAs being a 20-20 and then you do a 60-40 were stocks and then you completely swap out the bonds for FIAs. Do you want to unpack the numbers or do you want me to throw some of them out there as far as some of the surprising things you found there?

[00:31:29] Roger: Well, I won’t talk specifically about a number. You can throw a number if you like but I’ll just say, in general, when the stock markets are up, you’re getting that equity participation. So, that’s one of the things you’re getting it with a fixed indexed annuity, you’re getting part of the stock market. Now, of course, if the stock market goes down, you may do little worse than the 60-40 portfolio because the bond part might not have the same drop, but you won’t have any losses. That’s the key. You will not have any losses over any three-year period.

[00:32:03] Brad: Yeah. It was interesting looking at 11a where interest rates were flat. Essentially, to sum it up and not go in a line-by-line column-by-column numbers, the more allocated to an FIA, the better the return in a flat market, a plus 10 market, a plus 20 market and as you just stated, if the market lost negative 10%, the bond portfolio did slightly better because there’s a fixed-rate that’s attached to it in a negative market. However, as you compare in the next three diagrams so for those of you following along, 11b, c and d you basically do the exact same analysis in an interest rate environment that increases 1% over a three-year period followed by a 2% followed by a 3% and the math comes out pretty clear that the more you allocate to an FIA at least mathematically and statistically, the better your odds are in a rising rate environment. So, what are your thoughts around that and what would you like to share with financial advisors out there that are listening in around that?

[00:33:07] Roger: So, when interest rates rise, bonds fall in price and so a person who invests in a lot of bonds would not do very well in that rising interest rate environment. That’s very likely or potentially the kind of environment we’re in right now because we’re starting out with such low yields and they’re starting to rise. So, if that’ll continue to rise, it’s not a good period. So, that’s why I actually put these diagrams in, these tables and 11b, c and d because we’re looking at potential rises in interest rates. That’s the danger here because people are buying bonds because they are de-risking the portfolio but if interest rates rise, those stock-bond portfolios will not do as well as putting in fixed indexed annuities. So, I think that’s the environment we potentially are in here then that’s why it’s so interesting to look at an FIA today.

[00:34:04] Brad: As we go into that kind of the viewpoint there, most of our clients are dealing with retirees. And so, if you are a retiree today and maybe even say you got $1 million just sitting there and you’re looking to invest it with the thought process that, “Hey, I kind of need this to be around. This is my nest egg that’s going to drive income for me here over the next 10, 20, 30 years. As you compare the option, option A bond, option B FIA with the thought process that interest rates are looking like they’re probably going to be heading up, where would you be putting your money or what thought process would you have behind that?

[00:34:41] Roger: Well, it’s particularly – now once you actually ne