Jack Sharry: Everyone, thank you for joining us on this week’s edition of wealthtech on deck. Today we will speak with someone who has been an industry thought leader and a get it done individual in the annuity space for decades. Scott Stolz is a managing director at iCapital solutions, and has had extensive experience at Raymond James, Jackson National, and Simon to name a few. He’s played a variety of roles, including sales, marketing, strategy, product development and operations. So he covers the gamut. So Scott, welcome to WealthTech on Deck.

Scott Stolz: Thanks, Jack, happy to be here. Thanks for the invitation.

Jack Sharry: So Scott, let’s start with you telling us about iCapital solutions. Tell us about the company your role in it. What do you guys do also, if you would fill us in on the markets, firms, advisors you serve the range of products you offer, and how you are incorporating technology into the solutions you’re bringing to the marketplace? So please tell us?

Scott Stolz: Sure. So iCapital is a technology firm that specializes in the alternative investment space. So anybody who’s worked in the alt play business knows how tough the technology can be how unstandardized the data can be a lot of paperwork, and how do I get values and all of that, they also do feeder funds. So if you’ve got they they make it possible for individuals to invest in all products for, you know, not the required minimum of two or 5 million, it could be like a quarter of a million dollars. And then what they do with their systems and their people is they accumulate all of those orders. And they do all the accounting administration reporting on an individual level, and then just pass the large amount on to the money manager. So from a money managers point of view, it’s like they’re dealing with one being a capital, and allowing advisors to do alts for smaller clients. About a year ago, iCapital purchased Simon, that’s how I came to iCapital. Simon does similar things for both structured investments and annuity. So this was iCapital’s ability to get into those spaces. And like alternative investments. One thing both structured investments and annuities have in common with them, is the fact that it needs technology to do the processing, because the processing is difficult, again, a lack of standardization, hard to get data. And our platforms help with all of that.

Jack Sharry: Gotcha. So let’s back up a little bit, because I want to hear more about what you’re doing with iCapital and how the annuity space and alts are coming together. And it’s all around to having different ways to own investments. So whatever they might be called. But before we get into all that, how to get started in this whole game. I know you’ve been in the annuity world forever, maybe not forever, but for an awful long time. You’ve done a lot of great stuff. So tell us a little bit about how to get started in this kind of a fast forward on your career journey today.

Scott Stolz: So yeah, this year marks my 40th year in the annuity business, which is hard for me to even fathom, quite frankly, I actually started when I graduated from graduate school and Edward Jones I was in St. Louis offered me a position as an annuity product manager. My first reaction was product manager job out of school. That sounds pretty good. I’m interested. My next question was, what the heck is an annuity? So, but I took the job figured I could learn as I went, I went looking for a book on annuities for it, I’ll just learn it that way didn’t exist. So I knew I had to learn literally on the job. To be honest with you, Jack, I felt it would just be like a stepping stone to something else within the financial services industry, sir. But one job led to another which led to another which led to another and then I ended up on the insurance company side. And as you said, I’ve had worked for multiple insurance companies in multiple different roles and then went to Raymond James on the distribution side. And here I am 40 years later, still waiting for that job that is not in the annuity space. So I finally here work for a firm that is not an annuity firm, but I am in the annuity team for I capital. So I’m still here. That’s it.

Jack Sharry: So I’ve been around the annuity space, almost as long as you’re not quite as long but I’ve been in other spaces as well. Talk a little bit about the challenges the annuity and she faces It’s seems to be one of those things that it just never goes away. It’s frustrating for those that are believers, and I’m a believer, and I think it has a lot to do with operations and paperwork and regulatory stuff. I’m sure you’ll get to that. But talk a little bit about that if you would, what are some of the industry challenges that in your opinion are not talked about enough?

Scott Stolz: So you’re right, it is all related? Right in that technology has come a long way actually in the annuity space. Sure. But what the challenge is, is that every time there’s like a technology solution, there’s another piece that needs to be done because of the regulatory part. I mean, it used to be a fixed annuity app was a half a page long, right? Tell me who the owner and the annuitant is and how much you want and how long the rate guarantee you’re done. That’s all you need. Today, even a fixed annuity app is like 10 pages long because of the disclosures that are required. And it’s kind of ironic, because the more paperwork there is, the harder it is to do. But then it becomes more perceived that it’s a complex product by the regulators, which leads to more disclosures and more paperwork. So it’s like this, we’re trying to chase something that never stopped. But I think one of the challenges that people don’t talk enough about is it is time, in my opinion for the annuity suitability rules to be updated. They really haven’t changed in the last 20 years, Jack, as you know, and they were all written when 85 to 90% of the business done, my broker dealers was variable annuities. And that would have been before anything like living benefits. So it was really at that time about tax deferred investment growth. And people perceived, it was just simply a more complex, convoluted way to do that. Hence, the regulatory rules that were the began to put in place. But if you fast forward to today, if you look at even a firm like Morgan Stanley, variable annuities are only about a third of what they do today, over half of what they do is fixed and indexed annuities. If you look at a firm like Raymond James, where I was previously, today, only about 10 to 15% of their business is variable annuities. And then most of what’s done on the variable annuity side has living benefits. So it’s now a protection story, as opposed to a tax deferred growth story. Yet we are working under the same rules from a suitability point is if nothing’s changed. So if I’m selling and recommending to you a five year fixed annuity that’s guaranteed 5% for five years, let’s face it, how much regulatory oversight should there be on that transaction, you’re not going to lose money, you know, what rate what your how much money you’re gonna have five years from now, it’s not complex, it provides much needed protection to retirees, you got to fill out a ton of paperwork just to make that recommendation. And I think a lot of that outdated keeps advisors from doing the business, once they’ve done it for the first time, they say, I’m never doing that, again, I’ll just sell the CD or the government bond or whatever, and provide a different means of protection.

Jack Sharry: When you sort of break out high level breakout, the different kinds of products that are available today, our audience a lot of advisory type folks that are hearing about annuities here in the blogs as part of a portfolio, but maybe as in a simple way. What are the sort of different types of products? And how do they how would they be part of an overall portfolio?

Scott Stolz: You got to first decide which of the two paths you want to go down? Are? Am I looking for tax deferred accumulation? Or am I looking for retirement income, and increasingly, today, it’s a lot about attached for accumulation. Because the baby boomers have arrived, they’re in retirement, they don’t want to see their account values that they’ve built up, go down, and they just want to get a decent rate of return. So that’s the first thing and in under that part, you have fixed and indexed annuities, which are driving more than half of the industry sales today. You know, if you go to a conservative client, say, gee, you can get 5% on a fixed annuity, you should be able to get close to six and a half, seven, hopefully on an indexed annuity depend on how the markets do but you won’t lose money. It’s a pretty easy story. If you want a little more growth, and you’ve got someone who’s more of an equity client, then you can go to a structured annuity that the industry is sadly called rial is the time and you know, gives you some protection on the downside, not completely. But again, it’s a protection story. All three of these are mostly about I want to protect what I have, and get some decent rate of return. On the opposite side is the income story. Right now I’m in retirement, I need to generate a retirement income. And annuities are a great but underappreciated way to do that. Other than pensions and Social Security. As you know, it’s really the only other way to get a paycheck that is protected for my lifetime. And I know it’s going to show up yet. It’s not used near as much as it should be probably.

Jack Sharry: To talk about if you would is a quit tree have strong feelings about this. I’m pretty sure I probably agree with them. But talking about where the industry is heading around retirement because it refers everything I see in here. It’s all about the platform. It’s all about having a variety of different kinds of accounts, whether they’re called ETFs, or SMA as you amaze or they’re called rilis or they’re called fixed or variable annuities, whatever they might be, they’re coming together, the future seems to be around how you put that together. And it’s not just the upside, I think we’ve all come to learn that trees don’t grow to the sky, in fact, and so you need some protection. So and then when it comes to income, you want to have some portion of your income guaranteed. So talk a little bit about that how that comes together, as increasingly, we’re talking more at a portfolio level than just a product sale.

Scott Stolz: I think people have begun to realize now that the retirement boom is officially here, that building a retirement portfolio is different than building an accumulation portfolio. And part of it is though, that there really is it’s not only different, but it’s harder, there are things you simply don’t know that you need to know. Or at least have to have a good guess on. And so it’s kind of people recognizing it’s a bit more of a science than I think people anticipated. And I think as that realization occurs, continues, and people and advisors and particularly start incorporating annuities and other you know, into retirement income portfolios as part of that income, we’ll continue to see more money flow into annuities and become a greater acceptance, but we still deal with kind of different, we mixed together the message of accumulation versus decumulation, and I’m going to give you a perfect example. So this was in barons, about three weeks ago, it was 10 to income plays for 2023 second half. Now, you can imagine, I was like, Well, I’m intrigued to see what they’re going to recommend. Sure. And what I realized is, first of all, I wasn’t too surprised that they’re recommending dividend paying stocks, utilities, bonds of different kinds, REITs, etc. And I’m like, well, that’s not getting close to retirement. That’s not what I think of in terms of income. Right, I now think in terms of retirement income, which means I want to generate a paycheck, something spendable, what Barron’s talks about, and a lot of advisors, who are still focused on the accumulation phase talked about is that I’m trying to give you a specific rate of return, let’s say I’m shooting for 8%. And if I give you a stock that’s paying 6%, I’ve already covered three quarters of what it is provided the stock doesn’t go down. So in my mind, under that view, the income is really a portion of the return. It’s not income as retirement income. And as I think of retirement income. So that’s just a basic example of how we even in my mind, need to change the way we refer to things and talk about things. You know, I’d love to see Barron’s to do a counter article that says, to 10, retirement income methodology for 2023, because I think they’d have a very different list.

Jack Sharry: Actually, the Wall Street Journal just ran an article around income annuities. And if you saw that it was earlier this week, we’re, we’re talking the end of July now. But there was actually a Wall Street Journal article, I was shocked to see it, but it talked about income annuities, it’s like, how did that get the Wall Street Journal? But it seems like there’s movement is that is that your take? I mean, where do you see all this going? Because I know you’ve been a strong advocate for making sense of not only the accumulation, what’s really the retirement income portfolio and how you generate income who did cumulate. So what are your thoughts? Where are we going? What do we need to do as a business as an industry is the segment of the industry? What do we need to do to fix this?

Scott Stolz: Well, I think that it’s hard from a legal point of view, regulatory point of view, but we need to get people to understand whether there’s the advisors recommend making the recommendation, or for the clients that are moving in retirement or in retirement than an annuity is really like another pension or a layer on your Social Security. Yeah, people understand social security, the check that arrives, they understand getting a pension check does, every advisor will tell you that their clients that have both social security and a pension are way easier to manage in retirement than those that don’t. And so, if we can think of it that way, and get clients to investors to understand that what we’re really talking about is providing a supplement to your social security or your pension, people will accept that. Now the challenge, though, Jack, is that I’ve got this fundamental belief that Well, everybody wants a pension, and more money from Social Security. Nobody wants to fund it. Right. Right. Right. He’s wanted even with a pension. I don’t perceive I really paid for that. Because it was just like this benefit I got I made less money during my career because of it, but nobody looks at that letter. Social Security. Yeah, I made contributions, but I don’t have a choice. Right. It just came out. I never saw it. So one of the huge challenges to get people to buy an annuity in my opinion is they have Like, write a check. Yeah, yeah. And you agree to send money to an insurance company, and hope they don’t die soon, right? Otherwise, there’s perception they’ve lost. Yeah. And we got to get people to understand that what you’re doing is you’re supplying insurance on your retirement income. In so don’t think of it as another investment. It’s think of it as when you’re buying peace of mind, that’s what you’re paying for. And I think if we frame it that way, it will become more acceptable. But it is a challenge that, you know, if I’ve accumulated $2 million, and then my advisor says that we’re gonna send 500,000 to XYZ insurance company at this income. I like the income, but I’m going to hate it when that next statement shows up that says My turn now a million and a half, right? I worked hard to get to that 2 million. I don’t want to see it fall by 500. And that’s a real obstacle. Yeah, yeah, that’s true.

Jack Sharry: You know, it’s interesting, I’m not sure if you’re aware, but we have a schedule, there are many very good ones out there, ours happens to be probably the biggest, we have about 100,000 advisors that use the tool. And what’s interesting is we basically show a few delays. So security benefits from 62 to 70. It’s an 8% per year increase in terms of the income you get, as you differ. And when people see that, and we’d put $1 value to it, they go, Oh, I think the average last year was $185,000, have found money over the ensuing 10 years, if you just let it ride out. And then what’s more interesting, and this I think, maybe we could talk about this offline. But one of the things we find fascinating is that once you show them the benefit of screw, which they like, and then it can be more if they wait. And then you can actually add an annuity to add assurances on top of all that. They like that. And you know what the next question is, we thought it was just because we’ve helped them find money, we could quantify the benefit, but they really liked the advisor. That is where the advisory light is the next question after the client went through this. The next question is, what should I do about my rollovers? So in other words, it was found money is you know, you’ve been around the industry for a long time. I call rollovers the currency of growth in our industry, right? Yeah, every advisor, that’s what they want more than anything else is to have a rollover, preferably fall in their lap. But what we found is that by just using social security, which they understand, kinda, but if you show me for defer, and then you can add an annuity that anyway, I think one of the things said, I’d love your comments on this, as an industry, I think we need to get better at making it easier to kind of get that you’re better off for not all of your money. This is not an all or none proposition. But as you put a certain portion of your money, in a more protected kind of situation, you’re going to be happier and more comfortable with what you do it. But love your thoughts on that.

Scott Stolz: Yeah, 100% agree with that. Your comments are interesting about the rollover, but as I think of it right off the top of my head, I guess I’m not surprised. Because in the accumulation phase, most clients have money in four or five different spots, right, they might have at their bank, they might have two advisors. And I think they kind of think of as a way to diversify, right? Okay, this guy, or this woman screws up, fine, I got more money over here, and so I won’t get hurt. In an accumulation phase. That’s kind of okay, I don’t need to know where your rest of your money is. I just need to take care and grow what you gave me. But in the retirement phase, I need to know where everything is. I’ve got to coordinate everything. I got to coordinate the withdrawals between taxable tax deferred tax free. So I’m not surprised to hear the clients say, Oh, you’ve now given me this peace of mind about my retirement, you know, because everybody’s got this fear. I’m going to run out of money. How much do I really need? Am I going to be okay, that’s the question, right? Am I going to be okay? So if the advisor helps them feel as though they’re going to be okay. Of course, they’re gonna say, Well, I’ve got this other money. Can you do something with that, too? So yeah, I can see how that would easily be a means to start bringing funds together.

Jack Sharry: And I would assume in terms of where you see the industry going around retirement, one of the big gaps I observe, I’m sure you see the same is that the client is more inclined, especially as they’re getting into their 60s and beyond. They liked the idea of guarantee they’re not so comfortable with letting it ride in the market, especially. But we’ve all been through in the past few years. They’re just not as comfortable and we are in a retirement boom, that it’s finally arrived. But your thoughts on that? Where does the industry need to go to define the good advisors more comfortable in talking about what the clients really want?

Scott Stolz: Well, it’s part of it is education, that they need to understand what it is. I think one of the ways around that also, is to get advisors to understand that not only does it give peace of mind to their clients, but it also makes their job easier. Let’s go back to my example of the client who has sole security and a pension. The reason it’s easier to manage that person’s retirement portfolio is because they’ve already got so much guaranteed income. I don’t have to worry about little adjustments to I needed to make if the rest of the portfolio drops 25% in a year. When I was at Raymond James, I have one client, and it was just a friend of mine, who begged me to like watch over his money. And single had about, you know, a million and a half dollars or so. But he had two pensions, and he had social security at his house paid for. So between his two pensions and Social Security, he had more money coming in, and he was spending. And so building his rest of his portfolio managers, it was easy. Now you take away those two pensions, and all these guys. So security, yeah, I gotta build a lot more moats around that portfolio, I gotta worry more about how the market does, the choice of products becomes more important. So one of the things I try and tell advisors is, look, you’re making your life easier, too, by taking some of this money, adding in more lifetime protected income, then you have so much more flexibility with the rest of the portfolio, and a lot less likely chance of getting a phone call from that client. When the market drops, 20% asking, and you know, we have this vacation coming up, can I still take it? So I think that’s how one of the ways you get advisors to say, okay, yeah, I’ll consider doing this because most of them think they can do it themselves. And they can. But my question is, why would you want to right, I could probably figure out how to fix my roof. I don’t want to and I’m not sure you know, sure. Just let someone that knows that. Does this do it?

Jack Sharry: Yep, absolutely. This has been great. It’s got to really appreciate the conversation. As we look to wrap up. What are three key takeaways you’d like to leave with our audience?

Scott Stolz: Well, takeaway number one is that annuity business is still too difficult to do. And the industry’s got more work to do to get that fixed. Takeaway. Number two is that I’d love for the industry to get into a conversation with the regulators about let’s update the whole annuity suitability rules to reflect the way annuities are used today, and the greater number of retirees that need them. And number three, is trying to look at annuities as a means in retirement annuity income in retirement as a means to make things simpler and a peace of mind and making sure that that check is there. And that to me, those are the three major takeaways. If I could get one of those three done, I’d be thrilled.

Jack Sharry: Okay, well, I appreciate that. Thanks so much. Now for our my favorite question in our podcasts each week, what do you do outside of work that people might find interesting or surprising that you particularly enjoy or passionate about?

Scott Stolz: Okay, well, I have a pretty extensive sports memorabilia collection really interesting, mostly around baseball stuff, because I just find that more interesting. Although I find today’s baseball game not near as exciting as it used to be. I just don’t find it that interesting when 30 batters come to play neither strikeout or walk in a given game. But I always have some sort of project that I’m working on as far as trying to add to the collection. So this is an example. I bought, probably about 15 years ago, a coffee table book that Topps cards put out back in 1985. And in this book, which is about this thick, it literally has a picture of every single baseball card that they ever printed from 1951 to 1985. And whoever had this book before me started on a quest to try and get as many of those pictures of the cards signed as possible by the players. They were clearly a Yankees fan, because 90% of the people they had were Yankees. That’s kind of a good thing. Because six of the autographs they had six Mickey Mantle autographs and that. So that was figured it was a good start. Wow. So over the last 15 years, I have been trying to get as many of these cards signed pictures of card sign as possible. I think I’m up to 260 players and close to 500 Total autographs. Wow. In fact, two days from now I am leaving Chicago to go to the national sports card collectibles convention, where I’ll get about another 12 players that will be there signing autographs added to the book. So that’s great. That’s great. Good for you.

Jack Sharry: I was wondering how you did it because my son used to collect baseball cards. And he’d actually mail them. I can’t imagine some of the ones you’re talking about. You’d want to put in the mail.

Scott Stolz: Yeah, I’m not mailing this book to somebody without knowing write it off. Knowing that it’s coming back except Yes. And it’s also getting more difficult because the only players that are in it in the book had to have played in 1985. And so they’re starting to die off on me so I’m gonna get to a point here before too long where I won’t be able to add anybody to it. Gotcha. That’s fascinating. That’s interesting.

Jack Sharry: Well, Scott I’ve really really enjoyed our conversation and for audience if you’ve enjoyed our podcast, please rate review, subscribe and share what we’re doing here at WealthTech on Deck where available wherever you get your podcasts. Thanks again, Scott. It’s been a real pleasure.

Scott Stolz: Well, thanks for having me, Jack. I’ve enjoyed it.