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Think Twice Before You go With a Varaible Annuity
By JLP | July 10, 2006
Scott Burns, one of my favorite personal finance columnists, has written a pretty good article discussing the shortcomings of variable annuities. If after reading the article you still want a variable annuity, consider a low-fee annuity from Vanguard. Check out their expense ratio:
An annual administrative fee of 0.10%
An annual mortality and expense risk fee of 0.20%
Management fees for the 15 portfolios range from 0.14% to 0.42%
You are looking at a MAXIMUM expense of .72%, which is about half of JUST the mortality expense on most variable annuities.
Topics: Retirement Planning | 2 Comments »
July 13th, 2006 at 4:09 pm
the think i don’t get about this is i have a roth ira annuity, and everywhere i read blasts them, but at the same time it returned like 12% last year, which was better than my individual funds.
July 26th, 2006 at 6:43 am
How does the NASD feel about Variable Annuities? THE REGULATORY VIEWPOINT 2006
by Charles
[ Elisse B. Walter, senior executive vice president of regulatory policy and programs at the NASD, says that her organization isn't against Variable Annuities themselves."Our concern is not whether the product is good or bad, but how it is being sold and whether it is appropriate to the people to whom it is being sold,"she says.]
Let’s look at this above statement
This above position taken by the NASD is what continues the problems with the Variable Annuity industry because there is no official position taken on suitability and in it’s marketing of living benefits to the seniors/retirees that are led to purchase a risk product with a false sense of safety conveyed that somehow their money is really not at risk.
But if the NASD is convinced that their Variable Annuity no longer presents itself as a risk, in the market risk products now because of all the added new “enhanced living benefit guarantees”? then maybe they should petition the SEC to have it reviewed as a non-risk product regulated by the NASD.
After all any product that uses the word guaranteed as many times as in the Variable Annuity Presentation sale certainly must not be of any risk to any consumer.
I disagree with the above NASD statement and their broad position that it’s not a question of whether the product is good or bad? What is considered real compliance with the National Association of Securities Dealers? only that their products offered are OK ?
IT’S NOT GOOD AS CURRENTLY DESIGNED PEOPLE ARE MISLED BY THE USE OF THE WORD GUARANTEED IN A RISK PRODUCT…{ It’s not the product but how it’s being sold and to whom } Is this for real?////// Is this being Compliant ?
It’s a product by current design that in itself mis-leads.The word guaranteed is a word that should never be allowed to be expressed with a risk product. It conveys some type of assurance that’s it’s OK for you to buy this product and if this, that, or the other thing occurs you will be all right ! These problems will never go away because of this misuse of the meaning”guaranteed” in a risk product. Is this suitability? Is this being compliant? Is this a commingle of product designs and definitions?
This extra fee layer that you can”buy back”part of the loss or risk should not be allowed to used in any same / similar manner as the word is used in a real guaranteed product. It conveys safety / protection from any real loss when in reality there is none and tries to change a risk product into a thing it is not.
Real product risk should be highlighted not hidden in design that can create this false sense of safety for a product that has direct exposure to the market and it’s real potential of loss for any purchaser let alone a senior or retiree.
Unacceptable meaning in product design definition is the real issue folks….
Once again the recent March 2006 decision expressed by the NASD that it is OK to for you to exchange you Variable Annuity for any another because of better living benefits shows the thinking with the NASD that continues the problems and complaints for the Annuity Industry with the Variable Annuity guided by the NASD and leading the pack..Is this being in Compliance?
Then they get upset with product being offered that by design avoid principal loss and risk yet attack them and look at them as competition when in reality they are the ones who have decided to allow a commingle of two different product worlds {guaranteed from loss products against “risk” products with so called “living benefits”} & actually wonder why all so many complaint’s still abound. [ Jump Ball vs Ping Pong Ball ] Index Annuity vsVariable Annuity.
The NASD refers to a Index Annuity as a “jump ball product” this is a term that should have applied to their”new Variable Annuity with living benefits” allowing to make a risk product into something it is not….a pretend to jump from risk to “no risk” and a introduction of the the word guaranteed in risk product.
{BS} confusion and a lot of it. Mis-direction will not work here fellows!!!
I’m really not sure if the NASD does understand any real product difference.
Their boss had said Index Annuities are just too complicated to understand! so based on these type of comments they just not might understand any real product difference between a true guaranteed “from loss product compared to the Variable Annuity with living benefits?”It could be rethinking time for the Annuity basics for the higher ranks instead of attack misdirect and then attack some more.
Greed to capture the fixed rate{real guaranteed market}is now what’s caused all these problems to begin with false benefit guarantees allowed to be fee forced on the Public that has all but ruined the guaranteed from loss annuity industry such as the fixed rate/index annuity product and now is on the brink of ruining the entire”safe product annuity industry”through this creation of risk product confusion distrust and complaints around suitability issues.
Living benefits are a”misrepresentation in risk reality”created to increase fees and misleading guarantees that allow the misuse of the word guaranteed that serves only to create an illusion that you are not in a risk product at all.
Guaranteed Minimum Withdrawal Benefits GMWB Guaranteed Minimum Income Benefit GMIB Guaranteed Minimum Accumulation Benefit GMAB Guaranteed Minimum Death Benefits GMDB. I could go on and on. These fee based riders are designed to increase the cost of risk products yet”pound into the buyer is the word guaranteed” leaving them think that by the conclusion of the sale process”their money is not really at any risk at all”but actually is guaranteed from any market loss.
This is still a risk product and even with all the misuse of guarantees it will remain what it is..The NASD knows this all to well but why does the public remain so confused and feel as though they are more then mislead? Why is there still so many complaints and fines is it because of the guarantees that don’t?
If any regulatory agency deserves to be fined it’s the NASD for allowing this to continue.The annuity industry flounders on any clear cut rules for senior and retiree safety allowing State regulators to be set off on their own style of interpretation of what’s to be safe and considered suitable or not etc.
Do they want to keep all retirement dollars at risk in retirement? I don’t think this is what the SEC means for ethical standards being maintained.
State regulators can not really regulate security products already a tilt in fairness has been created against the fixed/index annuity industry.
Once again adding to the heart of this problem is the real risk industry itself and introduction of so called guaranteed living benefits to help add this layer of misleading confusion with limited fee forced type benefits to this issue for guarantees that are available with the fixed/index annuity for no charge.
Once it allowed this word guaranteed to be bounced around the room in a Variable Annuity presentation without prejudice and any avoidance as much as any ping pong ball knowing all too well any misuse of this word in a sale process of any risk product is all to easy to lead into misunderstandings for any age bracket.
This should not be allowed to happen while dealing with any ones retirement savings.
The”living benefits”might have saved theVariable Annuity industry but at what cost?
Never has any product generated so much national public distrust it really abounds but the NASD taken in a fortune in fines. They have allowed this problem to continue and are the only ones who can resolve it. Take away the NASD ability to”profit from fines”and objectivity might return to the issues at hand.
Does the Variable Annuity Industry today reflect National Distrust? 464,000 pages in just one browser below but it’s the Index Annuity that they want to take the heat!
Has any risk product generated so much in fines for the NASD?? Do you think the misuse of the word & meaning for guaranteed product has created this problem?? At the rate the “NASD fines everyone” you would thing that they only have total idiots to market this risk product amazing.
I don’t believe that at all but what is very obvious the NASD has found a good thing with Variable Annuities in more ways then one. Some how the words regulating and or orchestrating have seem to create these not so impressive results that have been achieved here. [ 464,000 pages of complaint issues ] on just one browser not a record I would like to hang my hat on…..The real question is who is really paying for these remarkable results?
Variable Annuity Complaints Results 1 – 10 of about 464,000 for Variable Annuity Complaints. (0.16 seconds) http://www.google.com/search?hl=en&lr=&q=Variable+Annuity+Complaints&btnG=Search
http://info.sen.ca.gov/pub/bill/sen/sb_0151-0200/sb_192_cfa_20060627_092311_asm_comm.html
NASD Should You Exchange Your Variable Annuity?
(Updated March 2, 2006) is this for real?
There are various reasons why a variable annuity contract holder may want to exchange an existing variable annuity contract.
Many annuity contracts now offer premium – sometimes called bonus – credits toward the value of your contract, of a specified percentage ranging from 1-5% for each purchase payment you make.
Also, in recent years, there have been new developments in annuity features, especially in variable annuities, that are valid reasons to consider an exchange. The number of investment options has increased. Less expensive variable annuity contracts have been created. Death and living benefits have been enhanced. Also, with the growth in the stock market in the 1990s, many insurance contract holders have wanted to take part in that growth.These are all valid reasons for considering exchanging one insurance contract for another.
The insurance industry uses the term “replacement” for a transaction in which a new insurance or annuity contract is to be purchased from the proceeds of an existing life insurance or annuity contract. A Section 1035 Exchange is a type of replacement transaction. Although the term “1035 Exchange” is often used to describe any form of replacement activity, especially regarding variable annuity replacement activity, technically not all replacements are Section 1035 Exchanges and as a consequence are not tax-free.