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A Look at an Equity-Indexed Annuity

By JLP | September 13, 2007

After writing yesterday’s post on seminars, I decided to build a spreadsheet to analyze an equity-indexed annuity similar to the one my dad told me about. Now, it is important to note that there are LOTS of varaibles involved with annuities (particularly equity-indexed annuities). My illustration assumes something called a one year point-to-point, meaning that the account value is based on the performance of the index over a one year period. Other EIAs might have a monthly point-to-point.

Here are the assumptions I made when putting this spreadsheet together:

1. The annual EIA growth is capped at 10%, with a 100% participation rate. This means that the annuity holder gets 100% of anything up to 10% rate of return. So, if the annuity returns 7% one year, you get 7%. If it returns 12%, you get 10% due to the cap. I’m almost certain that my assumption favors the EIA.

2. I assumed that the guarantee was no loss of principal. So, if the index returned -5%, the account had a 0% rate of return for that year.

3. I used the S&P 500 Index total returns for 1950 – 2006 as my foundation for the illustration. For comparison’s sake with the EIA, I assumed an account that earned the S&P 500 Index’s return minus a 1.50% management fee. I also did not include any fees on the EIA, which again favors the annuity.

4. I left out taxes completely. We’ll assume that the non-annuity account is held in an IRA.

I have asked my dad to get a copy of the annuity’s prospectus. Once I get that, I’ll do an even more detailed analysis and post about it later.

Click to see larger image

Okay, here are the results I found after running my numbers:

The hypothetical growth of a $1,000 investment in 1950 in the EIA would have grown to $42,670, for an average annual rate of return of 6.81%. The non-annuity account would have grown to $292,674 over the same period—an average annual rate of return of 10.48%. So the “stability” of the EIA cost $250,000! OUCH!

Why is the EIA’s performance so pathetic? Here’s why:

1. The EIA’s annual return is capped at 10%. Over the 57-year period in the example, 34 years (59.6% of the time) had returns greater than 10%. Each of those 34 years, the rate of return was capped at 10%.

2. Over that same period, only 13 years had negative returns. In other words, the guarantee didn’t really help out that much. Oh, and remember that there were no fees taken out of the EIA. So, you may not have lost money that particular year, but you would have still had to pay your fees.

If you are interested, you can download the spreadsheet I put together.

I would stay away from this EIA! I bet you the presenter of the seminar my dad went to did not go into this much detail!

Like I said, this is only an example to illustrate the EIA concept. There are many different kinds of EIAs (some are better than others) with many different “features.” Trying to sort through all the details is very confusing and nearly impossible to do a side-by-side comparison.

Note to any EIA salespeople: If I have misrepresented the EIA, please let me know (nicely). It is my goal to educate, not misrepresent.

UPDATE: Here are some follow-up posts on this topic. Please read them before you leave any comments.

My Response to a Comment on My Equity-Indexed Annuity Post

Another Follow-up on Equity-Indexed Annuities

Topics: Financial Math Basics, Financial Planning | 130 Comments »

130 Responses to “A Look at an Equity-Indexed Annuity”

  1. John Gay, CFP® Says:
    September 13th, 2007 at 10:53 am

    Here is a link to a recent study done on EIAs:
    The results are not pretty!

  2. Mrs. Micah Says:
    September 13th, 2007 at 11:10 am

    Wow. Thanks for putting that together! It really adds perspective….this isn’t just a slightly more conservative investment, it’s crazy. I assume that the EIA profits if the returns are above 10% (not to mention the profits they make through fees and such).

  3. Brian Says:
    September 13th, 2007 at 12:24 pm

    Thanks for the analysis, JLP. I was hoping you would put something more concrete together after your last post.

    Not knowing a lot about these products, my initial reaction was that they may be good for retirees who don’t want to lose principal. After your analysis, though, I can see that I should have looked deeper.

  4. Ryan Says:
    September 13th, 2007 at 12:59 pm

    You DEFINITELY gave the benefit of the doubt to the EIA as well. 1.5% ER for an SP500 index fund? You can find them for

  5. JLP Says:
    September 13th, 2007 at 1:01 pm


    Yes, I did that like that just to show how crappy this particular EIA really is. I know that you can find an index fund that tracks the S&P 500 for a lot less than 1.5%.

  6. Art Dinkin Says:
    September 13th, 2007 at 2:45 pm

    While your analysis is sound, it is also unfair. No one who really understands financial products can reasonably compare the S&P to an EIA. One is an investment. The other is a fixed product.

    EIA’s are not right for everyone. They are definately not right for someone who is suitable for an investment in the S&P. EIA’s are fixed products and are only suitable for people with very conservative risk tolerances (who also can tolerate several other limitations EIA’s would impose).

    I could not see your entire spreadsheet even when I clicked on it (my bifocals are not THAT strong) so I will just assume your numbers are correct. A much better comparison would be what was the average CD rate 1950 – 2006? I don’t know but I am guessing that it would be less than 6.81% (only in the mid to late 80’s can I think it was higher). As a reminder CD interest is currently taxable and annuities are tax deferred.

    I am not getting up on a soapbox and professing EIA’s for everyone. They’re not. But your comparison would be like comparing a moped to a Harley Davidson. Both have two wheels but they have entirely different uses.

  7. JLP Says:
    September 13th, 2007 at 2:56 pm


    I have to disagree with you.

    I think the comparison is fair because the presenter of this seminar used the S&P 500 Index as his basis. And, if an annuity is based on an index but without the “risk” then it is more than fair to compare it with the actual index or another investment that is based on that index.

    And I’ll ignore your comment about my not understanding financial products.

  8. Esmo Says:
    September 13th, 2007 at 3:44 pm

    Correct analysis, and I’ll reiterate my points that EIA’s are fairly complex (for seniors especially) and unless you fully understand them and the opportunity cost, you shouldn’t even think about touching them. This on top of the fact that the presenter was obviously fudging details (important details) like mad. It is extremely difficult to find a good annuity without a consultant that charges a lot per hour.

    What is clear from the get-go that if you are young enough, annuities are completely worthless and basically give away money. Annuities are somewhat more stable for the elderly, but give away a lot of return on top of not being completely safe. I’d submit that instead of annuities when I’m old, I’d invest in bonds or bond funds for stability in my Roth IRA or traditional IRA. The annuity business like the insurance business geared towards the elderly are both devious on the whole (not to say that all annuity and insurance carriers are sleazy, but a majority are).

  9. MossySF Says:
    September 13th, 2007 at 3:52 pm

    The numbers are actually worse than your spreadsheet. Equity-Indexed Annuities only return the index — the dividends are not included. Take out the 4%-6% yearly dividends for that period and it’s a total disaster.

  10. Al Brockman Says:
    September 13th, 2007 at 4:37 pm

    I’m glad that someone mentioned seniors. You may or may not be aware that Citizens Bank (owned by Royal Bank of Scotland) was fined $3,000,000 (yes $3.0 Million!!!) for targeting elderly customers and selling them highly inappropriate annuities. They were being sold to individuals over 80 years old!!

    Re: a comparison with the S&P not being valid – I thought the product was called an EQUITY based Annuity, not a fixed asset based annuity. In my language, EQUITY means the S&P.

    The number of scams (sorry – inappropriate investments) being addressed to seniors is extraordinary

  11. Art Dinkin Says:
    September 13th, 2007 at 4:50 pm

    JLP, I did not mean to imply that YOU do not understand financial products. But now when I read my own comment I understand how that message was conveyed. My appologies.

    While I still think the comparison is unfair, I will say that this presenter is dead wrong too. EIA’s are not investements, nor are they viable as investment alternatives. As others have said EIA’s are complex and there are some people are out there pushing them in inappropriate situations. Rather than blame the EIA, I blame the pusher.

    I just ask this. Try to look at an EIA as a CD alternative. Do you still think it is so bad? Of course that also changes the perspective of who it is appropriate for.

  12. Art Dinkin Says:
    September 13th, 2007 at 9:12 pm


    The reason they called EQUITY INDEXED annuities is because the INTEREST that is paid is based on a market index such as DJIA, S&P, etc. Since they pay interest, and the crediting rate can never be negative, they are fixed products and not investments.

    Again I feel the need to re-iterate. I am NOT promoting EIA’s. I am just being fair in my analysis. JLP said the goal is to educate, not to persecute. That is all I am trying to do.

  13. JLP Says:
    September 13th, 2007 at 10:28 pm

    Art said:

    “The reason they called EQUITY INDEXED annuities is because the INTEREST that is paid is based on a market index such as DJIA, S&P, etc. Since they pay interest, and the crediting rate can never be negative, they are fixed products and not investments.”

    I always thought “fixed” meant that it didn’t change. When I think of a fixed annuity, I think of one where the interest payment (or earnings) doesn’t change and the income is basically the same year after year.

    I’ll admit that there is a lot of confusion when it comes to annuities and EIAs. A lot of the confusion is brought on by sales people who like to talk up the EIA as a way to play the market without the risk. And the risk, although there, is a WAY overplayed by the salespeople.

  14. Art Dinkin Says:
    September 13th, 2007 at 11:29 pm

    JLP, I think that we are closer than you think. I too believe that the longer your time frame, the less risk you take investing in the market. Invest for a long enough time and the risk of loss is nil.

    By regulator’s definition, a fixed product is one which is not an investment. EIA’s are not investments.

    A traditional fixed annuity pays interest that is “fixed” by the issuing insurance company. Usually, the interest rate is set for each year at the beginning of the contract year. The contract may have surrender charges for several years and a guaranteed minimum interest rate, but the actual interest paid still varies from period to period. As long as the rate is at least equal to the contractual minimum, the insurance company can pay whatever rate they want. It is often based on economic conditions and marketing factors.

    In an EIA the interest rate is not set in advance. Instead, formula(s) based on stock index values are used to calcualte the interest earned. Other key differences are that the minimum interest paid on an EIA is 0%, and it is impossible to calculate the interest earned in any given year until that year is over. The actual mechanics of an EIA are too involved for a comment. I think I will try to post about them next week.

    In the meantime, lets agree that:
    1. EIA’s are NOT a way to play the market without the risk
    2. EIA’s are a conservative alternative
    3. If someone claims otherwise, they are either unethical or uninformed.
    4. The products themselves are not necessarily bad, but they can be used improperly.

  15. MossySF Says:
    September 14th, 2007 at 4:18 am

    Let’s consider the idea of EIAs being a CD alternative. I decided to pull up spreadsheet and run some numbers myself. Since 1928, I have the following real returns and volatility:

    * S&P500: 6.46% real, 19.09% stdev
    * Treasury Bills: 0.55% real, 4.42% stdev
    * Treasury Bonds: 1.57% real, 8.88% stdev
    * EIA 0% floor, 10% ceiling: 2.45% real, 6.36% stdev

    So compared to just T-Bills (good proxy for CDs) or T-Bonds alone, an 0%-10% EIA looks to be a good deal. Obviously, it underperforms the S&P500 but the standard deviations are so much lower, they’re not in the same category.

    But let’s say we have a portfolio of 20% Stock, 40% T-Bonds, 40% T-Bills. This would have returned:

    * 2.45% real, 6.81% stdev

    Pretty close. Looks like we can probably reproduce EIA performance without having to deal with commissions, extra annual fees and surrender charges. With more asset classes, we could really make a CD-like portfolio hard for an EIA to beat. An example using data going back to 1972:

    0%-10% EIA: 1.56% real, 5.89% stdev
    Permanent Portfolio: 4.82% real, 5.88% stdev

    The Permanent Portfolio author Harry Browne’s conservative allocation designed to handle many economic cycles: 25% cash, 25% long bonds, 25% gold/commodities, 25% stocks. I dropped gold/commodities to 20% and increased bonds to 30% to get the standard deviations to match up.

  16. MossySF Says:
    September 14th, 2007 at 5:02 am

    A note about the numbers I just ran. Starting the period from 1972 is a huge hit against an EIA because an EIA is absolutely pummelled by high inflation. Inflation ran 6%-12% during the 70s. So an average return of 2% above inflation for the S&P500, the nominal returns would have been high (8%-14%). EIA caps would then produce next to nothing with the inflation portion artificially causing the cap to chop off much of the real return. 1974 and 1979-1981 had inflation above 10% so a 10% cap would have guaranteed real losses no matter what the market did.

    I don’t know if there are be inflation-indexed EIAs. If so, that would solve the 1970s issue. But a deflationary period like the Great Depression would be corner case for that option. A string of low returns with deflation adjusted would also produce negative real returns.

  17. juanny Says:
    September 14th, 2007 at 7:06 am

    I could be wrong on this, but as far as the “guaranteed principle”, you might be slightly off. You stated that if the index return is -5% one year, the account had 0% return, which is correct, but I think that the account balance still drops, even though it is guaranteed for the full amount. For ease, let’s say you have $100 in the account and the index return is -5%. Now the account is $95, but your guaranteed principle keeps it at $100. If the following year the index return is +5.2% (the return to get the account back to the orignal balance), I believe your account balance would only be $100, and not $105.20.

    Again, I could be wrong on this, and it could vary from annuity to annuity, but if I am right, just another point to your arguement. Also, I believe guaranteed priciple only guarantees the amount you put in, and not the interest gained. So if you doubled your money the first year, then lost a little over the next 3 years to bring you back to the original investment, you only get your original investment. Some companies recalculate the principle to include the interest every couple of years.

  18. Dylan Says:
    September 14th, 2007 at 7:53 am

    Art said: “By regulator’s definition, a fixed product is one which is not an investment. EIA’s are not investments.”

    I think he may mean to say it’s not a security; a fixed product may still be an investment.

    Securities are regulated on a federal level, while fixed annuities are regulated by each state’s insurance commission.

    One of the reasons EIAs are so controversial is they look a lot like a variable product, which would be a security, and if it were a security, those selling them would have to follow the same regulations that all securities dealers and reps have to follow. But, as of right now, they are regulated by the states as “fixed” annuities.

    If an annuity doesn’t involve a sub account that can used to invest in securities, it will likely fall into the “fixed” category.

  19. Art Dinkin Says:
    September 14th, 2007 at 8:55 am

    Good stuff here. Thanks JLP for stimulating the discussion.

    Mossy – I agree with you when you wrote “compared to just T-Bills (good proxy for CDs) or T-Bonds alone, an 0%-10% EIA looks to be a good deal. Obviously, it underperforms the S&P500 but the standard deviations are so much lower, they’re not in the same category.” That is what I originally meant when I said the S&P comparison was unfair.

    I also agree that you can replicate EIA like performance with a portfolio of conservative securities. However the only thing you are avoiding is the surrender charges. Fees and commissions are included in the returns, not charged in addition. While early EIA’s had long surrender charge periods (I have seen in excess of 15 years!), modern ones (within the last year or so) are often 10 years or less. Many new issues are 5 years of surrender charges or less. Not really all that different from a long term CD. Add that to the guarantees (which a securities portfolio does not have especially in time frames of under 5 years) and tax defferal… once again, I am not saying EIA’s are the answer for everyone… I am just saying they do serve a role for the right person.

    You do bring up a good point about inflation. Keep in mind that CD’s suffered the same ilk in that time frame too. I have never seen an EIA designed to provide inflation adjusted returns.

    juanny – You’re close, but not correct. If you have a $100 EIA balance and the market return is -5%, you get 0% crediting and your balance is still $100. Next year if the market return is 6% your new balance would be $106. (keeping the assumption of a 100% participation 1 year point to point with a 10% cap). Now your surrender value may be less than your account value if surrender charges still apply…

    Dylan – You said it better than I did. A fixed product is one that is not a security. As for EIA’s being investments, I still disagree. As others have pointed out there are many better investments. All the problems with EIA’s stem from people who sell/buy them as investments and then later realize that they are not. EIA’s are CD (or equivilent) alternatives.

    Hey JLP! I have never commented so much on a topic. Let me know if I should just shut up and move on! :)

  20. JLP Says:
    September 14th, 2007 at 10:21 am

    Art said:

    “Hey JLP! I have never commented so much on a topic. Let me know if I should just shut up and move on!”

    I would never do that. I let the discussion carry itself. If there’s still people commenting, then there’s still a discussion going on.

    I do appreciate your comments as well as the comments of all my readers.

  21. Weekly Blog Roundup, Fall Season Edition on Consumerism Commentary: A Personal Finance Blog Says:
    September 14th, 2007 at 11:10 am

    […] A Look at an Equity-Indexed Annuity. AllFinancialMatters analyzes an annuity similar to those pitched in seminars full of people who aren’t given the time to take a deep look at these products before receiving the hard sell. […]

  22. KellyW Says:
    September 14th, 2007 at 11:30 am

    I find it odd to be talking about 70 year S&P timelines when a client may already be 50-70 years old themselves. That is as fair as taking a comparison only during a bull market. Fixed Indexed Annuites are appropriate whe mixed in with other vehichles depending on the client. I have one client age 41 who has changed jobs about every 3 years. She rolls her 401K into an FIA when starting a new job. With the guarantees in the anuity she then goes super aggressive with her new 401k enrollment. This has worked fantastic for her and she has sent me thank you notes during the last Bull years. Also the mjority of FIAs I sell now have a 2.75-3% monthly cap, my own IRA has had returns as high as 24%, with no concern, and the gains locked in. I and many others are willing to give up some possible upside for the peace of mind on some of my dollars. It is a personal purchase decision just like buying a nicer car instead of more common stocks. Any blanket statement of good or bad shows lack of knowledge or posturing.

  23. JLP Says:
    September 14th, 2007 at 11:54 am


    It’s a 57-year timeline (at least in my example) and I ONLY used it because that’s how far back the seminar presenter went back. Besides, you said you have a client who is 41. The chances are really good that she will be a 50-year investor.

    Personally, I think you are doing your client a disservice by allowing her to roll all her money into an EIA. Did you spend time showing her the long-term trends in the stock market?

    You say her strategy has worked well. How do you know? Have you done comparisons with other strategies to find out? I may think I’m tall because I’m the tallest member of my 5-member family. However, that doesn’t mean I’m tall.

    Finally, how much more commission did you earn from the EIA than you would have earned had you invested her money in traditional mutual funds? Why is it that everytime someone challenges these products, the people who sell them claim that we are making blanket statements and that we lack knowledge? What, we lack knowledge because we think a product is inferior?

    I’ll take my lack of knowledge over your superior intellect any day.

  24. Byron Udell Says:
    September 14th, 2007 at 2:32 pm

    Good post. There was an article in the Sept. 24 issue of BusinessWeek that readers may also want to check out. Here’s a link…. The article is called, “Retirement Made Complicated.”

  25. Deltablues82 Says:
    September 14th, 2007 at 5:00 pm

    Apologies to JLP…couldn’t let this one pass.

    You state: “It is a personal purchase decision just like buying a nicer car instead of more common stocks.” “my own IRA has had returns as high as 24%, with no concern, and the gains locked in”.

    You sound like you’re selling cars and returns.

    And you bought an “indexed annuity” for your own qualified account? I doubt it. We know the insurance sales game. The annuity is an insurance product right, not an exchange-traded security?

    “the mjority of FIAs I sell now have a 2.75-3% monthly cap”

    Let’s be clear. You’re just an insurance agent representing the products of insurance companies. Why should we care what you have to say?

    JLP is on the right track: “how much more commission did you earn from the EIA…” We all know if there was no commission you wouldn’t know anything about IAs.

    Don’t insult the many, well informed, educated, knowledgeable readers here who see right through that propaganda.

  26. MossySF Says:
    September 14th, 2007 at 5:38 pm

    There is a way to buy EIA-like products inside a qualified account. Fidelity Brokerage offers something called Principal Protected Notes.

    You are depending on the credit risk of the issuer. If you buy a PPN from Lehman Brothers and they have serious troubles due to the subprime mess, they made decide to default on their notes. (Same for EIAs — you are dependent on the financial health of the insurance company.)

    Of course, when you think on it carefully — any bond held to maturity is “Principal Protected” if the issuer doesn’t default. There probably is a premium for PPNs because they are non-liquid and currently not tradeable on the secondary market.

  27. Joe Taylor Says:
    September 15th, 2007 at 10:10 am

    A good resource for comparing equity index annuity performance can be found at You can input the EIA you want to analyze and see hypothetical returns for bull markets, bear markets, and last ten years.

  28. muddlehead Says:
    September 15th, 2007 at 1:47 pm

    man oh man. a discussion this lengthy might actually delude someone into momentarily concluding annuities aren’t that bad . kinda like entertaining theories of holocaust didn’t happen or we didn’t land on moom in 1969 as if just maybe there’s some sanity in that argument. there’s no sense in mincing niceties when it comes to this insurance product. all annuities suck and are inappropriate for everyone except the salesperson. period. there is no other side. check my previous posts to see reasons so i don’t have a heart attack restating. and a saleswoman had the frickin’ nerve to post here after putting a “client” in an annuity in a 401k? sick.

  29. Dorice Maynard Says:
    September 15th, 2007 at 2:01 pm

    Two things no one is really addressing in detail here: 1.) That the “annual reset” feature of an EIA in addition to the “no downside” adds huge value to the client – especially when taking income via withdrawals; 2.) That the choice of crediting method used will also have a HUGE impact on what the client receives.

    Unlike the “variable annuity”, there are NO initial or ongoing account fees or other maintenance costs in an EIA. “Annual reset” means that not only does the client not lose principal, but all gains earned are “locked in” and the account value is restarted/reset from that point for the next year. There are never “drawdowns” or losses to recover from or make up for! The effect is similar to a balanced portfolio, but for many people easier to implement and offers an extra level of protection (guaranteed) from losing principal that securities can’t offer.

    Now – Suitability assumed, you MUST look at the way the EIA will “capture” gains. For example, annual caps are terrible and throttle the whole beauty of the EIA concept. Monthly point to point (a.k.a. Monthly Cap) is one of the worst credit methods ever designed, for a long-term investment like the EIA. But you’ll never know unless you look at the differences yourself. And they are surprising!

    As you noticed, spreadsheets are cumbersome and nearly impossible for some of the more complex methods. Use a software tool – the free one noted above is provided by my company for consumers but others are available for agents and advisors from several companies, including mine.

    You’d be surprised at how well a rightly-configured can meet growth needs for the more conservative investor. Don’t rule out the EIA or consider them all “worthless” simply because a capped product configuration you were shown doesn’t perform well.

  30. Art Dinkin Says:
    September 15th, 2007 at 3:00 pm

    muddlehead, “all annuities suck and are inappropriate for everyone except the salesperson. period.”

    At least you are open minded…

  31. Deltablues82 Says:
    September 15th, 2007 at 7:47 pm

    The concept of the IA is valid. Market “participation” with a limited upside, coupled with a TRANSFER OF RISK for any losses to an insurance company. A legitimate strategy.

    However, in my opinion software that “analyzes” EIAs is of practically no value to the consumer. Of course in the hands of a skilled agent, this type of illustration can be a highly effective sales presentation and closing tool.

    This is the same old historical review ” well look how well your money WOULD HAVE performed”. Give me a break. It sounds impressive and authoritative but means nothing.

    The producer software from that firm allows the agent to choose the historical comparison period. Given a half hour most readers could select a time period that will look very compelling (and would probably generate a sale).

    Of course contracts offered by annuity companies do vary widely, so an individual should read the offered legal agreement thoroughly. And not just the flashy charts and “hypotheticals” that are NO PART of the agreement.

    For that’s what we’re discussing, CONTRACTS; not securities like stocks, bonds, notes, or shares of a fund.

    Do your homework (which is what most readers are trying to do so cheers to JLP), ask questions, and choose wisely.



  32. muddlehead Says:
    September 16th, 2007 at 10:14 am

    art, i’m in. the floor is yours. give me a specific example where an annuity is appropriate.

  33. The Sunday Review #38 Says:
    September 16th, 2007 at 10:26 am

    […] A Look at an Equity-Indexed Annuity by JLP @ All Financial Matters. Go ahead and read the interesting comments by Art Dinkin and MossySF on this one. I am sure you will have a good idea of what Equity-Indexed Annuity (EIA) is by the end of reading this one. […]

  34. Roundup for week of 9 September 2007: Arturo Sandoval edition at Mighty Bargain Hunter Says:
    September 16th, 2007 at 10:21 pm

    […] All Financial Matters lets us peek at an equity-indexed annuity. […]

  35. TJ Says:
    September 16th, 2007 at 10:23 pm

    Interesting post, I was just having a discussion with a colleague about “Fixed Indexed Annuities” last week. We are in the financial services business and both of us absolutely hate these things. The thing is, we came to the conclusion that the reason we really hate them is that they are almost always mis-sold and almost always misunderstood by the person buying them.

    That being said, I suppose that there is probably some limited use for this product; I just haven’t found it yet. In my opinion, the indexed annuity product was cooked up in the back room of an insurance company as a way to give non-securities registered agents something that looked like an investment to sell.

    Some of the important points from the comments above are really, really valuable.

    1. Don’t use “total return” to compare. The indexed annuity doesn’t participate in the dividend portion of the total return.
    2. So much of the performance of this product is tied to the “crediting method” that it has to be investigated very closely.
    3. These products have so many moving parts that they are very complex and aren’t easily understood.
    4. These products should not be compared to a stock market investment, but rather to a fixed savings vehicle like a CD or fixed annuity.

  36. Dorice Maynard Says:
    September 17th, 2007 at 2:24 pm

    To DeltaBlue: Don’t assume that all analysis software tools are the same – they aren’t. You should explore a bit before dismissing them all in one fell swoop.

    For example, the online program mentioned by Joe Taylor ( is a great example. You CAN’T “cherry-pick” a time period with this one. And it weighs in factors like correlation coefficient and Beta in addition to return.

    There is even a software tool for running Monte Carlo simulations for EIA credit methods… but that’s another story.

    And to “TJ”: The strategy of index investing is well researched and proven by top minds in the industry (J Bogle, B Malkiel, etc.) to be superior to active/subjective investment strategies. For non-qualified, conservative dollars, whose desires include tax deferral and growth that outpaces fixed interest rates, the indexed annuity is a sound choice. Add to that the ability to take annual withdrawals for income – without worry of taking income amidst a market downturn – and it is appropriate in many situations as a key part of a retirement portfolio.

    Finally, even though penalty-free annual withdrawals of 5-10% are pretty standard, many EIA’s are now shorter surrender term (5-9 years), and with much lower commissions, too. As with any other investment, shopping around for the best product structure for your client is imperative. So – using the EIA doesn’t automatically make an advisor a ‘commission pig’.

    Can you imagine choosing a mutual fund or bond without looking at the investment method to be employed, and reviewing its historical behavior? No educated advisor looks at the past to forecast, but rather to understand relative behaviors to aid in making decisions.

    Hope this helps!

  37. Deltablues82 Says:
    September 17th, 2007 at 5:22 pm

    Ms. Maynard,

    First, you start with a HUGE bias in my opinion. You sell software to insurance companies and their agents. This IS your business model correct?

    Your fees are based on the dollar value of insurance premiums generated by these companies when they sell EIAs to consumers correct?

    Second, you DO NOT dispute my statement that the “producer” version of your software allows agents (the proper legal title) to choose the time period they wish to illustrate.

    You could have said, “indeed the insurance agent version does allow customized reporting periods, but this is not available in OUR consumer version”.

    You instead say something like “Can you imagine choosing a mutual fund or BOND (my emphasis) without looking at the investment method to be employed”.

    Huh, what??

    The investment method of the bond I own? Simple. It’s a loan to General Electric for ten years, at 6.33%, callable in five. There is NO investment method. I evaluate the credit worthiness of GE to pay me back period.

    And that ” it weighs in factors like correlation coefficient and Beta in addition to return.”

    Yawn….This is the point consumers glaze over. “Well, I trust you TOM. We’ll go with Allianz if you think it’s the best for us”. Tom gets a 9% commission on a $250,000 premium and pockets $22,500 for the pay period. SWEET!

    Don’t give us a naive, sales oriented, canned answer that we won’t buy. You’re not addressing a room full of Seniors who don’t know any better.

    Ms. Maynard says “annual caps are terrible and throttle the whole beauty of the EIA concept. Monthly point to point (a.k.a. Monthly Cap) is one of the worst credit methods ever designed”.

    Add value for the readers and tell us which methods are more favorable then?

    Perhaps Joe Taylor (who touts your software and thus the legitimacy and virtue of EIAs), as a fee-only advisor with Oak Street can give us an example (or three) of a no-load, no-commission IA that readers might investigate further.

    TJ is not far from the mark: “the reason we really hate them is that they are almost always mis-sold and almost always misunderstood”.

  38. TJ Says:
    September 17th, 2007 at 6:47 pm

    Ms. Maynard,

    It is quite a stretch to equate the idea of index investing as conceptualized by Bogle with an indexed annuity. I have no problem with “index investing” but (as I am sure you know) that isn’t exactly what you get with an indexed annuity. Hence the confusion that exists for the average consumer, and, I’m afraid, for many agents/advisors.

    You wrote “For non-qualified, conservative dollars, whose desires include tax deferral and growth that outpaces fixed interest rates, the indexed annuity is a sound choice.” Maybe, maybe not. But I can think of better choices for almost every case. Further, you wrote “Add to that the ability to take…withdrawals…without worry of taking income amidst a market downturn….”. Again, I can think of options that are much better than an indexed annuity.

    “Finally, even though penalty-free annual withdrawals of 5-10% are pretty standard, many EIA’s are now shorter surrender term (5-9 years), and with much lower commissions, too.”
    About this you are correct, although I still see plenty of new clients in these things that have 10+ years in surrender. And let’s face it, the caps (regardless of crediting strategy) in the short surrender products are pretty low.

    “As with any other investment, shopping around for the best product structure for your client is imperative. So – using the EIA doesn’t automatically make an advisor a ‘commission pig’.”
    Again, you are right, not every agent selling these are “commission pigs”. But some are. And some are agents that can’t (no securities registration) sell other, perhaps better, products.

    For me, the bottom line is:

    1. IA’s are often mis-sold by greedy or uneducated agents.
    2. The public misunderstands these products in a bad way. In my experience, most consumers think they are getting something that they are not.
    3. There are better solutions than IA’s in practically every case that I can think of.

    So I ask this: Why buy (or sell) an IA when you can buy (or sell) a better solution?

  39. Dorice Maynard Says:
    September 17th, 2007 at 11:08 pm

    Thanks, TJ – I do think we agree about more here than we disagree on.

    Actually, carrying over the concepts of index investing to the EIA really isn’t that much of a stretch. I’m assuming you are referring to the “no dividends” thing, since the EIA issuer is getting the market participation through derivatives purchases (call options) and not actual securities purchases. Are you saying then, that derivative strategies aren’t really “index investing”? I know some large mutual fund companies who would disagree with you.

    In a way, the EIA effects “Separation Property Theory” (Tobin) for many individuals who for lack of account size wouldn’t get access to more sophisticated portfolio management. As I mentioned before, there is NO upfront fee, NO ongoing account or management fee, and NO transaction costs to implement this strategy in the EIA; along with its inherent benefits of tax deferral, asset protection, and income options (guaranteed payments for a set term or for life, or annual withdrawals).

    EIA’s can indeed be mis-sold by the greedy or uneducated. But so can be mortages, stocks, mutual funds, timeshares, refurbished appliances and new cars. I know many more upstanding agents and advisors who sell the indexed annuity.

    Don’t take me wrong, I agree that many consumer’s aren’t getting a straight story on what it means to own an EIA contract. However it’s an education problem, not a product problem. And both Consumers and Agents can be educated. (So why aren’t they required to be educated? That is another peeve of mine, but I digress…)

    Should advisors stop selling all Mutual Funds or stocks just because reps of several well-known brokerage firms were hard-selling them? Or avoid all ETFs just because it’s a new way investment companies have found to draw in assets under management? Perhaps one should never refinance a mortgage again because of the recent scams? It’s the same thing with the EIA.

    The EIA rates change annually under most contracts. The reason rates are low now is because of index volatility – option prices are murder (see the VIX index). When the indexes stabilize, rates will increase again. That’s “market participation”. But no contract holder ever faces losing their premium deposit. That’s a fixed annuity guarantee.

    So all that being said, what other similarly priced plan, product, or program can accomplish all that for the average Joe and Joan and their modest nest egg?

    “Better Solutions” for them? I don’t know. The client’s needs should dictate, of course. One can make a good case that index investing (in some form) should be a part of every retirement portfolio. The EIA may actually be a better solution in more cases than one might think.

    I guess I’m still saying to all advisors to take an analytical look at the product – to do some real “due-diligence” research – before painting a whole product line with the same brush.

  40. TJ Says:
    September 18th, 2007 at 2:52 am

    I think we will have to agree to disagree on the idea that an IA is a form of “index investing”. At best I think any debate we might have on this point could easily devolve into one of semantics. Regardless, you illustrate a point of contention that I have when you wrote “…since the EIA issuer is getting the market participation through derivatives purchases….” In essence, the IA issuer is getting market ‘exposure’ through the use of derivatives, but I wouldn’t call that market ‘participation’ and I know one too many agents that represent an IA as providing market ‘participation’.

    Regarding Tobin’s “Separation Property” I will concede your point as I agree that this is largely what the strategy within an IA does. The problem is that in theory this sounds great. In practice, anyone who lacks sufficient investment assets is either:
    1. Young enough such that they have sufficient time to “absorb” the negative effects of volatility on their portfolio (and consequently take advantage of the lack of limits on growth), or
    2. Poor enough such that they ‘need’ growth vehicles that do not have upper limits.

    Also, you mention the lack of fees and/or transaction costs. On it’s face you are, of course, correct. But the IA issuer isn’t manufacturing (and agents certainly aren’t selling) this product for purely altruistic reasons. We all have to eat, and while an IA lacks a denominated fee, it is simply built in to the platform by way of floors and caps, adjusted so that an IA provides a profit for everyone involved in the manufacture and distribution. In this regard, I suppose, one might argue that the lack of transparency is a bad thing. The rest of the benefits of an IA (tax, income options, etc.) are available in every other form of annuity as well as the indexed variety.

    I also don’t disagree that every other financial product can (and has) been mis-sold. Among those you mentioned, though, I would say only mortgages come close to the IA in terms of product complexity. This makes these products particularly easy to “mis-sell” to an unsuspecting public. You are right when you say that it is an education problem. Consumers ‘should’ do their own due diligence, and agents/advisors should be held to the highest standards of ethics and honesty.

    Now, all that being said, what other similarly priced product can accomplish the same thing as an IA? Well, that depends on the client. I do know that a modern VA with living benefits can offer similar (but not identical) protections and benefits of an IA. In fact, I’d argue that in most cases, the VA is a better solution than an IA.

    Finally, and your point with which I most agree with:

    “…all advisors to take an analytical look at the product – to do some real “due-diligence” research – before painting a whole product line with the same brush.”

    As much disdain as I have for the IA, there are a number of them that really aren’t all that bad (short surrender, decent caps, etc.) Enough diversity exists in the world of IA’s so that a ‘good’ advisor can’t “paint them all with the same brush” and still be a ‘good’ advisor.

    Nevertheless, I’d still take a good VA w/ living benefits any day (well, almost any day)…

  41. Joe Taylor Says:
    September 18th, 2007 at 10:20 am


    I am not recommending anyone’s software nor have I ever ‘sold’ or recommended an EIA. I do not know of a no-load EIA product but If you know of one I am always open to learning more. I simply posted the link because as you can see from AFM’s spreadsheet analysis, it is time consuming and very hard to know all the intricacies of all the EIA policies marketed today. I believe the free web based analyzer is a good resource for consumers who probably heard at a seminar that they will get the upside of the market with no downside. Or if a monthly cap product that they can earn up to 20% or 30% a year without any chance of losing money (yes, I have heard these claims in radio ads here in my hometown) I posted the link in hopes of saving you some time and trouble with you initial analysis.

    EIA’s are probably the most mis-sold financial product I have ever seen. I do thank personalize for providing a free resource that can take some of the hype out of the product for non professionals.

    EIA’s are not unlike many structured product manufactured by large investment bankers, that allow some market participation with limited downside risk. (Merrill Lynch MITTS, Bear Stearns Principle Protected Notes, etc.) For more info on these look here under structured products. These products are very similar to EIA’s but have not garnered as much vitriol because the marketing has not been as egregious.

    I believe investments are neither good nor bad on their on. They are useful or not useful, well chosen or misguided.

    At any rate this has been a good thread, and for the most part very civil.

  42. Deltablues82 Says:
    September 18th, 2007 at 1:35 pm

    Part 1:
    According to Beacon Research (reported on Yahoo Finance) the top-selling Indexed Annuity product for the last 12 months in a row was MasterDex, issued by Allianz Life Insurance Company of North America.

    This product has a surrender charge of 10% in year ONE, declining to 4% in year SEVEN. Although there are a few different “flavors”, MasterDex5, & MasterDex10 that offer illusory premium “bonuses”, with different schedules.

    Even using Ms. Maynard’s highly suspect online software (more about that in a moment) the “hypothetical” return (simple average) for the MasterDex over the last ten years was 4.22%. A quick glance at the Federal Reserve site tells us we could have purchased a 10-year Treasury Bond (with complete liquidity) in 1997 with a 6.58% yield. The BEST SELLING Indexed Annuity product on the market was 200 basis points BELOW the risk free rate over the last ten years.

    Part 2:
    Here’s one example of why readers should be very cautious with these vehicles. These contracts are unilateral and as such favor the insurance company. Often the issuer retains the right to raise or lower the monthly caps at the end of the year but the consumer is stuck with a rigid surrender schedule. Even in contract year five the MasterDex will levy a surrender charge of 6% on full withdrawal even if they decide to lower the monthly interest cap to the minimum of 1%. Fine you wish to lower the cap and the potential interest I’ll receive, then allow me to surrender with no charge. Good luck with that!

    Part 3:

    Just read what the regulators like FINRA (formerly the NASD) has to say about these products:

    Part 4:
    I try hard to debate only the merits of the product, vehicle, or strategy in question. But occasionally it’s difficult to avoid challenging a specific individual’s comment. Back to the credibility of the Maynard comments. Readers can verify for themselves with the State of Vermont Department of Banking, Insurance, Securities & Health Care Administration (BISHCA):

    Quoting from the BISHCA press release:

    “Former Colchester Couple, Mitchell and Dorice Maynard Ordered to Repay Investors $400,000 for Securities Fraud”

    “Deputy Commissioner of Securities Anna Drummond announced that an Order has been issued finding a former Colchester couple liable for hundreds of thousands of dollars in restitution and penalties for their conduct in violating Vermont’s security laws. In particular, Mitchell M. Maynard, and his wife, Dorice A. Maynard, were found to have acted at times as unlicensed investment advisers and to have defrauded eleven Vermont residents by enticing them to purchase high risk, speculative investments with the promise of exaggerated investment returns. The Maynards’ scheme included setting up a mutual fund and an investment advisory company called LIMCO and circulating false account statements.”

    I stand by my earlier comment that this type of software provides no value for the consumer. In the hands of a skilled agent it can be very valuable indeed; to the agent that is.

  43. Art Dinkin Says:
    September 18th, 2007 at 1:50 pm

    It has been a few days since I checked in on this discussion and it looks like I have missed out on a bit.

    Muddlehead, I just posted to my own blog which I think addresses your comment. Check out

    JLP, Thanks for starting a good conversation.

  44. Deltablues82 Says:
    September 18th, 2007 at 3:37 pm


    Respectfully, you say:

    “EIA’s are not unlike many structured product manufactured by large investment bankers…These products are very similar to EIA’s but have not garnered as much vitriol because the marketing has not been as egregious.”

    Those Merrill Lynch MITTS are exchange-traded, uncollateralized, completely liquid, DEBT SECURITIES. They are just nothing like the insurance contracts we’re discussing.

    I know you’re participating with good intentions and I don’t wish for my comment to seem harsh. Insurance agents & companies are allowed (by all of us) to blur the lines between their unregulated, illiquid, and without question highly profitable products and REGULATED, exchange-traded, completely liquid securities.

    What if I offered (through an agent) a product that pays interest based on the (potentially) rising cost of Milk? Say the Milk-Index Annuity or MIA. You invest, oops I mean pay a premium of $100,000 and I’ll add a 10% bonus for an annuity value of $110,000. Next year I’ll measure milk prices and if they’re up 7%, I’ll credit you with $7700 of interest. Your annuity value is now $117,700. Impressive!

    I’ll guarantee you at least your original premiums back (after ten years) so even if the Milk market tanks you’re OK.

    Sounds good but try and redeem it early. I’ll levy a 15% surrender charge and keep my bonus so you’ll only get a surrender value of $85,000. (I had to pay an agent a 10% commission, which’s $10,000, to make the sale and need to recoup that money). You can’t redeem the full amount for ten years without a substantial penalty. It can’t be sold to anyone else.

    You never own milk, or milk futures, or securities issued by milk producers. I could choose to invest your premiums in pretty, shiny marbles, my decision. You just have my promise. Sound familiar?

    Now Joe, there are many, many ways to limit market risk but by all accounts the EIA is an expensive, clumsy way to do so.

    Regards (sincerely),

  45. WillParagon Says:
    September 20th, 2007 at 8:29 am

    The problem is you have professionals in all areas who simply do not know what they are talking about. It then is the aged ole story one bad apple destroys the bunch. One reason the “Master Dex” was the number one selling product is because it paid the highest commision. So a bunch of short sleeve short tie guys run around knocking on doors trying to sell something so they can make rent. However, before we beat the product up, which can be good for some people not all and it is certainly not a place for all ones money. All states approve these products before they hit the shelves of thieves if I am not mistaken. Sometimes I do believe as well that BROKERS find themselves a little more high and mighty than someone selling EIA’s. Trust me in my time in the industry I have seen many Brokers making unsuitable investments for Granny. However,you almost never here of a 70 year old loosing 1/3 of his porfolio because his broker told him to wait, and now he is waiting being a greeter at the Wal Mart. But it is most of the time justified because the market goes up and down not the Brokers fault. Past performance and all that jazz. Sorry my grammer may be sliglty off I am in a hurry. But some other issues in the financial world need to be addressed, before we get on our soap box.,Annuities are constanly being changed. It is one of the fastest growing products today, and I find in hard to beleive that everyone who chooses to invest into one are all idot’s sitting at a nursing home.

  46. Jen Says:
    September 20th, 2007 at 10:27 am

    Your study is only semi-accurate. One thing you didn’t mention is that EIA’s aren’t the ideal vehicle for EVERYONE. Particularly people with more than a 15-20 year accumulation horizon. For examply, if you are a 20 year old, looking to accumulate the most wealth you possibly can before retirement, then of course an EIA may not be the ideal vehicle for you!
    An EIA’s potential return is more conservative(or potentially lower, to put it blatantly) than say, a mutual fund or stock, due to it’s guarantee of principle protection and never to lose money. However, the potential loss in a mutual fund or stock is far greater than that of an EIA. And it is for this reason that only people with long-term investment goals (more than 20 years, I would say) should invest in risky vehicles, like the abovementioned (MF’s and stocks etc.). A 20 year old can sustain more loss than say, a 70 year old. Or even a 60 year old. That is why an EIA is more suited towards a retiree or someone with extremely conservative (i.e. safe) needs/wishes.
    If you really want to do a totally accurate study/comparison of these products, draw up a chart that illustrates 15 years (instead of 50). Try using the time frame of 1998-2007. Compare the EIA’s growth (using a hypothetical, yet realistic, ROR) to the performance of the S & P 500. You will find that, over that short time period, with the crash of the markets, 9/11 etc., that the performance of the EIA far surpassed that of the S & P. This is not my opinion, but rather a proven fact.
    In summary, if you are in the accumulation phase of your life (20’s, 30’s, even 40’s), perhaps an EIA is too conservative for you. However, if you’re in your 50-60 or 70’s, and you don’t ever want to outlive your money, and you want to go to bed at night knowing that tomorrow morning and every day thereafter, you’ll never be worth less than the day before, an EIA is an ideal (I believe) product for you.

  47. Mr Annuity Ed Says:
    September 20th, 2007 at 3:03 pm

    Hi Jen,

    I agree with most of what you said. Of course if you were to do a back-test of returns today, it would give you a far different result than it would have given you yesterday! For example, an actual ten-year history of the S&P 500 from September 13, 2007 would have given you a 10.28% average annual return. Just one month earlier, the 10-year return for the S&P 500 going back was only a 4.99% average for 10 years! Many EIA’s beat last months’ 10 year track record of the S&P 500. Very few did today!

  48. Deltablues82 Says:
    September 21st, 2007 at 11:56 am

    Will comments: “…the “Master Dex” was the number one selling product is because it paid the highest commision.”

    That’s the whole point. The distribution costs of these products (issuer, wholesaler, & agent) MANDATE a lengthy surrender period. Only in the context of simply ridiculous 10-15 year surrender periods would 5-9 years be considered a better deal. Consumers have no idea how much agents make selling these things.

    He continues: “All states approve these products before they hit the shelves of thieves if I am not mistaken”

    Agents use this pitch all the time. Implying that because the contract is approved for sale it has somehow been evaluated by a state insurance department and found to be without flaw. The states (with the exception of NY perhaps) give issuers wide latitude regarding the insurance products they sell. Try getting a mutual fund with a 20% and fifteen-year deferred sales charge past FINRA or the SEC.

    Jen comments: “Try using the time frame of 1998-2007…You will find that, over that short time period… that the performance of the EIA far surpassed that of the S & P. This is not my opinion, but rather a proven fact.”

    “Compare the EIA’s growth (using a hypothetical, yet realistic, ROR”

    What are you comparing to the index, a hypothetical EIA growth rate you’ve picked?

    Even if we concede your fact, it just doesn’t provide much value. How does that time period compare with the risk-free rate? Ten years ago I could buy a 10-year T-note paying + 6.50%, while the Vanguard Index 500 fund had a +6.67% return over the last ten years. Complete liquidity with both. In fact as interest rates fell to 4.65% in December 1998, the value of my ten-year Treasury Note appreciated nicely.

    So how much return ABOVE the risk-free rate did your EIA generate for me based on your sample time period?

    If I was trying to sell these things too I could cherry pick all sorts of time periods to show how well it performed. Ed is right on the money. Move the period back a day, a week, or a month and the results are completely different.

  49. Chris Kirchberg Says:
    September 26th, 2007 at 11:37 pm

    O.K. I’ve read through all of this and the fact is that we’re talking about several different things.

    First of all we’re talking about investment vs. insurance. To everybody trying to compare an FIA (Fixed Indexed Annuity), it shouldn’t be done. An FIA is insurance. The risk is taken on by the insurance company. Hence the ability to guarantee that the there will be no loss in the value of the contract, as long as the individual follows the rules.

    Secondly, nobody should have all of their money in one type of vehichle. There needs to be diversification. However, as an individual gets closer to retirement the “time horizon” reduces. This requires an individual to reposition their funds from an investment to insurance.

    Third, as the individual is getting older and is needing to preserve more of their funds, or in retirement and decumulating their funds, we need to look at the type of vehicle the individual is in. One of the things that I feel everybody can agree upon is that we’re living longer. I feel that we’re going to be looking at many “boomers” needing to take a stream of income. There’s only one vehicle that will GUARANTEE that they can never outlive their funds, annuity.

    Fourth, to all the people that state that FIAs are high commission products. I will agree that in the past there were some rogue companies that were paying outragous commissions. However that arguement is outdated. Side note, the MasterDex is not the highest paying FIA.

    Fifth, and finally, what is the risk tolerance of the client? What are the goals for the clients funds? How soon do they need to get at the money? We need to look at suitability. We need to take care of the client. We can argue which is better, however no one vehicle can meet all the clients needs.

  50. Deltablues82 Says:
    September 27th, 2007 at 4:09 pm

    I hate to wear out my welcome JLP as this thread is a bit worn by now, but had to this pass this along.

    The consumer site has a posting on their front page about an EIA being pitched to school teachers. They have a scan of the flyer an insurance agent posted in a school in CA.

    “Receive an 11% match on 403(b) TSA deposits…earn higher interest rates with NO stock market risk”
    End of quote

    According to the site this EIA has a 22% surrender charge that lasts (likely declines) over 14 years.


    Maybe you’ll have the nerve to identify some of those EIAs you think are fairly priced and pay “lower” commissions with shorter surrender periods. We’d love to know.

  51. My Response to a Comment on My Equity-Indexd Annuity Post—� AllFinancialMatters Says:
    September 29th, 2007 at 11:30 am

    […] Commenter Chris left this response to my post, A Look at an Equity-Indexed Annuity: O.K. I’ve read through all of this and the fact is that we’re talking about several different things. […]

  52. {Rodeo} Investing Is Fun For Everyone Says:
    October 1st, 2007 at 7:58 pm

    […] I never even knew. JLP takes a look at equity indexed annuities. {via: All Financial Matters} […]

  53. 4 Keepz » Blog Archive » My Response to a Comment on My Equity-Indexd Annuity Post Says:
    October 3rd, 2007 at 12:13 pm

    […] Commenter Chris left this response to my post, A Look at an Equity-Indexed Annuity: O.K. I’ve read through all of this and the fact is that we’re talking about several different things. […]

  54. JLP Says:
    October 5th, 2007 at 12:33 am


    It’s too bad that you didn’t write your comment in an easier-to-read format.

    If what you say is true, then you are the exception to the rule when it comes to EIAs.

  55. JLP Says:
    October 5th, 2007 at 9:20 am


    Are you a salesman or client?

  56. M. Coleman Says:
    October 5th, 2007 at 10:56 am

    Long term projections are very interesting to securities sellers – because their high principal risk is muted by time.

    In this article, you show a 50 year time horizon – something almost no one has – especially a senior.

    How happy is the Indexed Annuity buyer who has had his annuity for the last 7-10 years!

    Most securities holders are just now recovering from the losses of 2000-2002. IA holders, by contrast, are up significantly – and they are still subject to no market loss risk!

    Indexed Annuities are a much safer alternative for seniors because of their shorter time horizons.

  57. JLP Says:
    October 5th, 2007 at 11:10 am

    M. Coleman said:

    “Indexed Annuities are a much safer alternative for seniors because of their shorter time horizons.”

    Not with a 15-year surrender period they’re not.

    A balanced low-cost portfolio is a MUCH better alternative to an EIA.

  58. Coach Pete Says:
    October 6th, 2007 at 11:49 pm

    “Not with a 15-year surrender period they’re not.”

    It is *idiotic* crap like the comment above that show the true motives of a securities agent.

    There may be a few idiots out there selling 15-year annuities but they are the EXCEPTION and are no different then the SECURITIES Agent who sells unsuitable stocks, bonds, Timesahres, Variable annuities to older clients.

    I sell 7-year Index Annuities. Full liquidity at the end of term and CONSTANT LIQUIDITY each year as well as SAFELY SECURE client’s principal and declining 7% surrender fees.

    Clients FULLY understand all the moving parts before they put money in. I don’t own a short sleeve shirt and my ties are the proper length.

    There IS a place for SAFE money in everyone’s portfolio and the only one who says differently is the GREEDY securities agent who doesn’t want to lose there AUM fees.

    For every bad Insurance agent, I can show you 3 bad Securities guys.


  59. Deltablues82 Says:
    October 7th, 2007 at 2:13 pm

    Readers pay attention. This is the way these things are sold!!

    You said: “other ones i have seen have had a very nice return. up to 19% with a 10% first yr. bonus, thus turning it into a 29% return.”

    Four questions:
    1. Exactly how much premium was placed into this contract? 2. Exactly what was the SURRENDER VALUE at the end of the first year?
    3. Exactly how much was the agent commission?
    4. Name the product and terms.

    There was no 29% return because the bonus is an ILLUSION! You can’t withdraw the bonus. Do you think an insurance company can pay a client 10%, plus an agent 10%, and still give a client the entire market return? Seriously, where’s the margin? The insurance company is in the hole 20% on day two of the contract.

    It is fair to say that many of these products offer 7 & 10 year surrender periods not 15, but this is still a LONG time. Constant liquidity does NOT equal FULL liquidity. SAFE money? How about a government bond or an FDIC insured CD?

    If a mutual fund can publish performance numbers for their funds (Jan 1-Dec 31) then how about EIAs? Show us something beyond a HYPOTHETICAL and give us hard data to support this product.

    By all accounts these products provide incremental return above the risk free rate for significant restrictions on liquidity. Of course give us data and I’ll review it with an open mind.

  60. Another Follow-up on Equity-Indexed Annuities (Sorry Muddlehead)—� AllFinancialMatters Says:
    October 7th, 2007 at 2:55 pm

    […] Commenter “Muddlehead” doesn’t like my posts about annuities (he/she thinks I’m shilling for insurance companies! LOL!). I’m not trying to beat a dead horse here but I do want to take a minute to follow-up on a few comments that were left on a my post, A Look at an Equity-Indexed Annuity. […]

  61. Stanley More, CFP Says:
    October 7th, 2007 at 10:50 pm

    The 7 and 10 year EIA’s are great! I have been selling them with happy clients for years! The liquidity in the first year and beyond is beautiful! It can be cummulative! I think the issue with many of the planners here is that they fail to realize the needs of clients in different areas of life! Dont plan for a senior like you would plan for a 20 year old! Money in an annuity IS safer. The only way you could lose the money is to take it out before the surrender period is up ( I sell nothing over 10 years) or taking it out before 59 1/2. Mutual funds have the possibility of loosing, stocks the same. Granted there are some funds that have great history but, senior client dont like knowing that there is still the possibility of loosing. Why not give them some of the gains but NONE of the losses. How would you feel is you are constantly loosing money in a bad market. There are some annuties out there that even in a bad market will guarantee at least 3%! So while you guys are loosing 10% + for your clients I can call mine and tell them that the grew! And as far as providing a prospectus for our clients — we dont need to as there is nothing hidden — we dont have to hide what we do — its simplified. No funds to manage simply an index thats it. Also as someone else mentioned GAINS ARE LOCKED IN. Someone spoke on the fact the bonuses are not really yours….personally I dont sell bonuses simply because that means something else is lacking in the product ( in many cases) But I have Hundreds of client that have had gains over 10 % — 10% is not the cap on all products — Of course there are some that are capped — but you dont have to have a cap! What about the gains in non-secure/safe products ….NO GAIN IS REALLY THEIRS….They could possible gain it one month and loose it the next. CAN YOU GUARANTEE ANYTHING UP OR DOWN TO YOUR CLIENT? The answer is no….but I can!

  62. Deltablues82 Says:
    October 8th, 2007 at 10:09 am

    Stanley More, CFP says:

    “But I have Hundreds of client that have had gains over 10 % — 10% is not the cap on all products — Of course there are some that are capped — but you dont have to have a cap!”

    But of course you won’t TELL US WHICH PRODUCT has performed so well. This is all smoke.

    Here’s my REAL example…see post #41: “A quick glance at the Federal Reserve site tells us we could have purchased a 10-year Treasury Bond (with complete liquidity) in 1997 with a 6.58% yield.”

    This is the benchmark risk free rate over the last ten years. Give us an example of an ACTUAL product. Surely with hundreds of clients you can pick one off the top of your head. No need to do any lengthy research. I’ll hold my breath. Ha!

    Readers: These agents always pitch the fear of market loss, and that these products are safe and secure. Retirees are SCARED TO DEATH that they’ll lose their money.

    We’ll be waiting to hear back Mr. CFP.

  63. Dylan Says:
    October 8th, 2007 at 8:12 pm

    After reading Stanley More’s comment, I looked up Stanley More on the CFP Board’s Web site and there is no CFP certificant listed by that name.

  64. Art Dinkin Says:
    October 11th, 2007 at 9:15 pm

    Delta and Dylan,

    It is obvious nothing said here will ever pursuade you. I get it. That’s okay, you are entitled to your opinion. But that does not invalidate every dissenting opinion.

    I had not checked in on this thread for quite a while, since I posted Understanding Indexed Annuities and frankly I thought it was over, but it was still sending some traffic to my blog so I thought I would see if it was still active and it was.

    As for some good indexed annuities, check out Midland National’s MainStreet 4. Four year surrender, 10% liquidity per year, no surrender charges after 48 months. Or AmerUS’ MultiChoice Income 5. Surrender charges last only 5 years. I’m not endorsing anything, but just wanted to point out that these products do exist in the marketplace.

    Yes, you may have been able to buy a 6% bond in 2007, but hardly anyone did. Those were the days of the “New Economy”… if you couldn’t day trade to 20%+ per year you must be an idiot, right? Look where that whole mess ended up.

    Look, I’m not going to fight. If you were a client then I’d tell you “Fine, don’t buy any indexed annuities”. I have NEVER said they were the best solution for everyone.

    Go ahead and look my name up in the CFP database. Here is a quick link to save you time.

  65. Mark John Crews Says:
    October 12th, 2007 at 10:22 am

    I enjoyed reading this blog and would add a comment.
    Why are all the remarks about commission on the annuity?
    I am an agent and make 9% on a 15 year product from Allianz.
    But the Finacial advisor who managers the same amount of money earns 15-30% over the same period of years.
    the client pays the loads and fees out of their money.
    Who’s being overpaid?

  66. Deltablues82 Says:
    October 12th, 2007 at 3:03 pm


    Finally a professional, who is licensed to sell insurance, identifies several “good indexed annuities”. Respectfully, I appreciate you doing so. And I regret the flip CFP comment I made; it was uncalled for. If EIAs can stand on there own as an alternative vehicle then they should withstand scrutiny.

    I am only making sure the readers know how these things are sold; with completely false claims that are used to scare people into buying.

    The EIAs you mention deserve serious review. They have limited surrender periods reducing the liquidity problem nicely. But to be fair, they have serious limitations (Midland, S&P 500 Credit Method, 7% CAP) and just have NO ability to earn the outrageous returns CLAIMED by other posters.

    JLPs original blog post:
    “Well, this guy went and took the S&P 500 Index, went back to 1950, and pulled out all the bad years and told the audience that it returned 15.75% per year”

    Kelly W.:
    “Also the mjority of FIAs I sell now have a 2.75-3% monthly cap, my own IRA has had returns as high as 24%, with no concern, and the gains locked in”

    Joe Taylor:
    “he quotes a radio ad he heard in his hometown:’Or if a monthly cap product that they can earn up to 20% or 30% a year without any chance of losing money'”

    “You will find that, over that short time period, with the crash of the markets, 9/11 etc., that the performance of the EIA far surpassed that of the S & P.”

    M. Coleman:
    “Most securities holders are just now recovering from the losses of 2000-2002. IA holders, by contrast, are up significantly – and they are still subject to no market loss risk!”

    “other ones i have seen have had a very nice return. up to 19% with a 10% first yr. bonus, thus turning it into a 29% return.”

    Stanley More, CFP:
    “I have Hundreds of client that have had gains over 10 %”

    Not one of these folks have provided any information to support these statements. This is COMMON PRACTICE; SEVEN biased, misleading claims in just this short thread.

    This is not unusual. The SEC just completed and published a joint report on these “seminars” where EIAS are often pitched. An “seminar” prompted JLPs original post.

    Quote from the report:
    “Half of the examinations found that firms used advertising and sales materials that may have been misleading or exaggerated or included seemingly unwarranted claims (in 63 of 110 examinations, or 57%)”.

    I stand ready for an insurance agent to specifically identify the EIA product used, terms, and holding period to justify these, well too be nice, exaggerations.

    But the chance for a 7% yield with a 4% guarantee, and a relatively short 48 month surrender period (The Midland product you mention) deserves consideration. BUT I can get over 5% in a money market account today with complete liquidity so my improvement would be at best an incremental 200 bps. This isn’t attractive to most people, which is why we hear the hype of 10%, 15% ,20%, 29% returns. THAT SELLS!

  67. Deltablues82 Says:
    October 12th, 2007 at 3:06 pm


    Wow, at least you admit that you take 9% off the top and lock your client’s money up for 15 years. Pretty gutsy, but your are 100% correct. The “financial advisor” is probably ripping them off too. Who’s being overpaid? Both of you.

  68. Dylan Says:
    October 14th, 2007 at 8:33 pm

    Art Dinkin, I’m not really sure what I said to ruffle your feathers so much. I checked on someone’s credentials and couldn’t find them. That hardly qualifies as an effort to invalidate every dissenting opinion, just the credibility of one comment. I don’t believe that I’ve said anything to call your credibility into question.

    You are correct that nothing said here will convince me that EIAs are a good thing. I’m glad you get that, but I will continue to comment as I see fit. Please feel free to skip over anything else I write once you get my point.

    My lack of endorsement for the EIA is not from a lack of understanding; I just haven’t come across, or can even imagine, a situation where such a product is the best solution for anyone. If it actually were, why then don’t fee-only financial planners with a fiduciary responsibility to advise in their client’s best interest recommend these products to their clients? Why is it that the only people who seem to be advocating these are the insurance agents that are paid to do so? And, if they are such a good solution for some people, why do the insurance companies need to pay such a high commission? That doesn’t seem like good business sense on the part of the insurance company unless, of course, people would not recommend them without the monetary incentive.

  69. Bill Says:
    October 30th, 2007 at 2:37 pm

    Nice thread…the one thing I didn’t see here was a link or connection to a Monte Carlo simulation of EIA’s. This would let you at least put a hypothetical EIA thorugh the paces.

    Equitrust has an EIA with no Cap, 65% participation and 10 year period. It credits annual point-to-point with annual reset.

    It seems that, like Mutual funds, as the market matures the competition will increase and the terms will get better.

    There is no magic in an EIA, you could go and create your own portfolio with all of the liquidity of the “normal” bond and derivative markets. The reality is that most investors cannot (or won’t) create their own insurance with derivative products, so they are willing to pay others for the service. Is the fee high, yeah, but so is paying .5% of my return to buy the S&P stocks in a mutual fund. Remember when mutual funds charged all kinds of front end loads, back loads, sales commissions and fees? Most people today are way away from those products. I expect EIA’s to get there too.

    As I found from selling cars years ago, the more obscure the product (i.e. car lease vs. car purchase) the more money you make. Will regulation and competition help…you bet it will. Regulation would probably allow a secondary market for annuities that could obsolete surrender fees. Wouldn’t that be cool.

  70. Larry Gowell Says:
    November 6th, 2007 at 8:04 pm


    You all need to read the White paper on Indexed annuities. The biggest problem is that they are misunderstood. As an agent I think having more choices and not less choices are better. The consumer can choose a traditional annuity or any number of indexed annuities. It is the job of the agent to educate the prospect and make sure the annuity is suitable for his or her situation.

    I sold one of the first indexed annuities in 1995. It netted my clients about 24% over the 5 year period. At the end of 5 years they could take all the money out. It is a product, if propably priced, can potentially get a hire interest rate than a traditonal annuity. It is a fixed product.

  71. Deltablues82 Says:
    November 11th, 2007 at 10:34 am


    Another outrageous claim. You said: “I sold one of the first indexed annuities in 1995. It netted my clients about 24% over the 5 year period”

    Are you still telling customers about that 24% return? Even if your claim is true, it’s all but impossible now given the way these products are designed. But that doesn’t stop agents like you from touting these types of illusory performance claims. That’s what started this whole thread of comments.

    The biggest problem is the bogus claims (OK, I’ll say it) LIES told by agents who sell these things.


    TWO major emotional buttons are being pushed here. Don’t fall for it. FEAR and GREED. From the SEC report in comment #66:

    GREED: “Get double digit growth potential…”

    FEAR: “… with no risk of loss and no fees”

    Can you name an EIA product (and terms) that provide the opportunity for the 24% return you tout? (or did you mean 24% total for the five years)

  72. Art Dinkin Says:
    November 12th, 2007 at 11:42 pm

    Wow. I had not check in on this post in a month and people are still commenting!

    Delta, you are correct. EIA’s are not the next coming of the financial messiah. 7% caps are pretty common right now (and I have seen a lot lower lately). A realistic target return for an EIA is somewhere in the neighborhood of 5-8% per year depending on several variables of the specific product and indexing strategy. Of course there is risk. The average return could be less than 5%. It could be 0%.

    Dylan, whatever ruffled my feathers I have either forgotten about or got over. My appologies if I ruffled yours in return. I respect your opinions. By the way, I am a fee based planner and as such have a fiduciary responsibility. I have never pushed EIA’s on my clients but there have been situations where I have not advised against them. They can fit as an alternative for a fixed annuity when the client is willing to risk a known small return in exchange for an unknown, but potentially slightly higher return. Not for a big piece of their pie, only a part. Who cares what the commissions are? (and they have been falling as surrender charge periods have gotten shorter – for the record, I think that is in everyone’s best interest). If an auto mechanic quotes me a repair cost I don’t care how much of that is profit. Is it unreasonable that retail stores mark up their merchandise over 100%? Anyone who misrepresents financial products should suffer the consequences. But that does not make the product evil.

  73. Dylan Says:
    November 13th, 2007 at 1:04 pm

    “Who cares what the commissions are?”

    Well, for starters, those who regulate investment advisers like the U.S. Securities and Exchange Commission, every state’s equivalent securities authority, and let us not forget the Certified Financial Planner Board of Standards. They all care and say you, as an adviser, should too. In fact, they all require the advisers they regulate to clearly disclose their compensation to clients, all of it, including the commissions earned and disclose all conflicts of interest, even those associated with compensation. If the amount of the commissions were not relevant, why would these groups care whether or not you were adequately explaining your compensation to your clients?

    There is a large, clear cut, division in the merits of equity indexed annuities that just cannot be ignored. Whether of not they get paid seems to dictate which side of the division one resides. Is this coincidence? On one side are all of the people that get paid money when someone buys one. On the other side we find every other finance professional, including financial academics, finance journalists, and FEE-ONLY financial planners.

    “Fee based,” while similar sounding to, “fee only,” is an entirely different animal. Being a “fee based planner” does a not automatically make one a fiduciary. Whereas if you hold yourself out as a “financial planner” and are “fee only,” meaning the client pays a direct fee to the adviser for financial advice (not for a product), the adviser is compelled to become a Registered Investment Advisor or representative of one, which caries a fiduciary duty to clients. The term, “fee based” is not regulated at all; anyone can say they are “fee based” whether or not they are registered and have a fiduciary duty to clients.

    “Fee based” usually means that you represent a third-party’s interests in addition to your clients, such as an insurance company (annuity) or investment company (mutual fund) by selling their products for them. That’s what it means to be an insurance “agent” or a registered “representative.” The interests of the third-party company are not the same as the client’s interests, yet someone that is fee based represents both sets of interests at the same time, thus creating an immediate conflict of interest.

    I am not questioning whether or not Art has a fiduciary responsibility. I’ll take him at his word. I am simply calling into question the implication included in his statement, “I am a fee based planner and as such have a fiduciary responsibility,” because being a fee based planner does not automatically translate to having a fiduciary responsibility.

    A fiduciary duty to a client, even if an adviser is fee based, means that the adviser is expected and obligated to always place the client’s interest first. However, conflicts of interest relating to compensation can interfere with an adviser’s ability to be completely objective, regardless of the adviser’s intent to remain objective.

    It is expected that any ethical adviser will believe that they are objective in the face of such conflicts, and therein lays the problem. If they are not being objective and they are ethical, they likely do not realize that their judgment is being colored. The only way to know for sure is to remove the source of the conflict and see if the advice changes. This takes us back to the observation that different advice concerning equity indexed annuities is given by those who are paid commissions on them.

    Art, I don’t expect to change your mind anymore than you expect to change anyone else’s, and I have no reason to believe that you are anything but an ethical person. But you cannot be objective enough about your own objectivity to claim that the commissions that you receive in no way influence you, no one can. The only way test this is to give up your securities license, resign your appointments with your insurance companies, and never accept another commission again. Then see if your philosophy changes. Are you willing to try this?

    Make no mistake, I’m not claiming that this removes all conflicts and magically makes someone completely objective or ethical, but it does remove one major source of influence on financial advice (and money has a well-established track record for being a motivation tool). Adviser compensation is a divided issue as well, but notice again that one side is heavily weighted with the advisers that receive additional compensation when the client buys something that they advise them to buy.

    Every ethical, commission earning advisor claims that their method of compensation does not influence their advice, but how could they possibly know whether or not that is true? It’s a belief that they *must* maintain if they view themselves as ethical. Do you see the paradox?

  74. jeff another cfp Says:
    November 16th, 2007 at 1:57 am

    Art said:
    “JLP, I think that we are closer than you think. I too believe that the longer your time frame, the less risk you take investing in the market. Invest for a long enough time and the risk of loss is nil.”

    Really if one holds onto EAI long enough their risk of loss is nil? Global Crossing? MCI?

    You know it is posts like this that really make me question the validity of the testing for the CFP when you took it-sheesh do you remember the ethics portion of the exam?

    Since you carry a S7 does your compliance department know that you are out there giving this type of investment “advice”? Are you submitting that there is no risk with an Equity index annuity? Me thinks you are neglecting the other types of risk-i.e. inflation, company,liquidity, etc-please tell me you aren’t one of the snakes saying these are FDIC or SIPC covered platforms.

    Clearly this is something you think is functional/viable in a saving strategy/retirement-would you feel comfortable disclosing the rips that you get when selling an equity index annuity? How about to your peers..except in your weekly sales meeting? Shameful Mr. Fiduciary-shameful.

    I have been in practice a long time, and have yet to see a case where equity index annuity is more beneficial to my client than the joker selling it.

    Seriously when you are going to use the CFP designation please don’t discredit those of us that take it seriously by stumping for this kind of non-sensical drival. Is Ameritas shoving that product down your throat? If so, you as a self-proclaimed fiduciary you should consider being honest with yourself…and your “clients”/victims.


  75. Steve Says:
    November 19th, 2007 at 2:39 pm

    I understand your attempt, but in my view you use the wrong comparison. The comparison is to CD’s not the S&P. Since EIAs are fixed products, you compare to another fixed product. The guy who says the EIA should be compared to the S&P because they use the S&P index isn’t thinking. He ignores the loss realities of the S&P that don’t occur with EIAs.

    Remember 1999-2002? While the S&P went down about 17%, the average ML account lost 30% according to John Bogle of Vanguard. A 30% loss requires a 43% gain just to break even! Many people are just now recovering from that loss.

    You also compared the EIA to S&P for 50 years. I don’t know many 70 year olds that have an additional 50 years to collect S&P gains. Again, suitability. If you are recommending a 70 year old to be full out in the market, it won’t be long before you’re sued.

    CD’s are the correct comparison. Both guarantee a rate, the EIA uses the market to enhance the return and generally has tax advantages. So, you will easily get a higher rate than CDs, especially if EIA is tax deferred.

    The question is “for who is they appropriate?” This was adequately discussed by others regarding risk tolerance, too young, etc.

    The other key is the application:

    Annuities are the only product around that can guarantee an income (much like the old pensions). An MIT professor of economics recommends annuities for pension placement. (I’m sorry I can’t remember the website with the institues ‘white paper’) Nevertheless, I’m sure there was a lot more research done than a spreadsheet of historical S&P values.

    Annuities can stretch out income for those who fear outliving their retirement. You can leverage IRA/401(k) distributions to supplenment income through an annuities (similar to stacking CD’s, but with better results.)

    Finally, why do insurance guys always say insurance products are the best solution for everyone, and stock-jockeys say stocks are the best solutions for everyone? Has anyone heard of using the right tool for the job?

    Why not focus on where procucts (e.g. Stocks, MF, Bonds, EIA’s, etc.) work, and not so much that a product is “bad”? A good product poorly applied will get bad results.

    I can promise you, recommending a retiree or near retiree, to be fully in the the market in 1999 was an invitation for litigation against the advisor. The same thing for advisors trying to sell annuiies to ordinary people under 50 y.o. (unless there are specific underlying circumstances.)

    Having said this, annuities aren’t even my main market. So don’t assume I’m “biased.”

  76. Deltablues82 Says:
    November 21st, 2007 at 8:29 pm


    You said, “I understand your attempt, but in my view you use the wrong comparison. The comparison is to CD’s not the S&P. Since EIAs are fixed products, you compare to another fixed product. The guy who says the EIA should be compared to the S&P because they use the S&P index isn’t thinking. He ignores the loss realities of the S&P that don’t occur with EIAs.”

    The comparison is made not by the consumer, but by the agent who’s trying to sell an EIA. The pitch is all about “market returns” with “no risk”.

    Think about it for a minute. Trying to sell an EIA with a 7-15 year surrender period and a 10% surremder charge against a five-year CD (with only the loss of accrued interest at surrender)is very difficult indeed. If the potential ‘extra’ return is only 3-4% why lock up the money and risk a stiff surrender charge?

    Reread JLPs original post of Sep 12 about the seminar his dad attended. Here’s a snippet:

    “Well, this guy went and took the S&P 500 Index, went back to 1950, and pulled out all the bad years and told the audience that it returned 15.75% per year. Sounds pretty good doesn’t it? However, remember that the gains in his annuity are capped at 10% so how the heck could these audience members expect to get 15.75% per year? They wouldn’t.”

    Tell the agents to stop talking about the market when they pitch them. But it’s impossible to do so when the credit method is TIED to an index. Very clever, very clever, very clever.

    Ever wonder why there isn’t a GIGANTIC direct-to-consumer annuity business. Because these products aren’t compelling enough. They need someone to pitch them using whatever methods they can squeek by with. A nice $250,000 IRA rollover using an EIA could easily pay the agent between $20,000 and $25,000. Tremendous incentive to use a little ‘puffery’ wouldn’t you say?

  77. Deltablues82 Says:
    November 21st, 2007 at 8:49 pm

    Art seems like a good guy who’s trying to do the right thing for his clients but OUCH, he got thumped by a few colleagues on the fee-based thing. I’ve read his blog and he seems to go the extra mile to be accurate.

    That said, I have a beef with the use of the terms fee-based and fiduciary in the same breath.

    “Fee-based” – A term used by many “advisors” who sell products, in addition to charging fees.

    Consumer have significant difficulty determining an Adviser’s actual business. The term fee-based doesn’t help. It might be the SALE of insurance (life or health) and/or securities (such as mutual funds). Or, it could be the sale of ADVICE on such matters.

    Most so-called ‘financial advisors” are usually an:
    Insurance Agent (IA)- Who sells insurance and receives a commission on the sale.
    Registered Representative (RR)- Who sells securities and receives a commission on the sale.
    Investment Adviser Representative (IAR)- Who represents a registered investment advisor (RIA) firm who provides investment advice and is generally paid a portion of the fee.

    Now here’s where it gets tricky. Most ‘Advisers’ operate as all three: IAs, RRs, and IARs.

    The business model of most large advisor firms:
    1. Sell a financial plan (as an IAR) for a fee. This is usually the smallest portion of the Adviser’s revenue, but creates a powerful impression of objectivity. Review the needs identified by the plan with client. Put plan away and move to product sales.

    2. Present insurance products (as an IA). The adviser is NO LONGER WEARING THE IAR HAT. Close the sale, generating commissions. This is where the bulk of the revenue is generally produced.

    3. Present investment products like mutual funds (as an RR). The adviser is STILL NOT WEARING THE IAR HAT. Close the sale, generating commissions. This is often the second largest portion of the “Adviser’s revenue.

    Make no mistake; many of the largest, well-heeled, high profile, so-called financial planning firms use this EXACT approach. Remember this: IAs and RRs are in the business of SELLING insurance and securities, not ADVICE.

  78. sick of you guys lies Says:
    January 13th, 2008 at 6:35 am

    It looks like a bunch of stock brokers arguing that the insurance agents shouldnt offer safer alternatives with gains linked to the stockmarket. Its like listening to a Democrat tell you how bad a Republican is its a bunch of hog wash. The market has crashed and will crash again and then where will your variable with trick of a death benifit be and all your arguments are out the window. Its about safty and getting the highest returns in a safe way. Why dont you debate what you sell and stop sticking it to your compitition its just a typical underhanded ploy of a stockbroker and basicly a bunch of lies you spew. What reputation does your industry have on the street. HOrrible.

  79. JLP Says:
    January 13th, 2008 at 8:17 am

    sick of you guys lies said:

    “Its about safty and getting the highest returns in a safe way. Why dont you debate what you sell and stop sticking it to your compitition its just a typical underhanded ploy of a stockbroker and basicly a bunch of lies you spew.”

    I think if you went through and read some of my older posts, you would find that I’m pretty even-handed at sharing the blame.

    Finally, I DID NOT LIE.

  80. Tim Thomas Says:
    February 24th, 2008 at 6:20 pm

    Hopefully JLP isn’t a series 7 securities person or insurance agent because:

    a: I am sure his E&O carrier would be getting a claim over such a diatribe.

    b: His license would be in jeopardy

    c: A fine would be coming

    There is such a thing that courts recite called the prudent man rule. In other words if you are a certain age a certain investment is prudent. JLP seems to think that a 70 year old person is fine with market risk. Maybe someday JLP will reach that age and feel a bit different.

    Go ahead JLP put that 75 year old grandma into that index. Think she would be happy these past few months. And I doubt if the market is finished its downward trend. Even if the Feds hand out Chinese financed money.

  81. JLP Says:
    February 24th, 2008 at 6:47 pm



    Give me a break.

    Are you saying that there aren’t PLENTY of salesmen out there taking advantage of grandma by scaring her into an equity-indexed annuity?

    I NEVER said it was okay to invest ALL of grandma’s money in the S&P 500 Index. DIVERSITY is the key, NOT an equity-indexed annuity.

  82. Tim Thomas Says:
    February 24th, 2008 at 6:48 pm

    Oh I forgot to say. My father just lost $300,000 in a closed end mutual fund. The fund was investing in mortgages. The money is all gone, ka-put, never to return.

    Well maybe he will get some back. The fund manager said perhaps if he can get some of the mortgages to pay off he may get his principal back in 3 years or so but definitely no income coming in.

    Now is that good?

    It is interesting to read all the arm chair guru’s but they never talk about their losses.

    There is something to be said about safety. That is something the young fly boys that are accustomed to double digit returns have yet to fully understand. But they will.

  83. JLP Says:
    February 24th, 2008 at 7:05 pm


    I’m sorry to hear about your dad but I have to wonder what he was doing with so much money invested in that fund? And, as bad as it sounds to lose $300,000, had your dad been properly diversified, that $300,000 would have been a very small portion of his portfolio.

  84. Tim Thomas Says:
    February 24th, 2008 at 7:33 pm

    He has 3 million invested. Even with that amount losing 300,000 hurts and you all never talk about the total loss of money. I’m almost 60 years old and I can tell you this, it is better to have your money than talk about what if’s and a lost opportunity.

    I made a ton of money in the commodities market around the time of Jimmy Carter. Now the commodities market…that’s where you make money. Oh but you also lose money. Did I tell you that the writer of puts and calls most always walks away with the money. Straddles and spreads. Hell I could talk your ear off.

    The straight out securities people bash mutual funds because of the expenses, the mutual funds bash straight out securities people because of the commissions generated in buying and selling, the insurance people bash the securities people because of potential loses.

    I just find it weird when someone bashes a certain investment vehicle. Usually someone has an axe to grind or they have a vested interest in bashing it. So which are you?

    I am guessing that someday the first suit will be brought against the Motley Fool and others that give investment advice. I think they should say it is their opinion.

  85. Chris Kirchberg Says:
    March 29th, 2008 at 6:26 pm

    Deltablues82 Says:
    September 27th, 2007 at 4:09 pm
    “Receive an 11% match on 403(b) TSA deposits…earn higher interest rates with NO stock market risk”
    End of quote

    According to the site this EIA has a 22% surrender charge that lasts (likely declines) over 14 years.


    Maybe you’ll have the nerve to identify some of those EIAs you think are fairly priced and pay “lower” commissions with shorter surrender periods. We’d love to know.

    I haven’t been out here for a while and wanted to answer your challenge. ING has a five year product that offers a indexed annuity that has a five year surrender charge that pays 4% commission. The product even has a rider that allows the client to access 100% of their premium day two if they want.

    The majority of products that are being developed now have 10 year surrender charges or less and have commissions under 8%.

    Deltablue –

    My question to you is, what do you suggest for your clients safe money?

  86. pal Says:
    April 15th, 2008 at 10:08 am

    On sunday (april 13 2008) NBC covered this topic. It was scary to say the least

  87. J Smith Says:
    May 2nd, 2008 at 9:17 pm

    This coverage is totally unfair. It’s like saying that since Enron, WorldCom, Tyco, etc. all equities are bad! As someone who has their Series 6 and Series 7 (check your own credentials), and does not sale EIA’s (ironically not allowed by my Broker-Dealer!) All Equity Index Annuities are not bad! Some are good some are bad and some it all varies depending upon your situation and holdings. Don’t forget that there are market forces fighting for your dollars! Look back into how the 401(k) originally came into law. Look back way back into mutual funds (pre-depression) etc. At the end of the day the one good thing the SEC came up with is fiduciary responsibility for advisors!

  88. What Is An Annuity? | Moolanomy Says:
    May 13th, 2008 at 8:00 am

    […] A Look at an Equity-Indexed Annuity at All Financial Matters […]

  89. David Says:
    May 18th, 2008 at 5:25 pm

    There is no “expense ratio” in a point to point strategy. There is no prospectus for an index annuity, and if you live in NY, there isn’t even a spread on the monthly average strategy. So…not only did you not give the “benefit of the doubt” as one commenter said, you handicapped a product that is already designed in a conservative context. Do you think that that is fair?

    >>>Maybe you’ll have the nerve to identify some of those EIAs you think are fairly priced and pay “lower” commissions with shorter surrender periods. We’d love to know.<<<

    Old Mutual of NY. Any [annuity] product. Lincoln Benefit – I can’t recall the product name but the commission is like 1.5% and the minimum guarantee for the annuity holder is something on the order of 4%…but why gripe about the commission. American Equity offers a 9% commission product but the product has a 10% bonus and an 8% minimum guarantee for income generation. You can’t judge these things solely on the commission payout.

  90. Daniel Says:
    May 21st, 2008 at 3:14 pm

    This is not an accurate representation of what an indexed annuity is capable of because you chose the most conservative of the usual options for indexing. Monthly point to point has typically been one of the better options. Also, and more importantly, the premis behind these annuities is not for long-term investment, but for safely putting away an amount of money to be used for an income stream later. But NOT 56 years later, as you have ilustrated. Of course you will get much higher returns directly investing in the markets for that long of a period! But we’re not after such high rewards when you are dealing with a 55-65 year old person looking for a safe harbor and trying to protecting his money.

    Annuities are a great menu option for advisors to offer their clients. But it is just that an option. Also, using the rule of 100 or any other rule of thumb would tell you that you should only invest a certain percentage of your overall portfolio into these EIA’s. Common sense people!

  91. Scott Says:
    May 22nd, 2008 at 11:01 am

    You forgot to add in the monthly averaging that most EIA’s with annual resets offer. That lowers the rate of return pretty substantially. You are on the right track with your analysis and actually made the product look better than it really is…and it looked bad with the facts. Don’t forget that annual cap also moves around a lot and some firms have lifetime caps, but the cap can go to 0 in some cases.

  92. Jackie Says:
    May 26th, 2008 at 12:27 pm

    I believe that EIA’s are not for everyone, just as other high or low risk investments or safe places are for everyone. You need to do suitabilities for each individual. You really can’t compare someones needs….say a 20 year old or a 50 year old. Options are made for different ages be it mutual funds, CDs, fixed annuities, or even land. I was told to buy land by my father because he always said that even if the price goes down you still have it. Common sense needs to come in to play somewhere. I don’t know if I agree with my father at this time, he passed 8 years ago. Farm ground is so high I don’t know how it pays off. You people can go on with this forever. I always think that when you young enough you can stand more risk….green light 20 years to 40 something. Then you get close to 50 (like me) yellow light starts to kick in. Retirement 60 plus years (red light.I pray to have enough different types of income streams to keep me afloat. Social Security, doesn’t seem to have much security in it. Good luck to all of you. I hope you choose wisely at the appropriate time in your lives…and much success and wisdom to all. :0).

  93. Steve Hansen Says:
    June 8th, 2008 at 3:27 am

    On the subject of commissions. As a registered advisor and I wanted to max my comp I would use mutual funds (I don’t like mutual fund for equity investments, I prefer UITs for my clients, the fees and commissions are far less and perform much better {1 Example: the Focus Four UIT from First Trust Portfolios).

    Example: $100,000 into an A share mutual fund pays about 5% up front or $5,000 and depending on the fund I will get .5% to 1% trail commission every year the account is active. Over a 10-year period assuming no growth in the fund I would be paid a total of $10,000 using 1/2% trail and 5% commission.

    Of course my trail commission would be larger if the fund had growth because trails are paid on the account balance. I even get paid trails if the fund loses money!

    On the annuities that I use I am paid a one time commission of 8.0% (maybe less depending on age. No trails so total 10-yr comp is $8,000. Like the mutual fund I still have to service my client, (semi-annual review, monthly newsletter, 24/7 on call, monthly client lunch and learn sessions and so on.

    Again, I get a kick out of the equity salesman trying to shoot down other financial tools such as Fixed Index Annuities. I also enjoy watching life insurance salesman (Wannabe advisors) trying to put the round peg in a square hole or claim annuities are the Swiss Army Knife of investments.
    Truth be told they all can ruin you or used correctly in a personally and professionally built plan can help you.


    Steve Hansen

  94. Steve Hansen Says:
    June 8th, 2008 at 3:44 am

    I noticed a couple of comments about finding funds with less than 1.5% costs. As you know there are funds with expense ratios less than 1.5% but they funds don’t have to list turnover costs in there prospectus and all funds have turnover costs. If a fund has a turnover ratio of 150% that means if it has 100 stocks in the fund then it will turn them over 1.5 times a year, don’t be fooled into thinking this is free. Studies indicate .6% per turn so a fund with 150% turn over would have a turn over cost of .9% added to expense ratio.

    Which leads to another problem taxes. when stocks are sold in a fund in less than 15 months from purchase date short term capital gains are triggered and these also get passed on to the investor. Studies done on the subject estimate a 25% cost for taxes so if a fund declared an 8% return your net after tax would be 6%. Think about it have you ever had to pay taxes on your mutual fund even though it lost value. Everybody that owned funds in 2000, 2001, and 2002 did. Great deal huh? Pay taxes if you make money, pay taxes if you lose money. Better yet if you own funds inside of an IRA or other qualified plan, you can’t write those losses off, Don’t you just love Uncle Sam?

    As I’ve said in earlier posts I prefer UITs (Unit Investment Trusts) for equity investments. The don’t have turnover costs because the stocks which are selected by formula are held for the duration of the trust generally 15 months thus short term capital gain tax is not triggered.

    Back to Fixed Index Annuities. I will make available historical data to illustrate that over the last 1, 3, 5, 10yrs a quality fixed index annuity has out performed the S&P 500 Index, and I’ll use the 1.5% fee which really should be higher. (request white paper from me and I will gladly email the actual average cost of mutual funds when factoring in no just expense ratio but turnover costs, and tax cost.

    Remember, FIAs are not to be used in all situations and certainly not for all of anyone’s money. Proper Planning is the key.

  95. Robert Harwood Says:
    June 8th, 2008 at 6:35 pm

    Please email me your white-paper and other resource information regarding Fixed Index Annuities

  96. Dylan Says:
    June 25th, 2008 at 2:09 pm

    @ Steve Hansen – That’s quite a conveniently skewed argument!

    Why are you comparing a 1.5% expense S&P 500 investment and talking about high turnover? Why not compare the most efficient alternative opportunity available for S&P 500 participation, an S&P 500 ETF with 0.09% ER or index fund with a 0.1% ER? Either one has miniscule turnover and is readily available to almost every investor.

    Does your comparison include the reinvestment of the near 2% annual dividend for the index investor? Or, are you just comparing index price changes less 1.5% (which would be materially misleading).

    Stock brokers and insurance agents can argue all day long about whose product is better, annuities or loaded, actively managed mutual funds. It’s like listening to car salesmen argue over whether the Lincoln Navigator or Chevy Suburban gets better gas milage. Who cares? They’re both lousy! And neither one is the only game in town.

  97. Steve Hansen Says:
    June 28th, 2008 at 12:30 am


    As I said in early posts I don’t like “mutual funds” in general I prefer UITs because they minimize taxes, are low cost, and the specific UITs I use outperform over 98% of all mutual funds. nor do I think any financial tool is perfect for every situation.

    Concerning performance of a good Index Annuity compared to the S&P 500 Index I was overly fair in costs of an S&P 500 Index fund. The expense ration of a low cost mutual fund can be very low, however many proponents of these funds seem to forget or are unaware of the tax consequences of mutual funds which as we all know taxes are an expense.

    Using Dylan’s expense ratio of 0.1% (low) and 2% for dividends the S&P 500 Index 10 year return for the period of 06/26/1996 – 06/25/2008 is 7.74% (source Go Figure Now) this figure does not include the tax cost. The historical rate for CDs over the same time period was 4.12%.

    Now to historical results of an index annuity. I will use the same time frame and an index annuity That uses a 4 year point to point crediting method with 100% participation rate and a spread of 2.95% both of which are guaranteed. The annualized rate for the same time frame was 8.40%

    How about a UIT for the same time frame the annualized return of the Focus Four UIT net of fees was 19.93% (Source

    Me thinks the doth complain too much…anytime an advocate for a particular investment tool spends time trying to talk down another investment tool, they are enslaved to either commissions, or by their supervisor, or maybe to lack of knowledge of how other investment tools work and can be applied to meet different needs of different investors.

    I agree with Dylan in that mutual funds are lousy, not so sure about the index annuity, seems as if it is more tax effective, has better performance, and is a lot easier on the heart, ( never suffers a loss). If you are looking for pure performance the UIT seems to be a better bet, did I mention that over that time frame the S&P had 4 losing years (-46.87% cummulative)and the Focus Four had only 2 (-18.11% cummulative)

  98. Dylan Says:
    June 28th, 2008 at 10:56 am

    Steve, according to your website and previous posts, you appear to be the one earning commissions on the products you endorse. I doubt anyone is impressed by your claim that you could be earning higher commissions on other products but you’re not. I run my own fee-only financial planning practice. I am paid only for my time, and my pay doesn’t change whether or not someone else earns a commission as a result of my recommendations. I am also quite familiar with indexed annuities and UITs. This isn’t about mutual funds being better than EIAs; I’m merely calling into questions your sales tactics.

    Your attempted comparisons are reckless, inaccurate, materially misleading, and self-serving, especially for someone claiming to be a “registered advisor” if by that you are implying YOU operate as a Registered Investment Adviser. Does your broker/dealer, Wunderlich Securities, know that you are making these and other performance claims while linking to your Web site?

    For clarification, my comment regarding mutual funds was not a blanket statement. I referred specifically to loaded, actively managed funds as those are the ones that typically have expenses in the neighborhood of 1.5% and are often the most tax-inefficient. I have no qualms with low-cost index funds or ETFs.

  99. Steve Hansen Says:
    June 30th, 2008 at 12:00 am

    In response to Dylan,

    I ask that you please read the whole response, I have a gentleman’s wager for you near the end of this post. In which I will attempt to prove many financial tools when used correctly can provide great benefit for our clients, and as I said in earlier posts, a good financial tool used incorrectly can be disastrous for investors.

    I am sorry you are so angry, it almost feels as if you are “threatening” me I hope that I have made a misinterpretation as sometimes happens in emails, blogs, etc. I do want to clarify a couple of issues.

    #1 You said according to my website and my first reaction was what website, I even re-read my posts, then… oops my error there is was right in my face. I wasn’t aware that it would be published…read on the blog under COMMENTS, email (will not be published) (required) I thought that since web site form was under email the same applied it would not be published and was required, I believed this because the first time I posted It was rejected, I assumed because I did not provide my email and website. As they say in Jamaica, “No Problem” since my website has been submitted to and reviewed by my BD and it contains 2 main components one income planning (The Income for Life Method) and a presentation on Index Annuities. My BD required both of the presentations to have clean FINRA reviews which they do. Also, my BD required proof from The BBB that my firm was given a Gold Star Award for 2003, 2004, 2005, 2006, and 2007, to receive this annual award a member business must have gone the 3-previous years complaint free. My office staff and I are proud of this accomplishment since we have over 300 active clients and have never received a complaint.

    #2 I am licensed in all lines of insurance in several states, I have a series 6, 63, & 65 and I am an Investment Advisor Representative and I am in the process of have my firm become a Registered Investment Advisor. I have had the following audits in 2007: FINRA, SEC, State Securities, and lastly the IRS. Seems someone made false claims about me. I was found deficient in two (2) items. SIPC sign was posted in my office (where I do interviews) agency wanted it in Reception Room and another agency wanted an initial column on my check blotter. Kinda funny huh, I wonder if these same agencies will now go back to the competitor that made false claims about me and audit him?

    #3 I am not “the one” as you put it earning commissions, we are all selling something and getting paid for it I don’t know of anyone that works for free. You sell your “Fees” correct?

    #4 The performance #s I posted were sourced (FT Portfolios) and since you said you understand UITs then you are aware that the UIT I referenced was formulaic and therefore performance can be back tested and this back testing has been submitted by FT Portfolios (not me) to FINRA and has a clean review.

    #5 I choose not to become a “Fee Only” advisor because I feel I am limited in what I can do for my clients (primarily pre-retirees and retirees), most of whom are risk averse. I will never claim to be a “Fee Only” or “Fee Based” all of my clients and prospects are made fully aware of how I am paid (part of my BD Disclosure and form ADV). While on the subject of what we earn in this business, You said you work on a “Fee Basis” and I assume you would charge an investor with $100,000 about 1.0% to 1.5% is that correct?

    #6 I would like to put forth a challenge as it were, to build a plan for the following hypothetical client. 70-year old (either gender) that has $100,000 in tax free munis earning 3.75% (not in IRA), adjusted gross income of $23,500, cash reserves of $30,000 and wants the following: a minimum of 5% inflation adjusted income ($5,000/yr), has stated does not want to be subjected to Return Sequence Risk and understands that in order to keep up taxes and inflation the portfolio will require market exposure. Wants to keep taxable income low enough that no more than 50% of of social security income is subjected to income tax, wants to leave at least $100,000 as a legacy to loved ones.
    More of my game plan, the tools I will use:
    A) A five year single premium immediate annuity.
    B) A fixed rate deferred annuity
    C) A 10-year Index Annuity
    D) A Variable Annuity
    E & F) Two (2) Unit Investment Trust
    G) Secret Ingredient (trick play in football terms) that will guarantee zero exposure to “Return Sequence Risk”

    #7 I will expose parts of my “Game Plan” to you to give you an edge. First my plan will not be exposed to “Return Sequence Risk”. I will use a mix of several investment tools that when properly structured will meet the objectives of the hypothetical client. As a “Friendly Wager” a dinner at the Steak house of choice to you if my compensation is higher and my plan does not meet client objectives or of my choosing if you compensation is higher. Both plans will then be sent to a third party consumer advocate to determine the merits and shortcomings of each.

    #8 I don’t expect that you will accept the challenge, nor will you change your mind the advisor that makes a commission, or a combination of commission and fees. I believe that this stance is the only stance a “Fee Only” advisor can take otherwise they usefullness could be questioned. The reality is although I can as an IAR (soon to bee IRA) I refuse to charge fees for advice that I can help my client implement for “FREE” in many cases. If however, my client demands that I use a non-commission able product such as a no-load mutual fund, EFT or the like, then I like you Dylan will charge a fee for my expertise. As a matter of clarification, in most cases, I do not work for free, as may planning does take time and I charge appropriately for my time.


    Steve Hansen

    #9 I don’t care if you just have an insurance license, are a Registered Investment Advisor, an Investment Advisor Representative, a broker, a CPA, a CFP…All of these, in my mind have a fiduciary responsibly, to their clients no matter how terminology is parsed!!!

  100. Steve Hansen Says:
    June 30th, 2008 at 12:07 am

    Sorry about the Typo near the end of my last post is should read RIA. Probably a couple of others as well. not too good with typing.

  101. Dylan Says:
    June 30th, 2008 at 4:24 pm

    @ Steve – No thanks on your challenge.

    You are apparently under the mistaken impression that we do the same thing and just choose to charge for it differently. And, I’m not sure how you draw the conclusion that I charge based on a percentage of someone’s investments or that I am opposed to those who earn commissions. Neither of which are true. I only mentioned my situation to rebut your implication that I was “enslaved to either commissions, or by their supervisor, or maybe to lack of knowledge.”

    You’ve apparently also misinterpreted the rest of my comments because I am not threatening you; however, I was cautioning you and other readers of these comments regarding their misleading nature and the accuracy of your claims. Of which, you are defending the wrong points. But rather than me trying to explain it to you, I suggest you share the link to this page to your broker/dealer and the CCO of your RIA, and review your posted comments with them. I’m sure they will thoroughly explain why you cannot claim to be a “registered advisor,” present performance claims and discuss securities as you have, or state that you “have never received a complaint.” FYI, customer disputes appear on FINRA BrokerCheck reports.

  102. Steve Hansen Says:
    June 30th, 2008 at 9:34 pm

    Mutual Funds, UITs, CDs, Single Premium Immediate Annuities, Fixed Indexed Annuities, Life Insurance, LTC insurance are all tools used correctly can help used incorrectly can cause distress.

    No one tool is the “Swiss Army Knife” of investments. Fixed Index Annuities are like any other investment some good, some bad, most average.

    For JLP if your father was put into an inappropriate investment shame on the advisor that did it.

    Benefits of a good Fixed Index Annuity.

    1) Most offer 10% free withdrawals
    2) Are liquid/have waiver of penalties at death, terminal illness and Long-Term Care Confinement.
    3) Most have a what I refer to as a lock in look back feature meaning if the index that is being linked goes down the account value is locked in and gains in the next year are tracked from the new lower index point.
    4) Many have 1 by 10, 5 by 10, annuitiziation features. Which means for instance that if you hold the annuity for five years you can take all of the money by annuitizing for a 5 year period.

    I see fixed index annuities as option to those that do not want market risk but would not be happy with today’s CD rates.

    A last comment on the often referred to high commissions on fixed products compared to commissions or fees on market products.

    Assuming a fee of 1.0% on $100,000 investment and not accounting for any growth of the account the total fee based compensation to the advisor would be $10,000. Assuming a fixed product with a one time commission of 8.5% total compensation would be $8,500 or .85%/year.

    There is too much your bad, I’m good out there too much misinformation about many financial products.

    Hopefully most of the “Pros” that are posting to this site are not “One Horse Ponies” like a golfer we have a bag fool of clubs, each club designed for a specific purpose. Before my own research I seldom used a Fixed Index Annuity in my practice, similarly I rarely used a hybrid club that my brother-in-law gave me. Once I understood it’s purpose for certain specialty shots, I now love the club. The same with the FIA, it’s a terrific tool when used correctly.

    One last item of information…last week the Securities Exchange Commission has put out notice that it plans to have all index annuities filed as securities. The process, if it comes to completion will take about 18 months at a minimum. As far as I’m concerned the sooner the better, I feel it will take this tool out of the hands of a lot of insurance agents that don’t explain it correctly, use it incorrectly, etc.

    I wonder…If the index annuity is indeed declared a security, will it then be accepted as another viable financial tool the so many brokers hate???

    Good Luck

    God Bless

    Steve Hansen

  103. Don Says:
    July 17th, 2008 at 2:41 pm

    Just to inject myself quickly into this great discussion; the SEC on July 1, 2008, issued Release No. 33-8933 to propose a rule change to the Securities Act of 1933 and Securities Exchange Act of 1934 by creating SEC Rules 151A and 12h-7, effectively classifying indexed annuities as securities, subject to the registration, prospectus delivery, and anti-manipulation (Rule 10b-5) standards of the SEC and as well as the market and business conduct codes of FINRA.

    This change has been on the horizon for at least a decade and even a casual observer could see that the insurance industry’s “ostrich-head-in-the-sand” approach to addressing rising sales practice abuses and their collective failure to provide adequate training and resources to both the public and intermediaries who sell indexed annuities (in particular equity-indexed annuities)led to this position by the SEC and securities regulatory community. These proposed rules will pass the September 10, 2008 comment period fairly unchanged and become the law of the land by November 2009 (a copy of the proposed rule can be found at

    The issue I have had with equity-index annuities is not their purpose but rather how they have been sold and represented. They provide a valuable hedge for those truly risk-adverse individuals who seek controlled participation in the market (for a price), have liquidity needs beyond the contract’s surrender period, and understand the opportunity cost vis-a-vis other savings vehicles which may be available to them — in other words, suitability, suitability, suitability. I defy many of you to find two salespersons who offer these products to their clients to explain the various features (i.e. point to point versus monthly point-to-point indexing, high and low water marks, European versus Asian style crediting, etc.) in a way that makes sense and is not confusing to the consumer. In my experience, I have found commissions, not the client’s interests, as a motivator for the sale of these products and without the proper objective an unbiased view (certainly one that is not clouded by money), the astronomical growth in EIA sales as a subset of all fixed traditional annuity sales (roughly 30% of all sales for the period 2001-2007 with sales in 2003 of $14 billion topping total sales for the period 1995-1999) only invited the increased regulatory attention.

    The proposed rules make NASD NTM 05-50 look like a walk in the park and the industry has no one to blame but their own greed and carelessness.

  104. Sandy Says:
    September 1st, 2008 at 5:34 am

    Hi all,
    The information was educational…….. Thanx JLP, I have one query. Its is easy to get a return out of historical market performance, is there any tool to predict the future EIA based on past data basically for retirement planners


  105. john Says:
    September 14th, 2008 at 11:18 pm

    could somebody please tell me if there are any annuitys tied to t-bils only and would that be a good thing, thanks

  106. PHIL Says:
    October 1st, 2008 at 7:37 am

    Ok i see your point but you are not comparing apples to apples. Like some of the other comments EIA’S are Fixed annuities that only use the numbers from various markets to credit the account if the annuitant/owner so choses,they are in no way comparable to a registered risky investment if you would take a moment to look at what we call the pyramid of financial’s you’ll find fixed annuities in the lower section of risk along with savings accounts,certificates of deposits and money market accounts and just to through a number at you sense you came up with a return of nearly 7% on the EIA look up the historic’s on CD’S…I believe the past 10 years is around 4% before taxes and another mis statement is the annuities i know of have no fees unless maybe you add a income benefit rider. Now with that said lets address some other features annuities have,bypass probate,creditor protection…just ask OJ or Ken Lay about that or Kens wife,triple compounding because you get tax deferral..principal earns,interest earns and taxes earn therefore tax deferral possibly reduces other taxes like on your Social Security and other income or dividends,most come with nursing home riders so you can get your money without penalty,major medical,terminal illness…see if you get that with a CD……I believe everyone should have at least one annuity weather it be a fixed multi year guarantee annuity,or a EIA WITH A BIG UP FRONT TRUE BONUS…I could go on and on have you ever thought about what our Social Security system is?its nothing more than a government backed annuity,what about our teachers retirement funds how do you think they can pay in and get a certain amount for the rest of their lives.I know of only one annuity that works strictly off the S&P 500 from Sun Life Financial…..good account but you better get it in a down market because it has no fixed account and get ready for some 0% years but because it works off a High Water Mark and a vesting schedule, in the later years you will do very well but still average probably between 6 and 8 percent and by the way that was the first one ever produced in 1995.

    Oh and to John there are so many annuities out there that are linked/i hate that word because they are not actually linked at all they just use the numbers from the various bonds that the insurance carriers purchases,but i do know of one carrier off the top of my head that uses treasury bonds…try Lincoln Benefit life,its a Allstate company.

    I have to say one more thing we as insurance agents/advisor’s get a commission for the account we set up ranging from 1% to 10% and rightfully so…..think about the broker getting his money weather you make or lose money not to mention all the fees along the way and taxes….we are safe money people they are risk takers….im not about to have a 60 to 80 year come in my office and put them in a mutual fund or variable annuity.Look where the market is today,i can look at all my clients and assure them they are safe,annuities have never lost a penny,unless the client didnt live up to his contract just like if he didnt with a CD.

  107. PHIL Says:
    October 1st, 2008 at 8:00 am

    Oh and to Sandy if you do so chose to reposition some of your investment dollars into a annuity you should find EIA that you can diversify in for example they will have diffrent wayS to allocate your money within the account for example the S&P 500,NASDAQ,Russel 2000,LEHMAN BRO.EURO, AND THE FIXED ACCOUNT…..Spread it around inside and use accounts at least 10 years long if you go 5 years just get a MYGA-MULTI YEAR GUARANTEE ANNUITY right now they are getting in the 5 to 6 percent range or you can always do what i do for my clients i set up several annuities ranging from 1 yr to 14 yrs the 14 year has say a 11% up front bonus thus jump starting your investment and within this account you get that same bonus on any money added to the account for the next 7 years so ill do a 1 yr a 3 yr a 5 yr and and 7 yr each time they can just transfer one to the other,now put the numbers down on paper and see how you turn out in the long run,now say you added a income benefit rider to the 14 year an at age 70 you started taking the income,you get a tax break because its part interest and part principal but let say you dont need the money but you dont want a tax burden now buy a Universal Life policy pay the tax on the income and the premium for the life policy for lets say 1,000,000.00 for your kids or grand kids tax free and the annuity is still left for them too….there is a million way to work these things but dont let a broker tell you they are bad remember his job is etf’s,spiders,mutual funds,options…..RISK…..NOT ANNUITIES…Find a honest agent that knows these things and will not be commission driven…some of us agent like to be able to lay our head down at night and sleep…some just like brokers or car salesman can only think about themselves.

    Just find someone you trust!!!

  108. PHIL Says:
    October 1st, 2008 at 8:16 am


  109. Denny Says:
    October 1st, 2008 at 5:12 pm

    I have read through the posts with interest and it seems that there are two sides to this discussion.

    On the right are the “Annuity Salespeople” who are only in the business to make unbelievably obscene amounts of money ripping off seniors by selling them those despicable annuities (especially the “Index” type). And on the Left are the “Financial Advisors” (some even “Certified”) who are only in the business to “help people” (not for the money) by using software to track what has happened in the past 50 years and have much better ways for people that have no risk tolerance, short time horizons and know nothing about investing,…to invest.

    So to all of you that fall in either groupe here’s a question: If a prospective client said this to you…what would you recomend?

    Hi I’m 69. I have this money still in my company 401k that I need to last for my retirement

    I have watched my retirement account make money for everyone but me for the last 10 years. My mutual Fund has been charging me fees each year even when I lose money or they sell losing stocks in my account. In fact since I retired I have seen my account drop 10% in value.

    I don’t know anything about investing and according to what I have seen in the last week neither does anyone else.

    I want to do a little better than I can in CD’s which I like because they are safe.

    I want the money to last me for the rest of my life

    I want my kids to receive what ever is left without having to go through probate.

    From the post above think this is what most of the greedy “Annuity Salespeople” might say:

    Annuities are a save place to keep your money.
    You can not lose your principle because it is guaranteed.
    You do not need to know anything about investing.
    They can do better than your CD’s.
    They can pay a minimum interest each year for up to seven or ten years as long as you agree to leave your money in the account for that period of time before you move it.
    You can annuitize them and not outlive the income
    They by pass probate.

    Without giving up any of the above features if you are willing to take the chance that you will receive no interest in a particular year you can also have the option of receive better than the minimum interest in others years.

    If you are willing to agree to leave your money in this annuity for seven to 10 years you could also receive an immediate bonus to your account which might help make up for some of the losses your account has experienced.

    If this sounds like something that might be interesting to you let me tell you the negatives of these annuities.

    What would the “Financial Advisors” say? As I have been i(in the past) a registered rep here’s what I believe the securities people would say:

    What would the “Financial Advisors” say? As I have been (in the past) a registered rep here’s what I believe the securities people would say.

    I do not have guaranteed products.
    You can lose some or all of your investment.

    It is your responsibility to make the investment decisions.

    Unless your investment is in an IRA type of account you will pay taxes on the profit each year.

    We will charge you an annual fee each year based on the value of the account.

    We will charge you a sales fee any time you put more money in the account.

    We will charge you a sales fee every time we sell some of the account.

    Over the last 10 years, the inflation adjusted return on the S&P 500 was -17%.

    If you reinvest your dividends it’s better; the inflation-adjusted return was only -2%.

    Any Thoughts?

  110. Dan Says:
    December 13th, 2008 at 12:53 pm

    Hi, I ran across this page today when looking for annuity information suitable for a layman. Very informative posts and I found what I was looking for.

    In response to Denny’s post in October, I believe in the KISS principle where in my parent’s situation, they have half of their bulk in GNMA’s for security and interest. The other half is normally in the total market index for growth. At the beginning of the year due to abnormal times, they went to 75% GNMA’s and are quite pleased.

    They re-balance the portfolio once a year.

    They do have a stock portfolio with quality stocks paying dividends, some individual bond issues as well.

    I think that is one of the more sensible ways of managing risk and expense.


  111. Randall Says:
    February 26th, 2009 at 10:02 am


    I am an uninformed individual who has seen my small investment get smaller & smaller. the other day I sat in on a presentation of the Allianz MasterDex10 annuity. Here is what was preswnted:
    1. We would receive a 10% bonus DAY 1 of our investment. With an additional 12% bonus at the end of year 1.

    2. Any additional anounts added in years 2 & 3 will receive a 12% bonus ane the end of those respective years.

    3. Now the really good part. The initial investment will DOUBLE at the end of year 8.

    This assumes that no funds are taken out during the term of the annuity. Sounds too good to be true right? The brochure lists the following penelties for withdrawal during the contract period as follows starting with year 1:
    10%, 10%, 10%, 8.75%, 7.5%, 6.25%, 5%, 3.75%, 2.5%, 1.25%, 0%

    We were told that some sort of trust should be set up.

    I just read your forum and the agent is comming back today. I know this is real short notice, but I would appreciate knowing what questions I should ask?

    Thank you,


  112. Blair Says:
    April 15th, 2009 at 3:04 am

    I guess all you stockbokers have a NEW expanation for the CRAZy Loses you have given all your clients .. at least all my Incesc annuities still have al he gains and evry penny of he principal

  113. Mark Jonh Crews Says:
    June 18th, 2009 at 2:27 am

    My clients EIAs have yet to loss a penny. And in mid 2007 several posted 15-19% gains (not bonuses) actual gains. Most are averaging 6-8% over the life of the contract. with no worries or losses. That's what seniors want. A decent return and no losses. And no taxes on SS each year. Yes, there are taxes to be paid on the growth when it is taken out or matures.
    I am soo looking forward to the steady rise in the indexes. while any senior with 100k in the market last year will have to wait 6-7 years to recover and show a balance over 100k again, my clients could easily be at 150k to 175k.
    Until you actually have 5-7million of EIA business on the books over the last 7-9 years and actually seen how EIA really work, you should be careful of what you post. As the advisor, you do have to understand the crediting and pick products that will perform correctly. But they actually can be a very positive experience for a client.

  114. » Rhode River Cinema of Kerala Says:
    July 8th, 2009 at 5:01 am

    […] Comment on A Look at an Equity-Indexed Annuity by Robert Harwood […]

  115. Tom Says:
    November 24th, 2009 at 4:54 pm

    What a crock, you do not understand the use of an EIA. I too have clients who have lost a lot of money in the market and then died leaving their kids a lot less. Had that money been in a good EIA they would still have at least their principle and the quaranteed interest. Many of my clients who are older want little to no risk with “some” growth potential. Many of my clients market money is still the same as it was in the early 2000`s. Shame on you saying most agents who work with the older clients are sleasy. You want sleasy?. Lets talk about the broker who forgets to tell a client when the market goes down 50%, it does not get back to the same level when the market goes back up 50%.. Lets talk about the broker who tells older people to “hang in there” it will come back, when in fact they have no idea if or when it will come back in that older persons remaining life span.
    Lets talk about a broker who is willing to put a 75 year olds life savings at risk.
    Shame on you.

  116. BMW Insurance Says:
    January 22nd, 2010 at 4:22 am

    Took me just about an hour to read all the

  117. Craig Says:
    January 23rd, 2010 at 5:13 pm

    Hi, have you looked at the BPA Select annuity – it is the best performing FIA in the business and the guarentees are tremendous. 5% Income Rider and 8% death benefit compounded annully. Have a look and let me know how you think it stacks up.

  118. Craig Says:
    January 23rd, 2010 at 5:15 pm

    Randall, Allianz MasterDex is a terrible product – take a look at the BPA Select I’m sure you’ll see why I think the Allianz product is terrible

  119. Bill Says:
    February 14th, 2010 at 9:43 pm

    Well first of all most of what is biased both ways. First lets talk about the person buying the index annuity. Is that person really looking to get returns in the market? or are the not happy with the current fix rates in various bank and credit union products. Are they looking at non qualified funds (tax deferral). And most good quality index annuities are 100% part and lets just use a 8% cap. The fact is you cant compare it to any straight index since it is not in the market. How you earn your interest is based on it, for those who want gains of the market shouldn’t use a index annuity but those who are looking to get a better return on their money than lets say cd and saving accounts its a viable solution. An lets not forget the emotional part which we all forget that the average investor has. Did the investor in the index over all those years really stay in the market or did he do what most do and bail out at the worst and get back in “when the market is doing better and buy back in at a higher share price. I think you are comparing apple and oranges and it really depends what dad is looking for. He might be conservative and you are younger and having him go for the gusto. Oh and never ever use a bonus product as an advisor for 13 years the last time I checked an insurance company never gives any thing for nothing. Its a way for a salesperson to hook a person and true advisors should use one unless in a very very few instances. Hey there are very good quality companies that offer 6.15% for a 4 yr product point to point no bells and whistles oh and A+ rating and lets face it would you lock your money in a long term fix or cd paying less than 3.6 – 4.0 for 7-10 years. Index annuities have there place just like a index fund, mutual funds, fix annuities, money markets cd and bonds i bonds and etc

  120. Bill Says:
    February 14th, 2010 at 9:44 pm

    oh also index annuities dont have a set fee like a va or fund. Its based on the difference of the insurance companies general fund performance and what it cost to buy the option on that index for the cap rate.

  121. paul Says:
    April 9th, 2010 at 8:36 am

    Facts are stubborn things.The worst EIA product I have seen was better than the uninsured index over the last decade .This is what counts to our clients.We have 35 years of money management experience and anyone who uses a 100 year perspective or a 50 year perpective to plan investments for a 70 year old is being either criminally stupid or disengenuous.Biased writers,new outlets,amateurs , like this blog anbd other media have harmed many many investors by disouraging them from buying a safe reasonable vehicle like an EIA as part of their overall asset allocation.PS we manage nearly 1 billion dollars and our EIA clients are the happiest of the last 10 years.

  122. Chris Says:
    June 19th, 2010 at 9:00 pm

    The analysis is flawed. By the same logic nobody should be in bonds or in money market accounts. After all the S&P was better over the past 60 years, right? You have to look at risk as well as return. EIAs have lower expected returns than pure stock but also lower risk.

    That being said, I think EIA commission rates are too high.

  123. Scott Says:
    September 4th, 2010 at 11:52 am

    You did a lot of work here. However, Chris is right. The analysis is flawed. Also, as the author stated, there are way better FIA’s out there. There are several that use month to month caps with a cap of 2.6% per month, which could potentially allow you to capture up to 31.2% of the S&P return in a year max. So this analysis on this annuity is somewhat accurate, but I would caution people, especially retirees, do not use this analysis to make your retirement investments solutions because taking income in retirement is more about the sequence of returns than the average return over time. How would you like to have retired in 2006 or 2007 and put your $1M into the S&P 500 index? You’d be down to about $746,000 right now in August 2010. If you put it into an equity indexed annuity, you’d have a minimum of $1,000,000, and more likely you’d have about $1,200,000 today. So you do the math. Remember, it’s about the sequence of your returns, not your returns over a 60 year period. After all, hate to break the news to you, but if you’re in your 60’s now, you probably won’t be around in 60 years to let the sequence of returns even out.

  124. Scott Says:
    September 4th, 2010 at 12:09 pm

    Hey Stanley More CFP…..What’s that 10-yr treasury paying now? You still selling that to your clients? I bet not.

  125. JLP Says:
    September 4th, 2010 at 12:19 pm


    How much do you get paid when you sell someone an EIA?

  126. David Says:
    February 17th, 2011 at 11:18 am

    Looks like I’m a little late to the party. But, better late than never I suppose.

    I see your comparison. I am not a champion of EIAs. But, I think your analysis is very seriously flawed.

    1) You don’t specify what the “non-annuity” account is other than an IRA investment. But, you started the analysis in 1950. IRAs weren’t introduced until 1974. If you’re going to compare the “reality” of an EIA, don’t compare it to puff the magic dragon.

    2) Why did you choose 1950? Why not 1974? Why not 1900? You’ll get wildly different results when you change the date. Seems like cherry picking to me.

    3) You compounded the return. Stock returns are NOT compounded unless you invest in dividend stocks, and then you need to know the capital gains rates for the appropriate years because it WILL affect the return (assuming you’re not cheating and showing a return that you could never have gotten in an IRA in 1950 to 1974). Also, index mutual funds didn’t really exist until the 1970s either so that’s out as an investment assumption until then. That kills your 11+% compound return assumption.

    4) You really are comparing apples to oranges. The types of people investing in EIAs have different goals than people who invest in the stock market.

    It seems as though you set out to prove that the EIA is a piece of crap instead of setting out to analyze which investment would have produced more money over the long-term. What you ended up with is a misleading analysis.

  127. JLP Says:
    February 17th, 2011 at 11:46 am

    David wrote:

    “Why did you choose 1950? Why not 1974? Why not 1900? You’ll get wildly different results when you change the date. Seems like cherry picking to me.”

    This was a follow-up post to the previous day’s post, which you can read here. I got the start date from the ANNUITY SALESMAN who conducted the seminar! I assure you there was no attempt to cherry pick.

    Finally, if comparing an EIA that’s BASED on the S&P 500 Index can’t be compared with that index, then what can it be compared with. Did you not read my assumptions which favored the EIA?

    I don’t appreciate the accusatory tone in your comment. I can assure you that had the EIA come out on top, I would have printed that.

  128. David Says:
    February 17th, 2011 at 12:18 pm


    I’ve seen some really bad annuity presentations. I think my accusation is proper. You are comparing apples to oranges.

    It is cherry picking regardless of how you look at it. Annuity salesmen do it, but so do those on the other side of the fence. You used the salesman’s data, but assumed his premise was correct to begin with. I don’t think it is.

    I’m not saying that the EIA should have won. I think an analysis of an EIA going back to 1950 is not realistic and neither is assuming an IRA return or compounded returns from that time period either. It’s not realistic because they didn’t exist.

    You didn’t really favor an EIA. Any annuity I’ve looked at with a cap doesn’t have a fee on top of that. They use spreads (fees) when there is no cap. The other point you brought up about locking in investment principal isn’t really favoring EIAs either. They are designed to protect investment gain plus principal. You’re just illustrating how EIAs work. But, on the stock market side, you weren’t demonstrating how stock returns work. You were demonstrating how a hypothetical compounding investment (stocks don’t earn compounding returns unless they are dividend stocks and even then not all of the return is compounding) that also gets all of the gains and losses of the stock market works.

    To say that EIAs are based on the S&P is sort of true, but doesn’t tell the whole story. They are handicapped on purpose. The product derives some of its interest from the S&P. It used bonds and index call options to generate the returns. Obviously no dividends are paid. The cap rates you seem to understand. Sometimes there is a fee, but not when there is also a cap.

    …and when I say you are comparing apples to oranges, you are comparing the stock market with dividend returns and 100% compounding tax-free vs a product that tracks just the upward movement of an index. That doesn’t mean you can’t compare them. It just means that you have to understand that there is necessarily going to be a difference in the return potential. You put Ali in the ring with the kid in the golden gloves and then when Ali won you said “stay away from the EIA.”

    That’s not “apples to apples.” Apples to apples would be “Look at this corporate bond. Look at this other corporate bond. Which one pays more?”

    If the purpose of the comparison was to say “well, if an IRA and index mutual funds existed in 1950, they would have beaten an indexed annuity if it had also existed.” my question would be “how can you possibly know that?” When you have money flowing to different investments, it affects how people invest in them, how those assets are priced, and the fees generated and so on (i.e. supply and demand drives asset pricing and affects returns on the secondary market where these assets are bought and sold). But, there’s no way to go back in time, invent either hypo investment or assumption and then sit back and watch who comes out on top.

    I think the best you could have done is said the EIA salesman is wrong, the only analysis that can be done is from the time EIAs were first introduced until now. How does it compare to the stock market returns during the same time period? That would be a historical comparison. It still wouldn’t be apples to apples, but it would compare how EIAs perform as versus a direct investment in a stock index.

  129. JLP Says:
    February 17th, 2011 at 12:36 pm


    Let me ask you this: do you earn commissions from EIA sales? If so, please share with us how much you make on a typical sale and also tell us how that compares to a mutual fund sale.

    I did not cherry pick. Cherry picking would have occurred had I chosen a date that backed up my point of view. I did not do that. I used the date that the annuity salesman used.

    HOW can you say I didn’t favor the EIA? I didn’t deduct fees and expenses and I took out 1.50% for fees on the S&P 500 Index. The EIA was HEAVILY favored in this example.

    I understand why insurance agents don’t like me comparing an S&P 500-based EIA with the S&P 500 Index. But, if they don’t like those comparisons then they shouldn’t be selling the product because you can bet that they are using the S&P 500’s underlying numbers to make their sales pitch.

  130. David Says:
    February 17th, 2011 at 1:46 pm


    >>>do you earn commissions from EIA sales?<<<

    For the record, no. But, I'd like to add that this is totally irrelevant to the discussion (a red herring).

    I used to sell them. I also have experience selling mutual funds, which I also don't do anymore.

    EIA commissions run the gamut. Some commissions I've seen go upwards of 7 percent on the first year (called FYC or "first year commissions"). Some states, like NY (where I am from) cap commissions at 5 percent (or at least they did when I was selling). The commission is on the deposit in the contract. But, no money is deducted from the annuity account to pay commissions. The insurer uses surrender charges on the annuity to make up for the commissions but those fees are only charged if the client cancels the contract within the surrender period. Usually, there are no other commissions paid out after that first year.

    Mutual funds vary too depending on the class share you sell. It really depends on whether you get an upfront commission plus trails or just trails. You could get 5 percent up front on money invested in mutual funds and then earn trailing fees on top of that. Maybe .25 percent annually whether we did anything or not. Maybe .5 percent. As long as the client was still a client, we made money.

    RE: Cherry Picking–OK, then the salesman cherry picked his data (rather poorly at that, I think), but, you used the same data. My only point with that is that the date ranges are completely and totally arbitrary. There's no objective reason to analyze returns from 1950 until today.

    I don't think the EIA was overly favored in this example. You didn't deduct fees because there are no fees to deduct. I think you're confused on how EIAs charge fees. There are no fees and expenses for an EIA unless the insurer charges a spread. They only charge a spread when there is no cap. Now that you're on it, you also assumed a flat cap rate. Those things go up and down with the price of options contract fees and the cost to hedge. So, in good times, you'll see those cap rates rise. That's hard to predict so I won't go on about that too much. 1.5% fee on the mutual fund seems high for an index fund, so I'll give you credit for that.

    But, you DID favor your S&P assumption VERY heavily. You compounded the return every year on every dollar invested. What mutual fund does this? None that I know of. What stock investment earns compounded interest? None that I know of. But then, I've already brought this issue up to you. You measure only dividends when compounding returns, and even then, you're simply buying more shares in that year for more price appreciation. If you're not earning dividends, then you're not compounding. You should be measuring the total return if you're looking at stocks.

    Yes, I agree EIA salesmen shouldn't be comparing the S&P500 to an EIA. I understand the appeal of doing sales pitches that way. Heck, even the insurance companies say "earn the upside of the stock market without any of the downside risks" I've said that myself before, but with several caveats. You have to explain that there are caps on these things, that those cap rates change, and that you don't earn dividends and….and…and…

    Far too often, I think what's being sold is the idea that you can have your cake and eat it too, and that's just ridiculous as well as a contradiction in terms. EIAs do exactly what the contract says it will do. But it's not a miracle investment product.