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Another Follow-up on Equity-Indexed Annuities (Sorry Muddlehead)
By JLP | October 7, 2007
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.
First off there was a comment from “ron adams” speaking highly of EIAs. After a couple of exchanges, I finally asked ron if he was a client or a salesman. This was his reponse:
i am both i have hundreds of clients that i have that are extremely happy — returns from the last two yrs of 30% — i have some idea of the companies you have been checking on to get the low rates you are saying—-i find it is important to deal with the agents that have the correct knowledge. by the way i have an ia that has a 3 year surrender i just wish more honesty or knowledge was being used in telling about them than lumping them and all ins. agents as crooks or incompentent i have taken many courses on ways to help people handle their finances, i do not think stock brokers are the only ones capable of this. i had a series 6 30 yrs ago but i did not like the idea of risking peoples money.—i have friends that are working as bag boys because they lost most of their money in the market—i wonder what happened to the rule of 100—thanks ron adams
I appologize (EDIT: I’m an idiot for not knowing how to spell) for the unreadable quality of the comment. Ron doesn’t appear to like proper punctuation (let’s hope his correspondence with his clients is better than this).
First off, I never said that stock brokers are perfect. Heck, lots of stock brokers got their insurance license so they could sell annuities.
Second, I don’t understand how selling a properly balance portfolio of mutual funds is “risking people’s money.” If I read Ron’s response correctly, losing money from market loss is bad, but losing money to high fees is okay.
Then, there was this classic comment from some guy named Coach Pete:
“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.
PERIOD.
“For every bad Insurance agent, I can show you 3 bad Securities guys.”
That’s comforting isn’t it?
I do like the fact that Coach says tha this clients understand the annuity before they invest their money. I hope this is true.
I don’t like the implication that only annuities are a good fit for SAFE money. Asset allocation is the key along with a mixture of stocks, bonds, cash and possibly real estate. A person DOESN’T have to have an annuity to keep their money “safe.”
If you have time and inclination, go back to the original post and read the comments. If you look hard enough, you’ll notice that all the commenters who like EIAs sell them! Coincidence? I seriously doubt it!
Oh, and if you are interested in learning more about the workings of EIAs, read Tips on Equity-Indexed Annuities by Scott Burns and An Overview of Equity-Indexed Annuities (PDF), a paper by Craig McCann, PhD and Dengpan Luo, PhD. The paper is long and dry, but well worth your time.
Topics: Miscellaneous, Retirement Planning | 18 Comments »
October 7th, 2007 at 3:21 pm
[...] huge fund wrote an interesting post today onHere’s a quick excerptSecond, I don’t understand how selling a properly balance portfolio of mutual funds is “risking people’s money.” If I read Ron’s response correctly, losing money from market loss is bad, but losing money to high fees is okay. … [...]
October 7th, 2007 at 3:38 pm
[...] Vause wrote an interesting post today onHere’s a quick excerpt [...]
October 7th, 2007 at 7:12 pm
People that sell annuities believe in what they are selling. They are trained to do so beginning their first day on the job, and then they are surrounded by a culture that reinforces those beliefs. Many will own their company’s products, because the same ignorance to the alternatives that allows them to feel good about what they’re selling, makes them fell good about owning too.
It’s the same for securities brokers. They are bread to believe they are better than the other guys. I’m sure there are “securities guys” that say, “for every bad securities guy, I can show you 3 bad insurance agents.”
These are not bad or unethical people, just misguided by an industry with interests that are no aligned with its consumers’ interests.
October 7th, 2007 at 10:41 pm
on a sunday night when the cal bears are number 2 in the land, nothing will wipe the smile off my body. from jlp, “If you look hard enough, you’ll notice that all the commenters who like EIAs sell them! Coincidence? I seriously doubt it!” excellent. from dylan, “These are not bad or unethical people, just misguided by an industry with interests that are not aligned with its consumers’ interests.” well, unfortunately, they are bad people. when your goal is to intentionally mislead other humans to get some of their money, that’s bad.
October 8th, 2007 at 1:23 am
It’s an interesting conversation.
I’m deeply distrustful of annuities in general – most are unatractively structured, but if I wanted one, I’d go to Vanguard or possibly Fidelity. Vanguard’s have extremely low rates.
I’d avoid buying anything that requires a broker or agent – they have to be paid for somehow – by you!
Equity indexed annuities – i’d rather have a diversified portfolio with a diversified bond component.
Seems more effective.
regards, makingourway
http://www.makingourwayblog.com
October 8th, 2007 at 1:32 am
I would be willing to bet the ones slamming annuities peddle stocks and bonds for a living.
October 8th, 2007 at 4:11 am
muddlehead, might you also be a Cal alumni? If so… we’re going all the way this year!! What a turnaround since Coach Tedford accepted the job – we started beating Stanford my freshman year (I was there for the goal post uprooting).
I do not trade stocks or bonds, nor do I trade annuities. But annuities are notorious for having hidden fees and/or meanings. I would much rather trust a Treasury bond for safe money than try and wade through all the false advertising that is annuities (yes there are honest salesmen but why chance it?). Stocks are also fairly straightforward – I have done asset allocation across US small/large cap, international indexes, etc. and believe it to be a much better investment than an EIA or any other type of annuity. You also get much better information about stocks and bonds (well most bonds) and I believe that it is much easier to invest safely in stocks and bonds than it is to invest in annuities.
I would write a further logical argument about why annuities are bad because they are sold rather like mutual funds, but tomorrow is not a holiday for me
October 8th, 2007 at 10:13 am
coach pete. brilliant defense of insurance company annuities. i would like you to manage my money. esmo – not smart enough to get into cal. so, i did the next best, married a ’75 (muncie!) grad. next home, look top row north end zone two bodies just west of scoreboard. me standing, taking in the best view on the planet earth, and the mrs sitting, swearing along with starkey.
October 8th, 2007 at 11:00 am
Coach Pete said:
“I would be willing to bet the ones slamming annuities peddle stocks and bonds for a living.”
No, I don’t think so since lots of brokers now hold insurance licenses and can now sell the same stuff that insurance agents sell.
Don’t you find it strange that most people outside of sales don’t think highly of annuities, particularly EIAs? Why do you suppose this is? Are they ALL stupid?
Read the articles I linked to at the end of my post. Surely you can’t argue with them.
October 9th, 2007 at 1:57 pm
Coach Pete:
How about giving us some actual data on one of these EIAs. No one who sells these things will give us even a short list of the ones to consider. We all agree that there are some lousy products. Which ones are the good ones?
And no I don’t sell securities, advice, or insurance, or make any money in the “biz”.
February 9th, 2008 at 10:49 pm
The people who SLAM Annuities are the Fee Based Advisors / Financial Planners and so called Radio Financial Gurus. Also, Stock Brokers because they always think that they can beat the market with their stock selections. NOW the NASD the is forcing the SEC to take a hard look at this. This will go No Where. Buyers of Index Annuities do Not put their money at risk in the market at all. The Insurance Company assums all the risk of investment and fully reserves as they are regulated by the States to do. This is a Fixed Annuity and will never be labled a Security. Thus the NASD will never Get Control. They did succeed in slowing down sales for a while. But NOW they have other issues. Like explaining how they repackaged all those MBS, CDO’s ABS’s. Huge Losses…OUCH!!!!!
This is a battle OVER WHO CONTROLS the money. Pure and simple! No other motive. A battle over who can earn Fees managing this money.
1. Fee Based Advisors hate Annuities because they lose their 1%+ annual fee on their client’s assets. The can’t charge a Fee when the Insurance Company Manages the money.
2. Financial Planners same reason as the Fee Based Advisors.
3. this is very interesting case! Radio Financial Gurus… They are the worst breed. They only make money and keep their radio show if they are able to generate ratings. To generate ratings they need a villain. Annuities are an easy target because none of the people in the media who talk or write about annuities make a distinction about which annuity they are discussing. Their are 5 General types: Immediate Income Annuities (SPIA), Deferred Guarantee Rate Annuities (CD-Type), Deferred Declared Rate Annuities (Rates Guaranteed for 1 or 3 or 5 years and declared other years), Index Annuities (EIA’s or FIA’s: Interest is earned each year based on a Stock Market Index i.e. S&P 500 & many others. Never Lose Account Value in a Down Market).
The pevious 4 are all Fixed Annuities. Last but NOT least Variable Annuities… This is the one that gets all the bad press because Annual fees range between 2% to 3% (With the Guarantees added GMIB etc. some are highe than 3%.).
Radio Gurus Lump all Annuities together and just say Annuities. But when you listen to their TRASH comments, they are really describing Variable Annuities. NOW this villian serves a purpose… it helps the people who pay his salary. The Advertisers of his show. 90% of them are direct Mutual Fund Companies, Online Trading firms, etc. etc.
Immediate Income Annuities have a place in everyone’s portfolio to provide retirement income for life.
Deferred Guarantee Rate Annuities (CD-Type) have a place in pre-retiree and in retirement portfolio’s
Index Annuities (EIA’s or FIA’s: Interest is earned each year based on a Stock Market Index i.e. S&P 500 & many others. Never Lose Account Value in a Down Market). Have a place in everyone’s portfolio’s. mStarting at ages 47 all the way through retirement.
Lets Get Real people. Look into Index Annuities, Immediate Income Annuities, CD-type Annuities for yourself. Don’t listen to all their TRASH TALK!
I will agree with them on Variable Annuities. Not worth Starting out each and every year at a negative 2% to 3% Return. Especially if in the 1st 1 or 2 years the MARKETS go down 20% to 40%. OUCH!!!!!! The Guarantees provide an expensive false sence of security.
February 11th, 2008 at 2:06 am
“Are they ALL stupid?”
YES
April 15th, 2008 at 12:19 pm
[...] Another Follow-up on Equity-Indexed Annuities (Sorry Muddlehead) [...]
June 9th, 2008 at 4:10 pm
I think DP’s comments are to the point. I agree with them.
The different sides presented here have all been insightful. The dialogue gives us a better understanding of the obvious issues.
Annuities, insurance agents, brokers, fee based planners all have a place in our financial systems infrastructure.
However every situation and everyone is different and a cooky cutter approach or “one size fits all.” would be a disastrous over simplification.
There is no place for misleading conduct,or beliefs based on expediency.
All viewpoints need to be heard so we can understand the boundaries needed in our business relationships and so we understand the responsibility we all have to our clients and each other.
Ethical behavior cannot be legislated.
NASD, SEC, who cares? except purveyors of vested self interest.
Ethics is personal, its doing the right thing when you are there, all the time. The examples of unethical behavior depicted in the tapes is all too prevalent because the agent’s ethics was clouded by self interest above all else.
I find the result illuminating and sobering.
I use EIA’s as a solution and I find all the specific annuities enumerated can be a fit depending on the circumstances and particular client’s needs.
We look at the goals of the client. We present choices and solutions openly and completly. If we aren’t truthful then we are responsible and we will know it. Our conscience will tell us.
If some one is injured by our actions we have to be held accountable.
June 12th, 2008 at 11:38 pm
Dear JLP
Your S&P 500 comparison looks like a wipe out to
me…..But curiously the Annuity was a better
investment in 34 out of 67 years…Note
the returns between 1956 and 1978..Also between
1997 and 2007…….
My math may be wrong..but check it for your self…We do not know the future…Some
people do not like to gamble with it too much.!!
June 13th, 2008 at 11:34 am
CORRECTION
34 OUT OF 57 YEARS
June 14th, 2008 at 12:43 pm
I have met with three to four dozen seniors in the past few years who have been ripped off by the same scammers using the same tactics as those on the Dateline expose.
I have a long list of seniors who have come to me asking for advise about “something” they bought from a self proclaimed “financial advisor” who legally cannot use this title since they are only insurance licensed and not CFP’s nor licensed as RIA’s or IAR’s.
Senior after senior has recounted with significant detail what they were told and sold by the IA salesperson. Almost every statement or talking point the salesperson used was lies. Unfortunately once they realized the lies it’s too late. I have sent dozens of spies to confirm the lies and I will tell you that the Dateline show was way too easy on these deceitful IA salespeople.
Of course, there may be a very small number of good IA’s, however every one brought to me by unhappy investors of all ages has been the highest commission, longest surrender charge available.
How can anyone claiming to have the financial interests of their clients sell them any investment with a 20% CDSC, reducing gradually over up to 20 years – especially to a 75 or 85 year old who will not live long enough to get their money back.
In three states there is a company which has been sued many times, who is advertising “7%, to as high as 8.3% FDIC Insured Bank CD’s” to attract seniors. In most cases when the senior arrives to buy the CD, the advertiser (insurance agent) refused to discuss it, and instead rolls into how he can get them a “guaranteed 10-15% per year, not average, but ever single year.” The FTC has opened an investigation on these advertisers (Bait and Switch advertising is against the law), and the State of Florida has filed indictments against some of them.
I have been vigorously working with many multi-state agencies in an attempt to cease unethical sales practices, specifically “Bait & Switch” advertising. They are all very interested in insurance agents taking advantage of seniors, yet the only department with the jurisdiction that could do something immediately doesn’t seem interested, or claims they don’t have the manpower.
October 20th, 2008 at 2:05 am
Pretty sad that most of you guys probobly helped your CLIENTS lose 30-40% .. sorry to say all my clients STILL have their 12-19% from 2007 and EVERy PENNY i know its hard to admit that with all your reading and pontificating NOTHING WORKED in the last 14 motnsh .. Take a look at ING.. keep churnn those stock accounts while ive guarnteed all previous gainds and STILl have all the principal with a walk away clause …..