Response: Annuities? Give Me a Break!
March 17, 2010 by Sheryl J. Moore
ORIGINAL ARTICLE CAN BE FOUND AT: Annuities? Give Me a Break!
As you well know, I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
For the fourth occasion in eight months’ time, and the second in a week’s time, I am in the position of having to correct you on inaccurate and misleading statements that have been made in one of your blogs about indexed annuities. Specifically, I recently had the occasion to read your blog Annuities? Give Me A Break! I wanted to bring to your attention the mistakes that were made in this piece, which was recently posted on your blog at http://www.guardingyourwealth.com/annuities/articles/GiveMeABreak.htm. I do this in the hopes that you do not continue to make the same mistakes in future pieces that you author. I am certain that you are quite embarrassed about the number and level of inaccuracies in these pieces, and want to help you avoid such awkwardness in the future.
First, as I have mentioned at least four times to you before, indexed annuities have not been referred to as “equity indexed annuities” since the late 1990’s. The insurance industry has been careful to enforce a standard of referring to the products as merely “indexed annuities” or “fixed indexed annuities,” so as not to confuse consumers. This industry wants to make a clear distinction between these fixed insurance products and equity investments. It is the safety and guarantees of these products which appeal to consumers, particularly during times of market downturn and volatility. Your help in avoiding any such confusion is so greatly appreciated.
Second, as you are well aware, one cannot “invest” in an indexed annuity. An indexed annuity is an insurance product, not an investment. Other insurance products include fixed annuities, term insurance and whole life. Alternatively, investment products include variable annuities, stocks, mutual funds, and bonds. Insurance products are regulated by the 50 state insurance commissioners of the United States. Investments are regulated by the Securities and Exchange Commission (SEC). Insurance products do not put the client’s money at risk, they are “safe money products” which preserve principal. Investments, by contrast, can put all of a client’s money at risk and are therefore appropriately classified as “risk money products.” Investments do not preserve principal where insurance products do.
Third, what makes you think that anyone who owns an indexed annuity is “trapped?” The average surrender charge on indexed annuities as of 4Q2009 was ten years. The average first-year penalty is 10.61%. In addition, the majority of these longer-term products are offered with a premium bonus, which provides an immediate boost to the annuitant’s cash value. Longer surrender charges are necessary to appropriately price for such an incentive. Furthermore, indexed annuities are some of the most flexible, liquid products available today. All indexed annuity consumers are given access to 10% of their annuity’s value, annually, without being subject to surrender penalties (some even allow as much as 20% to be taken annually). In addition, 9 out of 10 indexed annuities provide a waiver of the surrender charges, should the annuitant need access to their money in events such as nursing home confinement, terminal illness, disability, and even unemployment. Couple this with the fact these products pay the full account value to the beneficiary upon death, and I think you would have difficulty inferring that these products are illiquid.
Fourth, “dangers” of these products include, but are not limited to the following:
- No indexed annuity purchaser has lost a single dollar as a result of the market’s declines. Can you say the same for variable annuities? Stocks? Bonds? Mutual funds? NO.
- All indexed annuities return the premiums paid plus interest at the end of the annuity.
- Ability to defer taxes: you are not taxed on annuity, until you start withdrawing income.
- Reduce tax burden: accumulate your retirement funds now at a [35%] tax bracket, and take income at retirement within a [15%] tax bracket.
- Accumulate retirement income: annuities allow you to accumulate additional interest, above the premium you pay in. Plus, you accumulate interest on your interest, and interest on the money you would have paid in taxes. (Frequently referred to as “triple compounding.”)
- Provide a death benefit to heirs: all fixed and indexed annuities pay the full account value to your beneficiaries upon death.
- Access money when you need it: fixed annuities allow annual penalty-free withdrawals of the account value, typically at 10% of the annuity’s value (although some indexed annuities permit as much as 20% of the value to be taken without penalty). In addition, 9 out of 10 fixed and indexed annuities permit access to the annuity’s value without penalty, in the event of triggers such as nursing home confinement, terminal illness, disability, and even unemployment.
- Get a boost on your retirement: many fixed and indexed annuities provide an up-front premium bonus, which can provide an instant boost on your annuity’s value. This can increase the annuity’s value in addition to helping with the accumulation on the contract.
- Guaranteed lifetime income: an annuity is the ONLY product that can guarantee income that one cannot outlive.
Wow- dangerous, huh? Who wouldn’t want these benefits when looking for a retirement income product?
Fifth, why does it matter how much money the agent makes if the client purchases a product that is right for them? Yes, you are right- there are indexed annuities with a commission of 10%; precisely five products out of all 255 indexed annuities. Furthermore, these products accounted for precisely 1.91% of all indexed annuity sales as of 4Q2009. So, it is quite disingenuous of you to suggest that indexed annuities are high-commission products. The average street level commission for these products as of 4Q2009 was 6.47%. This modest commission is paid a single time at policy issue and the agent is expected to service the contract for life. Compare this to the consistent, generous commissions that are paid on risk money products such as mutual funds, and I think you’ll have to admit that the commissions on indexed annuities are quite fair.
Sixth, how is someone earning a commission off of a sale a necessary “conflict of interest?” You are so hung up on this. Is it because you think that a fee-based advisor (perhaps like you) is BETTER? As if fee-based advisors cannot be crooks just as well as any other person in a position of influence over a consumers…Is the compensation arrangement on an indexed annuity any different than a car salesperson? A real estate agent? A shoe salesperson? Do people know that these professionals are going to be paid a commission in exchange for the services rendered? YES. Does that mean that the salesperson is going to only look out for their best interests? NO. Sales jobs are built on relationships; the cornerstone of these relationships is repeat business and referrals. So, if the shoe salesperson sells me a crummy pair of shoes (where they received a high commission), what is my likelihood to suggest that salesperson to my friends and neighbors? What is the likelihood that I’ll buy my next pair of shoes from that same person? Not good in either scenario. I think you get the picture. Insurance agents and financial advisors NEED the client loyalty and referrals. Anyone who makes an inappropriate sale is obviously going to lose out on business, not to mention face potential fines, license revocation, and imprisonment. With that understanding, I think you can agree that agents are not in a position of “conflict” when suggesting indexed annuities to their clients that are risk-averse.
Seventh, there is no indexed annuity that pays the agent a 12% bonus and pays the agent a 10% commission. In fact, only two of the five products that pay a commission that high have a bonus at all. A lack of fact-checking has embarrassed you yet again, Mr. Voudrie.
Eighth, there isn’t “always a catch” with indexed annuities. I’d love for you to elaborate on what you mean by this. If you mean the catch is that the client is protected from market risk while still benefitting from some of the market’s upside-growth, you are RIGHT! That IS a catch, isn’t it?!?
Ninth, let me drop some knowledge on you and illuminate how ignorant you are when it comes to consumers making complaints to their State Department of Insurance. My company researches consumer complaints by reviewing the National Association of Insurance Commissioner’s (NAIC’s) closed complaint database on an annual basis. Interestingly, the results are as follows:
– TOTAL INDEXED ANNUITY COMPLAINTS FOR 2006: 187
– TOTAL INDEXED ANNUITY COMPLAINTS FOR 2007: 235
– TOTAL INDEXED ANNUITY COMPLAINTS FOR 2008: 220
– TOTAL INDEXED ANNUITY COMPLAINTS FOR 2009: 148
Based on our research, this results in average annual complaints as follows:
– AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2006: 4.35
– AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2007: 4.12
– AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2008: 3.86
– AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2009: 3.29
So, not only are complaints on indexed annuities very low, but they have been declining each year. Amazing! Quite different from what you suggest, in fact.
Tenth, I hate to be a killjoy here, but can you show me how the evidence above supports the statement that “millions of seniors are suckered into these products [and] there’s little they can do?” Truth be told, this research directly supports the fact that American consumers are quite pleased with their indexed annuity purchases. Who wouldn’t be? While the market tanked nearly 50% from 2008 to 2009, indexed annuity purchasers were sleeping soundly with the knowledge that their retirement savings were protected from the market downturn. And a little FYI for you- purchasers of indexed annuities do not need to get an attorney involved if they have a complaint about their purchase. They receive a response from their state insurance division typically within two weeks of making the complaint. Hope that helps you for your next rant…
Eleventh, I would love for an organization like FINRA to evaluate your blanket suggestions that consumers “[withdraw their] penalty-free amount that is available each year and [transfer] that money somewhere else.” Consumer risk tolerance be damned! Who cares what is good for the client? Let’s just put them into the plan that JEFFREY VOUDRIE deems best! How careless and reckless of you, Mr. Voudrie. Hopefully your clients realize that a thorough review needs to be made of each consumer’s finances, age, and risk profile (among other suitability factors) in order to evaluate that they are sold the appropriate product for the retirement needs.
Twelfth, your lies are despicable. There is NO SINGLE ANNUITY with a 15-year surrender charge that is available to someone aged 89 or older. Therefore, there is no single annuity that would force the client to “have to pay a surrender penalty to get the money if his father dies before age 104.” The longest surrender charge available to an 89-year old client is ten years. Whatever happened to integrity, Jeffrey? You obviously have none as you not only forego fact-checking, but publish blatantly false information at the expense of American consumers.
Overall, I really do find you hilarious. Your pitches for indexed annuities are dead-on. Yes, indexed annuities do offer premium bonuses. Yes, they do protect the client from the risks of the stock market. Yes, they do provide a minimum guarantee even if the market crashes. You could promote indexed annuities, Jeffrey!
In the end, you are right on one thing- indexed annuities are “an easy sale for the advisor.” What financial product could be more appealing than an indexed annuity that provides principal protection, a minimum guarantee, no risk as a result of market declines, and the potential for limited upside-interest potential based on the market’s growth? My person opinion is that NOTHING competes to the value proposition of an indexed annuity.
Honestly, I am getting quite tired of reading your ignorant sputtering, Jeffrey. People laugh when they forward it to me, asking what your credentials are. Aren’t you concerned that your clients and prospective clients will think you are uneducated if you get even the basic facts wrong about insurance products? How credible do you think you appear when you post information on a public website that is so blatantly incorrect? I would advise you do some soul-searching on this issue. As long as there are ignorant people like you out there, spouting inaccurate information about indexed annuities, I will be here. It is my mission to ensure that the record is set straight on these products, and if that means that I have to respond to every one of your senseless blogs, so be it.
Should you have a need for accurate information on these products at any time in the future, do not hesitate to reach out to us. I am always happy to help ANYONE who has a need for FACTS on these products.
P.S. Ask us about our new TOTALLY FREE website, www.IndexedAnnuityNerd.com!
Sheryl J. Moore
President and CEO
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax