Response: Equity-Linked Certificated of Deposit: The Safer Low-Cost EIA Alternative
March 18, 2010 by Sheryl J. Moore
ORIGINAL ARTICLE CAN BE FOUND AT: Equity-Linked Certificates of Deposit: The Safer Low-Cost EIA Alternative
Jeff,
How can I be so fortunate to correct you on inaccurate blogs that you have written twice in a 24-hour time period? Three times in a week in fact, and the fifth time in a period of eight months, I have had to correct you on your ignorant statements about indexed annuities. Let’s get the fact straight, Jeffrey Voudrie.
Fact 1: 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.
Fact 2: 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 downturns and volatility. Your help in avoiding any such confusion is so greatly appreciated.
Fact 3: Indexed CD are not necessarily a “safer” alternative to indexed annuities. In fact, the CD owner is at a disadvantage. They do not earn interest until the end of the CD term, where an indexed annuity earns interest annually.
Fact 4: An indexed annuity provides for annual withdrawals of the 10% of the annuity’s value, without penalty. A CD offers no such liquidity provision.
Fact 5: An annuity provides guaranteed lifetime income that the purchaser cannot outlive. A CD offers no such insurance element.
Fact 6: An annuity offers tax deferral benefits, so that taxes are not paid until income is withdrawn. A CD offers no such tax incentive.
Fact 7: Although a CD may have principal that is “guaranteed by the Government,” you fail to recognize that 198 banks in our nation have failed since 2008. How warm and fuzzy does that make Americans feel about something being “guaranteed by the government?” Not so much I am guessing…
Fact 8: There is not one single indexed annuity that pays a commission of 13%. Again, your ignorance and lack of fact-checking is an embarrassment, Jeffrey.
Fact 9: The average street level commission for indexed annuity for 4Q2009 was a mere 6.47%. This is a one-time commission that is paid to the agent at policy issue, and yet he is expected to service the contract for life. Compare this to the generous, consistent commissions that products such as mutual funds pay, and I think you’ll have to agree that commissions on IAs are relatively modest.
Fact 10: The “sales abuses” that you site in your blog are overinflated. Indexed annuity complaints for 2009 averaged a mere 3.29 complaints annually per company. We strive for 100% customer satisfaction in this market, but I would hardly infer that three complaints per company is rampant.
Fact 11: Indexed annuities have no “flaws” with the exception of 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.
I certainly hope that your readers have “wised up” to these “flaws!” It will save them potentially millions of dollars!
Fact 12: A customer that purchases an indexed annuity likely has an entirely different risk profile than someone who is willing to risk losing their principal in investment products. It would be EXTREMELY INAPPROPRIATE for you to suggest someone who is unwilling to put their money in a “risk money place” put their funds into investments. Whereby, and indexed annuity may be the perfect product for your risk averse clients.
Fact 13: You suggest that your clients invest in “strategies that can provide an income stream between 6% and 10% while limiting any risk of significant loss.” Could I have any better plug for an indexed annuity? Indexed annuity products protect against the risk of ANY loss due to market fluctuations, all the while providing 1% – 2% greater interest than fixed annuities and CDs.
Fact 14: There are indexed annuities today with surrender charges as low as three years. Therefore, these are the perfect products for someone who doesn’t want “long-term time commitments or surrender penalties.”
Fact 15: Every single indexed annuity provides the purchaser with access to 10% of the 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 purchasers cannot “access their money.”
Fact 16: Like indexed CDs, the only way you can “lose your principal” with an indexed annuity is “if you pull your money out before the end of the term.”
Fact 17: While an indexed CD may not “allow early redemption,” all indexed annuities permit early surrender. In addition, there is no penalty imposed on any indexed annuity in the event of death.
Fact 18: Indexed annuities do not have fees. There are a few annuities that have optional benefits which may have an annual charge, but the products in and of themselves have zero fees.
Fact 19: One can ladder indexed annuities just as well as indexed CDs.
Fact 20: No product can offer 100% of market gains while also offering a minimum guarantee.
Fact 21: The real reason that most consumers don’t have an “advisor recommending” that they buy an indexed CD is because indexed CD are offered through banks and most independent agents (who are the distribution selling indexed annuities) are not doing business in a bank.
Fact 22: You may think there are indexed CDs are better than indexed annuities, Jeffrey. However, we can already see that you are not very educated on either of the products. Do yourselves and your clients a favor and sit for some continuing education on both products.
In closing, for an informative, accurate article that compares and contrasts the features of indexed annuities and indexed CDs, I suggest you read “How do indexed annuities compare with indexed certificates of deposit?” by Andy Unkefer at http://www.lifeandhealthinsurancenews.com/Exclusives/2009/08/Pages/How-do-indexed-annuities-and-indexed-CDs-compare.aspx?k=indexed+CDs.
Should you have a need for accurate information on these products in the future, please do not hesitate to reach out to us. Thank you.
P.S. Ask us about our new TOTALLY FREE website, www.IndexedAnnuityNerd.com!
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax
