Sorry, not sorry
October 1, 2024 by Sheryl J. Moore
Well…first of all, they aren’t “EIAs.” We quit calling them “equity indexed annuities,” so that they didn’t give purchasers the mistaken impression that they perform like equities products.
Responding to EIAs should be securities opinion piece in InvestmentNews by Scott Hanson.
I, for one, am glad that indexed annuities were created. I have averaged over 7% interest on the sum of my indexed annuities while knowing that I can earn no less than 0%. Plus, an income I can’t outlive? That’s just icing on the cake.
Indexed annuities are TOOLS; they are neither “good,” nor “bad.” If we applied the train of thought that all instruments that are used in the course of bad behavior should be made unavailable, we would be OUT OF TOOLS to use!
The solution to products being misused is not to get rid of the products but to make changes to market conduct.
Why should someone need to be licensed to sell securities, to sell a fixed annuity? That doesn’t even make sense!!
And for that matter, a consumer may interact with YOU, thinking that you would suggest life insurance and annuities, when appropriate when you DON’T.
Nearly EVERY indexed annuity has a penalty-free withdrawal provision, which allows the purchaser to take out as much as [10%] of their annuity’s value, annually, without being subject to surrender charges. Plus, surrender charges can be waived with the onset of disability, nursing home confinement, terminal illness, and more.
The aforementioned “fees” are only a problem in the absence of value.
And while we’re at it, research indicates that when it comes to indexed annuities, the annuity purchaser is better off to elect a commissioned product, than a fee product. The differential in rates doesn’t make up for the permanent AUM fee. (And just because someone gets paid a commission doesn’t mean that they aren’t acting in the clients’ best interests.)
Bad behavior happens with securities registered reps just as it does with insurance agents (Bernie Madoff- looking at you!). Let’s not act high and mighty here.
While the author is quick to poke at the tax shortfalls of annuities, he fails to see that annuities are the only instrument that can guarantee the purchaser an income they cannot outlive. Sometimes people need the guaranteed income more than dealing with ordinary income tax or a stepped-up basis at death.
Indexed annuities are not investments. They are insurance. They shouldn’t be treated as securities because, unlike securities, you cannot lose money in indexed annuities, as a result of the market’s changes.
These products are about risk mitigation; not higher alpha.
Sorry, Scott Hanson. Not sorry. -sjm
