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Annuities On Trial! Is Your Annuity Guilty or Not Guilty?


You have to love financial services marketers.  The title of this blog post is actually the headline on an invitation that I recently received to a dinner session on annuities.  You can’t make this stuff up.  While this seminar invitation may be a bit cheesy, it does raise some valid questions about annuities.  In that vein here are some thoughts about annuities and about financial dinner seminars.

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Financial dinner seminars 

Financial dinner seminars are a traditional method for investment advisors, estate planning attorneys and insurance and annuity sales types to get their message out to a group of potential clients.  Common sense tells us that these seminars are costly to stage and that the advisors sponsoring them are looking for a return on their investment.  In terms of this annuity seminar or any type of financial or estate planning dinner seminar consider the following before you decide to attend:

  • The ultimate objective of the seminar is to get you to buy something.
  • Ask yourself if this is really the best route to finding a financial advisor.
  • Can you resist the pressure, direct or implied, that will be put upon you to meet with the individual(s) sponsoring the session and do business with them?

In terms of this annuity seminar in particular, I called the company sponsoring the session and pretended I had some questions before deciding whether or not to attend.  The pleasant young woman on the phone indicated that the organization was “holistic” in their approach to working with clients.  They could sell you another annuity if appropriate, manage your money, or consult on matters such as Social Security.

While this all sounds nice, the individual sponsoring the annuity seminar runs a marketing organization and was once affiliated with Tarkenton Financial a financial marketing organization run by Hall of Fame quarterback Fran Tarkenton.  In a Motley Fool piece The “Criminals” Who Sell Annuities, the author quotes Tarkenton as saying:

“There are 38,000,000 Seniors in America. Do they know who you are? Seniors know and trust an American Classic, NFL Hall of Fame Quarterback Fran Tarkenton. If you are a professional in the insurance industry focused on the Retirement and Senior Market, Tarkenton Financial can help you build your business.” 

The Motley Fool piece goes on to say “Nowhere in these ads will you find anything even vaguely along the lines of “we’ll help you help your clients achieve their financial goals.” Because, for some of these people, it’s more about building their own net worth’s, not their clients’. 

This leads me to believe that there will be a lot of direct and indirect selling at this annuity dinner session and very little about helping the attendees to achieve their financial and retirement goals.  At least the venue is a restaurant with excellent food.

Considerations before buying any annuity 

You might get the impression that I am anti-annuity.  You would be wrong.  I have nothing against annuities, only the way that they are often sold and with many of the annuity products that are pushed by insurance agents and registered reps.   Here are some things you should consider before buying any annuity product:

  • Make sure you understand all of the expenses, fees, and charges involved with the product.  I’ve seen variable annuities with annual ongoing expenses well in excess of 2%.  To say this is outrageous and obscene would be kind.  Suffice it to say expenses like this are eating away at the amount that will be available to you when it comes time to annuitize the product or to take partial distributions.
  • If a fixed annuity is paying a much higher rate of interest than other similar products ask yourself why.   Is the insurance company taking excessive risk?  Will they be able to sustain the returns needed to maintain the payments?  Is this a “teaser” bonus rate that drops down to more normal levels after a period of time?  The old adage “… if it sounds too good…” applies here.
  • Who is behind the annuity?  How strong is the insurance company?  If something happens to the insurer it falls to the appropriate state department of insurance to cover you.  There are generally limits on the amount guaranteed for annuities so you will want to read the contract and make sure you understand this all of this.
  • Many annuities contain surrender charges that impose some stiff fees if you try to get out of the contract during the first few years.  Again make sure you are aware of these fees.
  • Equity Index Annuities are often sold by capitalizing on the fears of seniors and others in the wake of a down market.  Typically the returns of these annuities are based on some percentage of an index like the S&P 500, with some minimum guaranteed return and/or floor on the amount that the investor can lose.  Again these products often carry steep surrender charges and they must be pretty lucrative for those selling them judging from the comments I received when I wrote Indexed Annuities-Da Coach Likes Them Should You?  Don’t take my word for it; check out this SEC investor bulletin.

Don’t fall for annuity sales pitches.  An annuity may be appropriate for you but the only way to really know this is by getting a financial plan in place for yourself and your family.

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  1. I would definitely consider a SPIA as part of our retirement plan, but a lot of what’s out there is junk. The equity-indexed annuity really bothers me. The way I’ve seen it they’re presented in such fear-based and misleading terms that it’s really shameful. Also, I clicked over and read some of the comments on your previous EIA article. Talk about stirring up some trouble! I particularly liked the guy who claimed that EIAs have no fees. No fees? Really? You mean they’re just giving these things away for free? What charitable people these insurance companies are!

    • Roger Wohlner says

      There is a saying that annuities are more often sold rather than bought. I’m guessing annuities of various stripes constitute a nice payday for these agents and registered reps. As for the comments on the EIA piece that guy was really entertaining, you have to wonder if he actually believed what he or she wrote.

  2. I think what people need to realize is that investment products won’t help you achieve your goals. They’re a mere piece of a puzzle. A proper plan and implementation will. Neither of which annuity sales people provide.

    I will say though, that there are some variable annuities out there that are providing some good return. Just saw one last week that was paying out a guaranteed 3% net of fees. This one was in place for a number of years. You may find a good fixed income bucket in the annuity you already own. But like you said above, be cautious of what you’re purchasing.

    • Roger Wohlner says

      As I mention in the article it’s not annuities that I am opposed to it’s how they are too often sold and many of the products that are sold. Funny how commissioned sales types never mention low cost, no-load, no surrender charge products that are available out there. An annuity can be a key part of a well-constructed financial plan.

  3. When you consider the general approach to money most Americans seem to have – bribing them with a nice steak dinner to get them to turn over their retirement fund is brilliant. Shady and wrong, but brilliant.

    Annuities are still a bit of a puzzle to me, but increasingly they seem like a good aspect of a retirement plan, but not great as the entire plan. Also, not really something I would feel comfortable discussing over dinner. I prefer my financial transactions to occur in offices of people who give me at least the sense (false or otherwise) that they know what they’re talking about.

    • Roger Wohlner says

      Mel thanks for your comment. Sadly I’ve found that annuities are also a puzzle to many of the commissioned sales types who sell them as well. Nobody should buy any financial instrument because it is being sold to them, they should use these instruments as part of a financial plan to achieve their financial goals.

  4. Live reverse mortgage the word annuity carries such negative tone that it is a tough sell for the individual investor. But when used correctly, they provide stability to your income; just that the fine-prints are so long, it scares the average joe!

  5. Great article, Roger. I’m actually working on a very similar post.

    In my experience, annuities get a bad rap because they were either misrepresented to the client (guaranteed 7% return) or were sold purely on fear (you wont’ lose your money, etc).

    That being said I do believe that in some situations an annuity *could* make sense to the client. But the only way to know that is to do a comprehensive financial plan for the client and identify their income needs, etc.

    Great write up!

    • Roger Wohlner says

      Jeff thanks both for your comment and for the compliment. I agree that annuities can be a good tool for some clients. My issue is more with the way too many advisors sell the product and with some of the actual annuities that are sold. I couldn’t agree more with your approach of starting with a financial plan and seeing what is appropriate for a given client.

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