Friday, April 11, 2008
Equity Indexed Annuity salespeople most often tell you how great these products are. And just as fast the salesperson pulls out their annuity application, starts writing and before you know it, a pen has been thrust into your hand to seal the deal. Not so fast. There’s a lot about these products that isn’t being told to you. And what’s being kept from you is for a reason. First, annuities are sold by, well… salespeople.
I know what you’re probably thinking, my advisor is a professional, a licensed, experienced, yadda, yadda. Well, that may be true, but the product is the product, no matter who is pitching you. Understand that the reward (commission) is very high for these complex annuities. The slick brochure, or slick salesperson, advisor, insert your term of preference, is not giving you the whole story. How do I know this? 90% of the transactions I have reviewed for clients have in no way matched what the clients thought they had bought. Then there are dozens of negative annuity articles written by excellent sources such as The Wall Street Journal, Forbes Magazine, Kiplinger, Smart Money, etc. And guess what these articles have in common? They slam annuity sales tactics and warn investors. Lastly, there are several multi-million dollar class action lawsuits against annuity sellers for, well… fraud.
After extensive studies, both those conducted by outside independent agencies, as well as my personal and very intimate reviews of dozens of annuities (including the biggest and most respected insurance companies) arrives at one truth. That truth is that many Equity indexed Annuities will give you horribly low returns, between 40% - 60% of the market’s return, before being hit with ordinary income tax under the terrible LIFO and IRD rules. Yep, no lower capital gains or tax on gains forgiveness for your family like you would get on other alternatives.
There’s good news though. If you are already in one of these annuities, with the right help, you may be able to get your money and losses back. And in case you were wondering if the salesperson will help you here, you might also want to ask the wolf to baby sit the hens while you go out to dinner.
Written by Steven Roth of Wealth Management International