Beware, The Annuity Salesman Cometh
Be on guard, for the annuity salesman cometh, and he/she is poised to take advantage of you, your lack of knowledge, and yes, even your fears.
This breed of salesperson is most often seen at luncheon and dinner seminars, which are marketed heavily to retirees, for retirees have the money. As the infamous bank robber Willie Sutton, when caught robbing banks for the umpteenth time, was asked why he continued to ply his trade, Willie purportedly replied, “… because that’s where the money is.”
It is also retirees who have the greatest concern, even fear; fear of the stock market, and fear of whether they’ll have enough money to last a lifetime.
It is these fears that so many annuity salespeople prey upon. They tout the lifetime income benefits of annuities and guarantees built into the contracts, while at the same time stoking the twin fears of the next great stock market crash, and the terrible consequences of running out of money before running out of life.
But what so many annuity agents leave out are the negatives, negatives that can come back to bite the annuity owner if there is not full disclosure, and far too often full disclosure is sorely lacking. Many retirees are not told of the painfully high and long term surrender penalties if cash is needed, or the excessive built in commissions paid to the salesman, upwards of 10%, even higher in some cases. And in the world of finance high costs usually means a bad deal for the investor.
Various hidden fees, long term surrender penalties, and ever changing terms of many annuity contracts can trip up even the most wary of investors. It has become clear to me that many annuity contracts clearly put the interests of the company and agent first, and well, you know whose interests bring up the rear.
Does this mean all annuities are bad, and that no one should ever invest in them? Absolutely not! One of my favorite expressions is I’ve never met an investment vehicle I didn’t like. Stocks, bonds, CD’s, mutual funds, annuities, real estate, gold, precious gems, I like them all, and have recommended them in situations where suitable. And the fact is, under the right terms and circumstances, annuities can fit very nicely into many clients financial plans.
What it all boils down to is the importance of two of the cardinal rules of successful investing. One, suitability and two, terms. Suitability simply means, is this investment appropriate for your needs? Does it fit your tolerance for risk, is it tax advantaged if that’s important to you, is there cash flow if that’s one of your requirements, is there a growth element to it if that’s important and necessary? In short, does this investment vehicle meet your personal, financial, emotional and psychological needs and requirements?
The second element is terms. Are the terms fair and reasonable? Are the costs, including front end sales charges/commissions, back end charges/surrender fees, internal operating charges if any, and any other fees or expenses incurred fair and reasonable? Is the maturity date or holding period reasonable and fit within your needs?
In the end all investment vehicles must be carefully analyzed in detail before one makes a commitment. Each investor must understand the pros and cons, either through self analysis and/or with the help of a trusted financial advisor, an advisor who puts the interests of his/her clients before his own, and before any company he/she may represent.