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The sale of
Equity-Indexed Annuities has increased 45% the first 6 months of
this year. I’m concerned that the vast majority of those sales are
unsuitable for the investors buying them. Oversight by the
Securities and Exchange Commission (SEC) and the National
Association of Securities Dealers (NASD) is desperately needed to
protect retirees from being taken to the cleaners by agents hungry
for the large commission. Read on to find out how this oversight
will benefit you.
For almost 2 years
now, I’ve been warning people against buying Equity-Indexed
Annuities. Hopefully, my articles have caused agents all across the
country to lose sales. That’s why I am regularly attacked and
berated by agents. When I started, I was a ‘lone voice in the
wilderness’. Now, the SEC and the NASD are interested in the
situation. The national media are covering the story more regularly.
The chorus of voices calling for change is growing. For example, The
Wall Street Journal had an article on October 15th that
echoed my complaints.
Greater regulation
and oversight of these products is needed because, even though they
are technically an insurance product, they are being sold as an
investment. Anyone looking at their sales literature can plainly see
that. With promises of market gains and the ‘guarantee’ that you
won’t suffer any losses, this investment is promoted as the answer
to all your concerns. Investors are buying it as an investment, not
insurance. Therefore, they should be regulated as investments and
not as insurance.
Investors will
benefit if Equity-Indexed Annuities are classified as an investment.
It will reduce, but not eliminate, the potential for abuse. Here’s
why.
First, being
classified as an investment will result in better disclosure of the
risks involved with this product. Equity-Indexed Annuities are
complex products. Many of the agents selling them don’t even
understand their intricacies. Consumers are not adequately warned of
the dangers they face in these products. Most think they can’t lose
money in this investment and that’s simply not true.
For instance, many
of those purchasing one of the most popular Equity-Indexed Annuities
fail to realize that if they pull their money out of the contract
when the contract matures that they won’t receive the index-related
returns they thought they would. In fact, those wanting a lump sum
from this specific product after 10 years would be GUARANTEED of
making a total return of about 1.5% for the entire 10 year period.
Few would ever buy this investment if they clearly understood that.
Second, those
selling investments are required to make sure that the investment
they sell is suitable for the person they’re selling it to. When a
commission-based investment is sold, it is reviewed by compliance
officers to verify suitability. Compliance officers closely
scrutinize investment sales because it’s their job to protect their
firm from lawsuits and regulatory fines. And they know that their
firms may be audited by the SEC.
No compliance
officer would approve the sale of an Equity-Indexed Annuity for 100%
of a person’s investable assets—but I see those recommendations all
the time. No compliance officer would approve of a transaction where
the investor pays a large penalty on one annuity contract to
transfer the money into an Equity-Indexed Annuity. This has become
such a problem, though, that the NASD has issued warnings about it.
Third, the high
commissions equity-indexed annuities offer create a huge conflict of
interest for the advisor. If you were an advisor and had the choice
of making 2% or 15% on an account, which would you choose? Is it any
wonder equity-indexed annuities have become so popular?
The Wall Street
Journal article arrives at the same conclusion that I have--older
investors should avoid equity-indexed annuities. And yet, who are
these agents going after the most? Older investors, of course,
because they’re the ones with the most assets.
Don’t be
surprised if in the not-too-distant future, new regulations emerge
to reign in the wild-west world of equity-indexed annuities. Until
that day arrives, don’t fall for the equity-indexed annuity
sales-pitch. There are much better ways to earn a decent market
return with low risk, and you don’t have to give up control of your
money to do it.
Have a financial
question? Send me an email and I’ll personally respond, free of
charge. Go to www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to
being a nationally syndicated columnist and Certified Financial
Planning Practitioner, Mr. Voudrie provides personal, private money
management services to clients nationwide.
Oversight Needed
On Equity-Indexed Annuities
The sale of Equity-Indexed Annuities has increased 45% the first 6
months of this year. I’m concerned that the vast majority of those
sales are unsuitable for the investors buying them. Oversight by the
Securities and Exchange Commission (SEC) and the National
Association of Securities Dealers (NASD) is desperately needed to
protect retirees from being taken to the cleaners by agents hungry
for the large commission. Read on to find out how this oversight
will benefit you.
For almost 2 years now, I’ve been warning people against buying
Equity-Indexed Annuities. Hopefully, my articles have caused agents
all across the country to lose sales. That’s why I am regularly
attacked and berated by agents. When I started, I was a ‘lone voice
in the wilderness’. Now, the SEC and the NASD are interested in the
situation. The national media are covering the story more regularly.
The chorus of voices calling for change is growing. For example, The
Wall Street Journal had an article on October 15th that echoed my
complaints.
Greater regulation and oversight of these products is needed
because, even though they are technically an insurance product, they
are being sold as an investment. Anyone looking at their sales
literature can plainly see that. With promises of market gains and
the ‘guarantee’ that you won’t suffer any losses, this investment is
promoted as the answer to all your concerns. Investors are buying it
as an investment, not insurance. Therefore, they should be regulated
as investments and not as insurance.
Investors will benefit if Equity-Indexed Annuities are classified as
an investment. It will reduce, but not eliminate, the potential for
abuse. Here’s why.
First, being classified as an investment will result in better
disclosure of the risks involved with this product. Equity-Indexed
Annuities are complex products. Many of the agents selling them
don’t even understand their intricacies. Consumers are not
adequately warned of the dangers they face in these products. Most
think they can’t lose money in this investment and that’s simply not
true.
For instance, many of those purchasing one of the most popular
Equity-Indexed Annuities fail to realize that if they pull their
money out of the contract when the contract matures that they won’t
receive the index-related returns they thought they would. In fact,
those wanting a lump sum from this specific product after 10 years
would be GUARANTEED of making a total return of about 1.5% for the
entire 10 year period. Few would ever buy this investment if they
clearly understood that.
Second, those selling investments are required to make sure that the
investment they sell is suitable for the person they’re selling it
to. When a commission-based investment is sold, it is reviewed by
compliance officers to verify suitability. Compliance officers
closely scrutinize investment sales because it’s their job to
protect their firm from lawsuits and regulatory fines. And they know
that their firms may be audited by the SEC.
No compliance officer would approve the sale of an Equity-Indexed
Annuity for 100% of a person’s investable assets—but I see those
recommendations all the time. No compliance officer would approve of
a transaction where the investor pays a large penalty on one annuity
contract to transfer the money into an Equity-Indexed Annuity. This
has become such a problem, though, that the NASD has issued warnings
about it.
Third, the high commissions equity-indexed annuities offer create a
huge conflict of interest for the advisor. If you were an advisor
and had the choice of making 2% or 15% on an account, which would
you choose? Is it any wonder equity-indexed annuities have become so
popular?
The Wall Street Journal article arrives at the same conclusion that
I have--older investors should avoid equity-indexed annuities. And
yet, who are these agents going after the most? Older investors, of
course, because they’re the ones with the most assets.
Don’t be surprised if in the not-too-distant future, new regulations
emerge to reign in the wild-west world of equity-indexed annuities.
Until that day arrives, don’t fall for the equity-indexed annuity
sales-pitch. There are much better ways to earn a decent market
return with low risk, and you don’t have to give up control of your
money to do it.
Have a financial question? Send me an email and I’ll personally
respond, free of charge. Go to www.guardingyourwealth.com and click
on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
