When talking about annuities the media is dumb. They never let the public know what type of annuity they are talking about or the fact that there are many different types of Annuity contracts in the marketplace. This story was NOT about variable annuities, instead it was about equity index annuities.
The problem with major media outlets is the fact that they try to tell a story in an hour or less. While the agents “caught” on the show looked like they were trying to pull a fast one, and some were, Dateline never let them finish their sales pitch. While Annuity IQ agrees that equity index annuities are not good investments, we also all agreed that the story was not telling the whole truth about the products. They also did not tell their viewers that the sales people were selling specific companies index annuities. More than likely the agents were selling Allianz, Midland National and Aviva equity index annuities, most of those products are not good for investors.
The bottom line is variable annuities were not discussed and many facts were not disclosed. Equity index annuities need to be regulated more and the industry needs to be cleaned up. While Variable annuities have their faults, they do offer much more than equity index annuities with a few differences. Variable annuities offer real upside potential for investors, shorter surrender schedules and better guarantees and liquidity. While equity index annuities offer long surrender schedules, limited, very limited, upside potential, limited liquidity and extremely high commissions to the agent.
Be very careful when selecting any annuity product and use Annuity IQ to identify the best variable annuity products.
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Tags: annuities, Annuity, dateline NBC, equity index annuities, variable annuities
Thanks for the quick response to this somewhat slanted report. Its always nice to know I can get the truth behind the media on financial issues here! Great job as always!
I watched this report and was somewhat disturbed at the portrayal of NBC and its slant that all insurance agents are disreputable. There are many companies such as mine that would never put seniors in such a compormising position, in fact, we make a concerted effort to assure the safety and security of anyone we do business with.
I am new at this game and with a story such as this, it seems to me that having all the facts and making accomodation that not all companies or persons are like those portrayed in this dialogue.
I appreciate that their goal is to expose the poor business practices of certain individuals, but equity indexed annuities is not the problem. It is a very good product for the right individual, seniors over 65 are not the right people for this product. The problem are those attempting to sell the product to the wrong people. This was not made clear in the report.
All Indexed Annuities are bad for everyone? Interesting. So what about safe money? So what about those individuals that are tired of losing money in Variable Annuities? Let me guess the NEW Guaranteed Income Rider will take all of that away!! But wait aren’t there fees associated with the rider? But wait isn’t the PRINCIPAL still at risk? Please help me with your blanket statement.
“While Annuity IQ agrees that equity index annuities are not good investments”
Joe,
While a variable annuity does involve risk the living benefits do mitigate them. They are not right for everyone, but equity index annuities are not right for the majority of investors.
Let’s get real, an equity index annuity is not geared to perform with the market, but is simply trying to imitate its potential returns, but with spreads, yields, caps averaging etc. it is impossible to even come CLOSE to what the market returns. Most equity index products barely outperform traditional fixed annuities, period.
So for safe money why lock up your money for 10 years or more to barely outperform a fixed product? There is no reason to do so. Let’s do the math, a 8% commission (or higher) plus any bonus given to the investor and the hidden fees in the product (caps, averaging, yields etc.) do not equal a good investment.
While variable annuities have fees, at least they are fully disclosed to the investor via the prospectus, contract and disclosure forms that clients have to sign in order to buy them. Also, the surrender schedule, commissions and guarantees floor an EIA any day of the week,as they are significantly less than index products.
Investing involves risk, but living benefits dimish the risk and offer income distribution planning to the investor. An EIA offers you great compensation and not much else to the investor. I know you are upset that we were so harsh with these products, but if they are so great why did Allianz put up such a little fight to the lawsuit?
FYI, early termination of an EIA will result in a principal loss for the investor, sometimes in excess of 10%…I guess that is “safe” money.
Is there a way to get out from this trap? We were trapped into buying an Allianz Master Dex 10 Equity Index Annuity with the notion that our principal investment was totally save.It turned out that it was save for Allianz But a pitfall for us.We inially tryed to get out but our Financial Planner reassured us that this was the best and safest invest-ment available and none of the Fees and interest rates were disclosed to us.We have a copy of a letter that we gave to our F.P. trying to op-out.
I think that there are places for Indexed Annuities..I have sold a few, but under great scrutiny. I have 2 myself and while they shouldn’t be the only place to put your money, they do offer some security.
There is a methodology to how you invest within them and how you balance the contribution amount. I tend to start off with over 80% in fixed for the first few years and then have people move into indexes as their accumulation value increases, while considering what the 12 month outlook is for the varying indexes. I work very closely with my clients on these (at least a month before anniversary dates) and explain everything. It’s the one’s who sell and drop off the policy that are giving this tool a bad rap.
I have some clients who use bonus annuities as their “bond portion” of their portfolio. With the guarantees offered through the annuity, they can then be a little more aggreesive with in their equity investments. In thier opinion and mine, it gives a little more security that watching bonds (or funds), fluctuate in a volatile market. In comparison, properly structured FIA’s have outperfoemed many investment grade bond funds over the past few years.
When dealing with seniors, I think that main spot for an indexed annuity is as an estate planning tool or for supplemental income past age 75. It has to be structured correctly in the total portfolio mix.
I have serious problems with seminar selling and have been called in to look at situations where people have been almost ready to sign away their savings. What people will do for a chicken dinner!
For the most part, I think that indexed annuities are often played as an alternative to C.D.’s. In that manner, how much different are certain annuity salespeople than financial advisors at banks that lock in people to low interest C.D.’s?
In both cases, when employee bonuses come around, they are based on volume. I have seen some bank advisors do serious injustices to their clients as well.
The only word I can come up with is SURREAL…EIAs are extremely suitable in most cases; I have a client with over 10 million in these and he is 85 and has never annuitized, doesnt need too….so should he have called ADMIN to get permission??? The bottom line is the MAIN ACT in annuities is the payout; accumulation is just the prologue…
As far as getting out of these products you should check with the class action attorney’s as they have struck a deal with Allianz.
We never said all EIA’s are garbage, just most of the popular ones. All products have a place, but EIA’s are an easy sell with so many moving parts that they rarely work out, otherwise Allianz would not have settled its lawsuit with the states.
Steve,
$10 million in EIA’s? Are you serious? For an 85 year old that is a little strange unless it represents a small portion of his net worth. While payout is the ultimate goal of annuities it also only represents 2% of the total market and the way the money accumulates is key. Certainly you would have to agree the monthly averaging greatly reduces the return of these products, it says so right in the sales material. Certainly forced annuitization is not a good thing, right? Shouldn’t the consumer CHOOSE how to start and structure the payout, not just have 3 or 4 options? In your world I am sure you can justify that EIA’s are suitable for most people, but in the real world annuities, in general, are only good for a portion of ones investment portfolio and they should be chosen carefully.
To: ADMIN
First of all I’m not going to be patronized; I have been insurance licensed for 25 years and hold a myriad of securities licenses, including Series 7, 22, 62, 24,6, 63….what I do have is a ‘dead’ file (actually its a large plastic bin) of all the files of people that dislike me that I have dealt with because of poor performance of an investment, and that file is full of mutual fund clients, stock clients, unit trust clients, variable annuity clients…..I don’t have anyone in that file that has hated me for an EIA….I work ‘top down’ with EIAS and think that anyone that is unwilling to examine annuitization should not buy any type of annuity-and therein lies the problem; people are buying these and finding out they are sticky, when they should have bought some other defective investment, i.e. a stock, a mutual fund, a zero coupon, variable annuity, etc…I know we live in a touchy feely society now and the slightest discomfort brought on any investor may result in a lawsuit. Also, you imply that a class action suit somehow means something really terrible..facts are that class action law suits have a startling affect of enriching attorneys at the expense of those allegedly harmed….in the case of Allianz there had been over the years an ultra low level of complaints and other issues such as seminar selling did indeed later become an issue…hey, want to know the real scandal??? How about everyone and his brother buying term insurance and not investing the difference as A L Williams preached years ago….instead of buying that ol’ evil whole life…and then that evil UL with all its wild projections…seems like about 2 per cent of all terms policies ever have a claim paid…as they lapse or are cancelled as people get older…my 99 year old Grandmother has a paid up whole life policy as I write to you tonight! You guys are so smart!
??? shouldnt the customer choose? Are you crazy??? ….you remind of of the scandals now going on with the airlines, where they want to decide how to maintain the aircraft we fly in, not the FAA…what are you talking about???
You are pushing only VAs and even have an attorneys number for EIA customers. I cant believe you are doing that….
Steve,
Language, language. Where did you see a number on this site for an attorney? Perhaps it is a Google ad with the phone number, we don’t advertise attorneys.
Hey, it is not our fault you could not pick a good investment for your clients, that sounds like a due diligence problem on your part. Are we just pushing VA’s? I think not. What we do is strictly in the VA space, kind of like how you only deal with insurance, so we only deal with VA’s. We actually point out the problems with VA’s all the time.
Perhaps the dead file will get bigger when your customers learn that the EIA they bought will not be out of surrender for another decade or that they HAVE to annuitize to realize the benefits of the contract or that the crediting method sucked, and they do…come on Steve, monthly averaging? Do you think that works for clients? Let me guess you tell them it reduces volatility when, in fact, it only reduces the rate of return. As far as customers choosing when to and how to receive their income, you are damn right they should be able to. Let’s face it Steve, you could not pick a winning mutual fund, but you want your customers to trust you to decide on how to structure their income, are you kidding? If you have a problem with what is written here feel free to not comeback, its really that simple.
Help! I am 49 years old and invested $100,000 in Allianz’s MasterDex5 Annuity last year because my “friend told me it was a no lose investment. I was under the impression that “the indexed annuity would pay a gtd interest rate of 7.5% for the first year and 5% thereafter, or the gains in the market, whichever is greater.” Of course, this was not the fact. I did receive a first year bonus of 5% on my premium. I found out later that I would have received the additional 2.5% if I had allocated 100% in the fixed interest option, which I did not. I knew that I was not going to touch this money until I was 59 1/2 and I was okay with that because I have other investments. Did I make the biggest mistake of my life, or can this work for me? I read one of your comments about “they HAVE to annuitize to realize the benefits of the contract”. Could you please explain in layman’s terms how and when I need to annuitize. Thanks for your time.
Jody,
It is very sad that clients are not fully informed by someone they put their trust in. You should have been made aware of the specific “moving parts” of the MasterDex5 prior to placing money there. This is probably NOT the biggest mistake of your life however, regardless of what those who push other products imply. And, it probably will “work out” for you.
Since your contract has it’s own specific features, you should contact Allianz directly and get answers in writing to your questions such as what you must do to ‘realize the benefits’.
Having said this, in general, some EIA’s offer an “Income Rider”. This is an optional addition to the annuity that provides a potential ‘worst case’ accumulation. For example, it may be that at maturity you will have choices on how you would like to receive your distribution. If you want a lump sum the amount available might be what has accumulated from indexed growth. Or it is possible that a greater value may have resulted by compunding at a minimum guaranteed rate – such as 7.5%. In some cases if the guaranteed account value is greater than the indexed value you must take income to get it vs. a lump sum withdrawl.
Frequently this income is paid to you at approx. 5% of the balance per year.
Again don’t panic, call Allianz and get answers in writing.
Best wishes.