Annuity IQ

As we all know annuities, variable annuities in particular, receive more than their fair share of negative press. That is no secret and should not be the case as most people who write about annuities really have no idea on how they work.

A great example is a recent article on ‘TheStreet.com’ by Tracey Byrnes where she confuses variable annuities with fixed annuities. Yes, it is totally unbelievable, but she has no idea on the actual difference between the two products, read the story here. I wrote her to explain herself, but of course I will not hear back because they never write back.

Now, what happens when someone asks about annuities in these new peer programs launched by two of the major search engines, Yahoo! and MSN? As you maybe aware both Yahoo! And MSN have launched Yahoo! Answers and QnA by MSN. Both programs are peer answer programs where you may ask a question and your peers will answer them for you. You then get to pick the best answer.

With all of the negative press on variable annuities it is clear what kind of answer you will get if you ask about these products, negative. This happens because everyone who is anyone likes to beat up on these products, which have 1.6 trillion dollars invested in them, that is more than 401 (k) plans.

When someone asks about annuities in these forum groups they get instant replies that annuities are too expensive or they are horrible. What is really disturbing is that people are asking their peers about investments in general. My thoughts are if you want investment advice you talk to an investment professional. I just do not understand why that is such a difficult thing for some people to do.

Didn’t we learn in the late 1990’s that asking your peers for investment advice is a bad idea? Remember when you would talk to your friends and they said well I own Janus or Invesco and my returns are killer! So, you ran out and bought the same funds because, ‘I do not want to miss out on the killer returns’? What happened in the end? You got killed by the market, that’s what happened.

I understand the importance of these peer answer programs, I really do, but not for investment advice. If you want to know about the best phone service, restaurant or home cleaning product there is no better place than your peers to get answers from. When it comes to investments though, your peers are not the people to ask.

Dispensing investment advice requires a license, which takes a very long time to get, usually 3 to 6 months. The people dispensing advice in these self help areas probably do not have licenses. Therefore, they have no idea on the process of giving investment advice and do not know the right questions to ask to issue proper advice.

Quite simply, you usually get canned answers that have been written by hit and run financial columnists. This is dangerous stuff we are talking about, after all this is your money you are about to invest. Why would you trust this decision to someone you have never met and could be a complete wacko? It is really scary that people put so much trust in these self help groups.

Then when you add the complex question about annuities or a variable annuity the knowledge base goes way down. These products are not easy to understand, well the details at least. On the surface an annuity is simple, but to understand how the benefits work requires significant knowledge and the ability to read the prospectus. I find this lacking in the answers I have seen from these groups.

When we look at Yahoo! Answers or MSN’s QnA we have to take them for what they are, a fun way to ask a group a question, but do not solely rely on these forums for real answers. Professional financial advice can never be replaced by Joe that you work with or by some faceless person you met online. This is why we do not dispense advice or recommendations. We are, simply put, a ratings agency that help you make an informed decision based on facts.

A variable annuity is tough to understand, especially when you do not have a professional answering the questions you have. Why not use good professional advice to get answers to your questions, especially about variable annuities.