One of the primary reasons AnnuityGator.com was started is to act as a consumer advocate. We want to provide unbiased annuity education so readers can make more informed decisions regarding annuities; and ultimately, make sure investors use annuities the right and have proper expectations.
As a result, Annuity Gator has become one of the most popular annuity websites in the USA with tens of thousands of visitors each month. We also get thousands of messages via our secure contact form from investors asking questions and sharing their experience dealing with annuity agents. From all these questions and feedback, we’ve learned that there is a lot of really bad annuity advice out there:
- Flat out lies about how products work
- Exaggerated return expectations
- Annuity sales pitches that are 100% motivated by agent commissions and not investor benefit
- And lots more
In today’s post, I’ll share some of the recent questions/comments that have come in from website visitors and offer feedback on how to spot really bad annuity advice. If you find yourself in a similar situation, hopefully, this will help you spot the crummy agents and avoid a potentially very expensive (bad) financial decision.
Sales People Trying NOT to Look Like Sales People
Our Fiduciary Advisor suggested ABC Annuity…
I removed the name of the annuity from this reader question as the real problem isn’t with the annuity, but rather that the advisor called them self a fiduciary. For those not familiar, a fiduciary is someone who is legally required to put their clients’ interest before their own. In the world of annuities, unless an advisor is a “fee-only” advisor they cannot legally claim to be a fiduciary.
Maybe the advisor doesn’t know any better – in which case, you probably don’t want advice from that person anyway. Here’s the cold hard truth though about this statement: Annuity salespeople know it sounds better if they call themselves a fiduciary. Many will actually have their Series 65 license and be registered as an Investment Advisor. If that is the case, they do act as a fiduciary when wearing their “investment advisor” hat. However, as soon as they recommend a product that pays a commission they must disclose that they are no longer acting as a fiduciary, but now as a sales agent who will earn a commission.
Of course, that doesn’t sell really well, so as a consumer it’s not a surprise to me why sleazy agents try to wear both hats (fiduciary and sales agent) at the same time. It helps them close more sales by confusing their customers. Sadly, that’s just not right.
There’s nothing wrong with being an annuity sales agent. The problem occurs when the agent tries to hide it, rather than just embrace it. If the product fits as part of a quality financial plan it shouldn’t matter how the advisor gets paid, just that the client gets what suits their needs best.
There’s No Such Thing as the “Best Annuity Out There”
My Financial Advisor is pushing us to buy a Bonus Gold Index Annuity….He says it is the best annuity out there…
Ok, so this isn’t meant to be a knock on the Bonus Gold Annuity (it was just the exact verbiage of a reader question). The problem here isn’t that Bonus Gold is a bad annuity, it’s that no matter what the annuity there is NO SUCH THING as the best annuity out there.
In just about every possible scenario a different annuity will work best. This is because some are designed for income now, others to defer income for a few years and take lifetime income later, and others to never take income at all. In addition to the various ways annuities are built, there are also huge differences by the state of residence as well as what age the owner is.
If you ever catch a financial advisor saying “this is the best <insert any financial product here>,” then they are being a sales person and not an advisor. A trusted advisor should focus more on understand specifically what is important to you, then test every option available to see what works for your specific goals. Only then will you know the true “best fit” for your situation, as there is definitely no “best product” out there.
Flat Out Lying About Annuity Company Safety to Make a Sale
One agent I have talked with told me that the Allianz annuity was on shaky financial ground as they are a German company and have had to spend a lot of money in recent years for a variety of reasons. This information was given to me in order to have me look away from possibly investing in an Indexed Annuity with that company and go with Security (Guggenheim) instead. What do you think about the financial strength of Allianz and their indexed annuity? Thanks once again.
Why financial advisors resort to mud slinging to win business is a complete mystery to me. Especially when what they say is such a ridiculous lie it doesn’t even make sense.
In this question, I posted it in entirety so everyone can see why this is ridiculous. Evidently, a sales agent suggested that Allianz was inferior to Security Benefit from a financial strength/stability standpoint.
Here are the facts, I’m sure everyone will see very clearly why this particular statement was complete buffoonery (and really dishonest).
Allianz Life Insurance Company of North America Ratings
Standard and Poor’s: AA
AM Best: A
Security Benefit Life Insurance Company Ratings
Standard and Poor’s: A-
AM Best: BB-
Here at Annuity Gator, we don’t have any issues with either of these companies. But we are also not blind, so it’s pretty easy to see any advisor claiming the financial strength of Security Benefit is better than Allianz is blatantly lying in an effort to get business. That’s not good, and in no way serves investor interests.
Not Being Honest About How a Hybrid Annuity Roll-up Value is NOT a Real Investment Return
I just visited a financial advisor intro meeting and they pitched this annuity as a way to get 6.5%/year return for up to 20 years.
In this case, a reader was pitched a “hybrid annuity” and told it had a guaranteed return of 6.5% for up to 20 years. I’ve written in depth about how hybrid annuity returns are calculated, so this one always gets me stirred up.
Hybrid Annuities have multiple ways interest is earned. That’s why people started calling them hybrid. Truth is, the insurance companies don’t care for this term and there’s plenty of reasons why. To be fair, some hybrid annuities are actually pretty good. The issue is, they will not return 6.5%. Not even close.
Allow me to explain.
One part of the hybrid annuity return is usually an “income for life” type benefit. Most companies have different names for it, but they all work pretty much the same. While you are not taking distributions a “benefit base” (not real money) accumulates at a “roll up rate.” This is usually where the 6-7% guarantee is talked about. But this isn’t real money. Rather it just creates a value by which an income for life distribution will be calculated from. At no point can you ever actually take this amount in a lump sum, and at no point is this value every guaranteed to be paid to the annuity holder. The only element that is guaranteed is the income for life benefit.
Knowing this, investors must understand that unless you live long enough for the income for life benefit to pay out more than you originally invested, there is zero real return guaranteed. In most circumstances, I’ve tested the real “investment return” ends up being between 1% and 4%. The longer the annuity holder lives, the better the chance at realizing the equivalent of a 4% type return.
In the end, these can still work just fine. The issue is many agents try to get investors to believe they are actually getting a 6.5% guaranteed return. That’s not true. If an agent isn’t honest, why would anyone ever want to do business with them?
Have any of Your Own Annuity Questions You’d Like Honest Feedback on?
I could go on and on, but hopefully, everyone gets the point.
Used correctly, an annuity can be a very useful part of a conservative retirement income plan. However, not all annuities are created equal; and some annuity sales people really stretch the truth of what investors should realistically expect from their annuity. Hopefully, after reading today’s post you now know the facts, and don’t find yourself falling for something that truly does sound too good to be true.
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