Why Ken Fisher Hates Annuities (and thinks you should too)

Maybe you’ve seen the advertisements from Fisher Investments that offer a free report on why Ken Fisher hates annuities? If not, here’s the ad that’s been popping up on various websites I visit often:

The ad as it appears on Google Finance

The ad as it appears on Google Finance

For those not familiar with Ken Fisher and why he’s a very note worthy figure in the investment world, here is the first paragraph on Mr. Fisher per Wikipedia.org:

Kenneth Lawrence Fisher (born November 29, 1950) is an American investment analyst, and the founder, chairman, and CEO of Fisher Investments, a money management firm with offices in WoodsideCaliforniaSan Mateo, California, and Camas, Washington. Fisher writes a monthly column in Forbes magazine, contributes to other financial and news magazines, has written seven books, and has written research papers in the field of behavioral finance. Fisher is on the 2011 Forbes 400 list of richest Americans[3] and Forbes list of world billionaires, and as of 2011 was worth $1.7 billion.[4] In 2010, he was named to Investment Advisor magazine’s “30 for 30” list of the 30 most influential people in the investment advisory business over the last 30 years.[5] As of 2010, Fisher investments assets under management firm manages $41.3 billion in 38,521 customer accounts[6] and has been called the largest wealth manager in the United States.[7]

Mr. Fisher is clearly an accomplished business person and I think a very smart guy.

So why does he hate annuities so much?

I took a close look at the report offered (Fisher Investments Good financial advice or bad financial advice?Annuity Insights),  Fisher investments annuity calculator, and found the information well written and laid out very nicely. It’s fairly generic in nature, initially explaining the basics of annuities and their terms. All good and accurate info, but nothing really revealing at first.  They also offer Fisher investments newsletter.

It then gives some examples that I think explain what he dislikes so much about annuities. The big gripe (best I can tell), is Mr. Fisher doesn’t like the fees associated with annuities.

Here are some quick bullet points that I take away:

  • It gives an example of Variable Annuities and their additional costs relative to buying the same investments but not paying all the insurance related fees. This is a good comparison, as variable annuities are designed to compete with market investments; but obviously, if the costs are a lot higher (which they are with variable annuities) then the returns will certainly be lower.
  • It does give an example of Index Annuities compared to the S&P 500, but that’s not really a good benchmark.  Fixed Index Annuities are not built to compete with the stock market as they are fixed investments. A better benchmark might be a conservative bond index.

Make no mistake – fees are not good for investors. If you pay an arm and a leg, well…you don’t have an arm and a leg anymore.

For some of us though, there are very good reasons to use annuities. Just not all of us, and certainly not all of the time. Below I’ll explain what the good reasons are.

Where the hatred falls short (in the Annuity Gator’s opinion)

I think Mr. Fisher is spot on in sharing the importance of keeping costs low. Annuities are not usually associated with the best way for that. One thing not discussed in the report though is the real reason to use annuities (for some investors): to get a guaranteed lifetime income they cannot outlive.

It’s important investors understand that annuities used correctly are a transfer of risk investments. This means that if we try to use them as maximum growth investments, we’ll likely be disappointed (as Fisher shows well in his report). This is because the costs of variable annuities will make them incomparable to non-annuity investments, and fixed index annuities should not be compared to growth securities in the first place.

Used correctly, annuities work really well at helping investors avoid the biggest danger to their investment results: Themselves.

What do I mean by that? Well, many investors have a propensity of letting their emotions drive their investment decisions. When times are good, they like to be in the market (after the biggest gains are in the rear view mirror). When times are bad, many panic and sell everything (essentially locking in losses).

annuity saleguyAnnuities aren’t the only antidote to this destructive behavior, but they can help.

The other thing that will help investors is having a truly good retirement income plan (a financial plan designed for retirement). When that is done correctly investors can see in advance the true pros and cons of all their investment options. After a solid education on how the different approaches work, they then select a plan that fits their emotional fortitude and desired financial outcome. It mitigates the emotional behavior that drives (sometimes) very bad financial decisions.

A good retirement income plan should NOT be done by someone who makes a living selling annuities. Clearly, that would be biased toward selling you the annuity (doh!). Rather, it should be done looking at all options available, explaining how those different options work, and actually showing you what to reasonably expect from said options. Then you choose the option that both works, and you feel comfortable with. Sometimes you’ll find annuities are a great fit, other times you will not.

Nothing is perfect in investing. Nothing is worthy of pure praise at all times, or pure hatred. Every one of us is different, and for each one of our unique circumstances and emotional feelings about money, there are appropriate investment plans.

Annuities done right will lower your returns. But they will also lower your risk. And for many, the tradeoff is well worth it (at least in moderation).

So Should you also Hate Annuities?

Only way to know is to see if they fit. If you have questions about this, feel free to reach out and we’ll help point you in the right direction. Just use our secure (and free) contact form here. You can ask anything you want and one of the Annuity Gator experts will get back to you within 24 hours. No bias toward love or hatred, only some free feedback to help you determine what really makes sense for your individual circumstances.

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The Annuity Gator

Here’s some other independent annuity reviews we’ve recently done:

Jackson National Perspective II Variable Annuity

Metlife Preference Plus Income Variable Annuity




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