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Suitability of Annuities

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SBL_2012
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Suitability of Annuities  Reply with quote  

One thing that the regulators are cracking down on is suitability of annuities. These products have a place in many portfolios but there has been many advisors/brokers who have hammered people with unsuitable investments. One thing i've been implementing in my practice is complimentary Morningstar Annuity Reviews. It has received much praise not only from current clients but referrals.

Everyone should have an analysis done because you must know what you're invested in. Annuities have some downsides as most have a surrender charge if broken in the first 7 years. This takes away from liquidity.

Also the wording of annuities has a bad name. If I say the word "pension" that sounds good to most people but the word "annuity" doesn't sound as good. If done correctly an annuity is a personal pension that you cannot outlive. If any other advisors would like to chime in go ahead, each state regulates this but Indiana is very strict on suitability right now as a few of the bad apples have made it difficult for the rest of us.
Post Wed Jan 11, 2012 2:17 am
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coaster
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Re: Suitability of Annuities  Reply with quote  

quote:
Originally posted by SBL_2012
One thing that the regulators are cracking down on is suitability of annuities.

LONG overdue.

~Tim~
Post Wed Jan 11, 2012 6:19 am
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Agreed.

I've always felt it's better to work with a trusted financial advisor and focus on solid mutual fund, bond, and other types of investment vehicles.

See Proof. You can make free money online.
Post Mon Jan 16, 2012 8:42 pm
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ETFs_R_Best
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Re: Suitability of Annuities  Reply with quote  

quote:
Originally posted by SBL_2012
One thing that the regulators are cracking down on is suitability of annuities. These products have a place in many portfolios but there has been many advisors/brokers who have hammered people with unsuitable investments. One thing i've been implementing in my practice is complimentary Morningstar Annuity Reviews. It has received much praise not only from current clients but referrals.

Everyone should have an analysis done because you must know what you're invested in. Annuities have some downsides as most have a surrender charge if broken in the first 7 years. This takes away from liquidity.


Nonsense. Annuities have NO place in hardly anybody's portfolio. Even Ric Edelman has said that out of 16,000 clients he has only sold about 10 annuities.
Annuities have "some" downside? That is the understatement of the year! Annuities also have a 10% mandatory federal tax on withdrawals before age 59 1/2, they have the NASTY NASTY higher "ordinary income" taxation (as compare to almost any other investments which are taxed under normal "capital gains" rates), annuities SCREW OVER your loved ones if you die because there is no "stepped up" cost basis, studies have shown that annuities perform WORSE than index funds because of all of the HIGH FEES that the insurance company sneaks in, etc. Also annuities are "advertised" as being safe when in fact they are only as safe as the ONE SINGLE insurance company that backs the contract. Even the worlds largest insurance company almost went bankrupt. Annuity guarantees are unnecessary. Even if you had absolutely terrible timing and invested in an annuity at the peak of the market in 2000 you would not have lost your principal. The DOW is up. Insurance companies KNOW this. That is why they are perfectly comfortable making these unnecessary guarantees.

The ONLY reason annuities are sold are because BROKERS earn on average 5 - 6 % commission, but it can be as high as 12% or even 14%. Total conflict of interest.
Post Sun May 13, 2012 3:02 am
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oldguy
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I agree with EFF. Annuities are a poor choice for nearly everyone. My advice is to avoid them all - in nearly all cases buyers did not seek out and BUY their annuity, they were SOLD the annuity by an aggressive salesperson.
Post Sun May 13, 2012 4:25 pm
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ETFs_R_Best
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quote:
Originally posted by oldguy
I agree with EFF. Annuities are a poor choice for nearly everyone. My advice is to avoid them all - in nearly all cases buyers did not seek out and BUY their annuity, they were SOLD the annuity by an aggressive salesperson.

Yes. Remember that brokers are like car salesmen. Don't trust them, especially if they don't charge you any fees or if they broker the purchase of securities (fill out the paper work). I was sold an annuity. Wish I knew then what I know now. The broker who sold me the annuity called himself an "investment adviser" and I assumed he was working in my best interests. He only told me what I wanted to hear so that he could make the sale. It's really fraudulent what brokers are doing out there.
Post Sun May 13, 2012 8:04 pm
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SBL_2012
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Nonsense  Reply with quote  

Dear ETF

ETF's don't have a place in everyone's portfolio. I prefer active management rather than passive management as a whole. Sometimes ETF's have performed better than mutual funds and sometimes they haven't. When I'm designing a portfolio for a client I do not use bond funds but rather buy the pure bonds thus saving money on management fees and using managers where needed in the equity space. Would you advocate to my client to pay the management fees in the bond fund when I can buy the pure bonds for them? If ETF's have a better track record in certain spaces then I will use them or I will use MF's or SMA's where appropriate. You seem to have a one size fits all mentality. It's about "suitability" and you're right they are not for everyone and I've recommended to many clients not to use them as some were told by the agent at the bank to put their entire savings in a fixed annuity receiving a rate of return that's less than inflation.

You also mention that annuities have a 10% penalty if taken out before 59 1/2. Hey pal unless you didn't know, so does an IRA and a 401K so what's your point? You're obviously upset because of a past experience and are now on here acting like you know it all when it comes to annuities. Here's an instance where I used an annuity. There's a product with Jackson National that has a great DB feature. We took 1 million and funded an immediate annuity paying out 6% a year which funded a 3.3 million dollar second-to-die life insurance policy. As long as the policy value didn't drop to 0, the DB was 1 million dollars on the annuity. This was all done in an ILIT (Irrevocable Life Insurance Trust). This way he was able to get money out of his estate and leverage a larger death benefit. Maybe you'll say that insurance policies pay high commissions so you'll come here and bash on those too. Actually the IRR (internal rate of return) which is the rate of return - inflation was north of 10% at age 92. That is a tax-free 10% as well so the taxable rate of return was closer to 13%. Please ETF, guarantee me a 13% rate of return on a portion of my assets and I'll come and work for you and bring my client base with me.

You say the only reason annuities are sold is because they pay high commissions and you simply once again throw out blanket statements and do not know what you're talking about. I could say that many advisors just use index funds because they are lazy but that doesn't mean everyone is. If you want to talk about fees, some transactional advisors/brokers churn in people's accounts to drive up needless commissions. I could say that advisors that use bond funds just want the fee based business so maybe I'll come on here and say "oh those greedy pricks just use bond funds because they want to steal people's money".

Your frustration is understandable but don't know all investment advisers under the bus because of your bad experience. 5-6% is not the average commission paid on an annuity at my firm Morgan Stanley I can guarantee you that. One thing is we don't sell fixed annuities. Second, many of the variable annuities pay a 2 1/4 upfront commission with a .5% trail on them. Oh and by the way I get 35 cents on every dollar I make at my firm. I know that is at the height of greed isn't it?
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Post Mon May 14, 2012 12:16 am
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ETFs_R_Best
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The last thing you want to do is to lock your money up in an annuity prison until age 59 1/2, especially for an investment that doesn't even outperform index funds! Every investor should stick with LIQUID investments that you can sell at any time without penalties, period. There is NO WAY to predict whether an investor might need their money in the next year, 10 years, etc. Brokers are always going to defend what they do otherwise they become out of a job. I'll let these web sites do the talking....
http://www.nytimes.com/2009/02/22/your-money/stocks-and-bonds/22stra.html?_r=2 (The odds of a tax-sheltered account beating an index fund are quite poor)
http://www.smartmoney.com/retirement/planning/whats-wrong-with-variable-annuities-9512/
http://www.signonsandiego.com/uniontrib/20040919/news_mz1b19lynn.html
http://lsb.scu.edu/~emcquarrie/annuity.htm#case1 (annuities have NO tax advantage)

"All the time and effort that people devote to picking the right fund, the hot hand, the great manager, have in most cases led to no advantage. -- Peter Lynch

"By periodically investing in an index fund the know-nothing investor can actually outperform most investment professionals." -- Warren Buffett

"The statistical evidence proving that stock index funds outperform between 80% and 90% of actively managed equity funds is so overwhelming that it takes enormously expensive advertising campaigns to obscure the truth from investors. -- Peter Lynch
Post Mon May 14, 2012 12:35 am
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Adamsonjack
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Does anyone know anything about finra?
Post Wed May 30, 2012 6:35 am
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coaster
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An annuity is an insurance company product. FINRA pertains to securities products. I don't think it's relevant to the topic. But I may be wrong, and if I am, please correct me.

~Tim~
Post Thu May 31, 2012 1:32 am
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sethm
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Insurers must take critical steps, such as obtaining applicant information that they can effectively use to assess suitability.
Post Sat Jul 14, 2012 8:37 am
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ETFs_R_Best
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quote:
Originally posted by sethm
Insurers must take critical steps, such as obtaining applicant information that they can effectively use to assess suitability.

Those suitability standards are a joke. The insurance company lobbyists have worked hard to keep the standards low. Investors aren't protected enough. Here's a good Newsweek article that talks about how annuities aren't a good fit for ANYBODY. http://latrobefinancialmanagement.com/Research/Annuities/One%20Faulty%20Investment.pdf
Post Sat Jul 14, 2012 8:41 am
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