Financial dinners and Equity Indexed Annuities

[janeeyre]

At most financial dinners, the analyst are selling a class of fixed annuities. A subclass of fixed annuities is equity indexed annuities. These are for a fixed term; however their interest is not guaranteed, but rather tied to an index, such as the S&P 500. My question is: Why are they pushing these annuities? Are the finders fees large? or, is it me and I should move most of my money into one.

[brewer12345]

Stay away from these products. They are beng pushed because they have soem of the largest commissions of any annuity and they have surrender penalties that can last for upwards of 10 years. They are also complicated enough that very few of the customers actually understand what they bought.

[Rich_by_the_Bay]

You'll find a lot if you do a search under variable annuities, but there is a large sales commission (usually built in to the expenses rather than up front), there are large expenses associated with the investments, and there are conditions on getting at your money.

Only under very unusual and specific conditions are these products felt to be a good investment. Most here would say you can do much better on your own, and that you should run, not walk, as soon as dessert has been consumed.

[FinanceDude]

They are a BAD deal................... :P :P :P

If you want to have fun, ask three questions in front of the group:

1)Are they FDIC insured?

2)Why is the surrender period so long?

3)Why am I capped on the return to a PERCENTAGE of the index, not the whole return?

My guess is there will be a lot of nervous looking around, and stumbling over words.............

[saluki9]

Quote:

Originally Posted by Rich_in_Tampa You'll find a lot if you do a search under variable annuities, but there is a large sales commission (usually built in to the expenses rather than up front), there are large expenses associated with the investments, and there are conditions on getting at your money. Only under very unusual and specific conditions are these products felt to be a good investment. Most here would say you can do much better on your own, and that you should run, not walk, as soon as dessert has been consumed.

Rich, these are worse than variable annuities. In most cases the agent does not even have an NASD license.

The reason for doing them? Try a 9-12% commission!

[FIRE'd@51]

We recently had another thread on this type of product. You can create the same return pattern much more cheaply yourself using a zero-coupon bond (such as a Treasury strip) and a long term call option (such as a LEAP) on the S&P 500.

[FinanceDude]

Quote:

Originally Posted by saluki9 Rich, these are worse than variable annuities.

Much. much worse............ :P :P :P

[bssc]

Quote:

Originally Posted by saluki9 Rich, these are worse than variable annuities. In most cases the agent does not even have an NASD license. The reason for doing them? Try a 9-12% commission!

There is no such thing as a free financial dinner either. I hope that you thanked the person next to you for paying for your dinner since you didn't buy anything.

[janeeyre]

Thank you for the good advice (as usual). I will stay away from those annuitities while I enjoy the dinner and I will ask the three questions mentioned above.

[JustCurious]

Also ask them how much commission they would get if you invested 100k in an annuity.

[yakers]

Maybe its my idea of perverted fun, but wouldn't it be great to have a group from this board (or maybe the Vanguard diehards) make up the entire audience for one of these events? Imagine the questions and the response from the crowd to the answers.

The food wouldn't have to be that good, I'd do it for the entertainment.

[2B]

Quote:

Originally Posted by janeeyre Thank you for the good advice (as usual). I will stay away from those annuitities while I enjoy the dinner and I will ask the three questions mentioned above.

You've got the right idea about staying away from these annuities but you can't be so hard up for a meal.

The food they serve at these things isn't usually "off the menu." You'll get a low cost banquet version of one of their cheaper entrees. Stay away from the sales pitches just so you don't get tempted by a slick sales job.

[saluki9]

Quote:

Originally Posted by FIRE'd@51 We recently had another thread on this type of product. You can create the same return pattern much more cheaply yourself using a zero-coupon bond (such as a Treasury strip) and a long term call option (such as a LEAP) on the S&P 500.

That's all the insurance company is doing

[2B]

Quote:

Originally Posted by saluki9 That's all the insurance company is doing

I agree but with the zero coupon bond you need/should do it inside an IRA. Otherwise, you'd owe "phantom tax" on the imputed interest on the zero. That's a real pain to calculate and even more painful to pay tax on money you never got.

That puts the tax implication back on the "normal" income tax rate unless you do the S&P index in your taxable account and the zero coupon bonds in your IRA -- the best of both worlds.

[mickeyd]

Just for the heck of it, I attended about a dozen of these presentations last year over a 2-3 month period. I think I posted a report about my experiences on this board.

Most of them were indeed selling EIAs though a number of them also had a mutual fund option. The food was better than the presentations, I thought. I can not recall having a bad, or even a sub par dining experience however, I do recall having a number of pretty lame financial presentations.

I believe that the commission rate on must annuities is about 5-8%. Most of these "advisors" were looking to rollover 401(k) or 403b accounts, making them an even worse investment! But 5% of an average 401(k) account can be pretty sweet.

[brewer12345]

Quote:

Originally Posted by mickeyd I believe that the commission rate on must annuities is about 5-8%. Most of these "advisors" were looking to rollover 401(k) or 403b accounts, making them an even worse investment! But 5% of an average 401(k) account can be pretty sweet.

Equity indexed annuities typically have 10+% commissions. That's why they get pushed so hard.

[janeeyre]

The dinners I attended were loaded with 403b folks -- school district administrators and employees. I had just retired at 50 when the invitations started to roll in. So, I thought why not. I will accept a free dinner and listen to a financial seminar. Actually, the dinners were quite good and the company was not bad either. My husband and I have attended five in all and heard essentially the same scenario each time.

[mickeyd]

Quote:

Equity indexed annuities typically have 10+% commissions. That's why they get pushed so hard.

Well you may or may not be right on the commission rate however, I do not believe that the commission on an EIA is any greater than any other annuity that an insurance company sells.

[2B]

Quote:

Originally Posted by mickeyd Well you may or may not be right on the commission rate however, I do not believe that the commission on an EIA is any greater than any other annuity that an insurance company sells.

Just look at what they are paying for dinner to lure in victems clients.

Fixed Immediate annuities are bad but I've never had an invite to a dinner for them.

[saluki9]

Quote:

Originally Posted by mickeyd Well you may or may not be right on the commission rate however, I do not believe that the commission on an EIA is any greater than any other annuity that an insurance company sells.

And on that count you would be wrong.

A fixed deferred annuity pays about 3% commission

A fixed immediate annuity pays 1.5% - 2.5%

A variable Annuity pays from 4%-7%

EIAs pay between 8% and in some cases up to 14%