I take it from the posts that I've read here that most of you are in the securities business. Stockbrokers, etc. Several comments brag that VA are a better choice. Here's a couple of questions:
1) While most of these EIA annuities pay a pretty decent one-time commission (5 to 8%), how does this compare to the average hidden fees consumers unknowingly pay that are a part of Variable Annuities (2 to 4% annually)? How does the one-time 5 to 8% commission compare to the average ongoing annual 1.5% trail earned by the average broker on an typical account? (plus round-trip commissions on every trade)
2) Everbody's making a big stink about the surrender charges. These annuities have always been long-term products, and any 'agent' who misleads or hides the surrender charge should lose his license. However, there is a positive side to them as well. At least with an EIA, the client has the ability to know up front what his costs are. He knows FOR SURE what his account will be worth next year. Why do 10 year CDs pay more interest than a money market fund? Because the money market fund is charging the client for the liquidity that is part of the MM account. No one would go with a ten year CD if they're also looking for check-writing privileges. How many folks have a big chunk of money they don't need, but instead of a ten year CD, they take 6 month CDs and roll them every 6 months. They are paying for liquidity (through reduced interest rates) just in case they might need the money for something! The point is this: if you need access to 100% of your money... 100% of the time, an annuity is a very poor choice. Most of these products do allow for 10% annual withdrawal without penalty, and more relaxed liquidity in the case of a terminal illness diagnosis, nursing home confinement, and other scenarios. This is more than enough liquidity for most folks.
Why pay for liquidity that you don't need? Those who decide to take more than the 10% out will pay a cost for that liquidity. It's their choice and they know the costs up front... (assuming an honest agent sold it to them)
3) In addition, what they failed to mention on Dateline is that most of the products they were talking about also paid the client an up-front 10% bonus to move their money. Then the client decides it was a bad idea a year later and wants to surrender the entire contract. 20% surrender charges apply, but it's pretty clear to see that half of that penalty is simply the company recouping their 10% bonus! Realistically, the worst that these surrender charges get is a net 10% penalty.
How many of your clients ever suffered a 10% loss? Was that loss voluntary or involuntary?
How many older folks do you know who hung on through the last bear market 2000 to 2002 while their broker convinced them to 'hang in there... the market always comes back"? How many of your clients hung in there and lost 48% of their nest egg following your buy and hold advice?
How many of your older clients holding a big bond portfolio lost 20% in principal value when interest rates went the wrong way? I'm sure they thought that bonds were 'safe'...
The fact is that the S&P has returned about 12% over time, yet Dalbar studies prove time after time that the average mutual fund investor sees only a 4% average annual return due to fees, expenses, trading costs and the #1 biggy... buying high while chasing performance and then selling low. Most investors would be waaaay better off if they fired their brokers and simply invested in the S&P500 for 18 basis points and forgot about it. For older folks who don't have the time to make up for 20 or 30% market losses, other alternatives are available.
For those in retirement or getting close, these annuities offer some stability and peace of mind that is not available from your local stockbroker who simply wants the client to stay invested no matter what. Many of these older clients like the fact that this nest egg of theirs will never go down in value, but only UP. You see, they no longer have the time to make up for losses than invariably comes with market volitility. They like ther fact that they can turn this nest egg into an income for life that they will never outlive... and without giving up control of the money!
Bottomline is this: there are unscrupulous, loser salespeople in every industry. That doesn't make every stockbroker, insurance broker or used car dealer a crook. And we all realize (I hope) that any media coverage of ANY issue is going to be biased or bent to satisfy their agenda. No one tells both sides of the issue any more.
