Equity Indexed Annuities: Are they the real deal or junk products?

[Mr. Bill]

With mutual funds, it's pretty darn apparent pretty quickly. With life insurance, at least there's insurance, which is going to be far more than the client ever put into the product. The problem with a lot of the FIAs (especially the Allianz ones) is the lost opportunity on the payout side. It will be ugly. As I've said before, the litigation has only just begun. Some attorney groups will make an absolute fortune!

 

[JMO Fan]

Gov. Blunt announces new rules to protect Missouri seniors from improper insurance sales practices

JEFFERSON CITY, MO - Gov. Matt Blunt today announced ... filed rules which raise the bar for those selling annuities ....
“Unfortunately, our department has seen an influx of equity-indexed annuity consumer complaints over the past year,” said Doug Ommen, director of the Department of Insurance,.... “These rules will give us the enforcement tools we need to go after insurance producers who take advantage of seniors through unsuitable sales of indexed-annuity products.”
Annuity products generally have high commissions for the salesperson and have been sold to some consumers even when they were not right for an individual’s specific investment and insurance needs. Many times financial professionals target seniors by offering “free lunch” investment seminars. Nearly all of these seminars turn into sales presentations and possible unsuitable recommendations.
Until today, the rules only applied to variable annuities, but now they encompass all types of annuities. ... Producers are prohibited from exchanging or switching contracts with an insignificant benefit to the consumer for the purpose of accumulating commissions or executing transactions not authorized by customers. All information used in making recommendations must be documented and signed by the producer recommending the transaction and supervised by an authorized insurer or a qualified entity.
Gov. Blunt has been a strong supporter of these reforms. This year he signed legislation authorizing the extension of these rules to include all annuities. ...
The rules apply to all annuities sold to individuals. ...The department anticipates the rules will become effective by next June.

DIFP News Release

This effectively makes all annuities subject to virtually the same rules as variable annuities.

 

[James]

Producers are prohibited from exchanging or switching contracts with an insignificant benefit to the consumer for the purpose of accumulating commissions or executing transactions not authorized by customers. All information used in making recommendations must be documented and signed by the producer recommending the transaction and supervised by an authorized insurer or a qualified entity.

Well, I'm sure this will slow everything down!

 

[Mr. Bill]

Can you believe it? They're cracking down on "executing transactions not authorized by customers"? Really!

 

[James]

Can you believe it? They're cracking down on "executing transactions not authorized by customers"? Really!

Next thing you know they'll be cracking down on the MP side of the biz, making sure no one signs up and pays the upfront premium of life insurance without knowing what they are buying! What is this world coming too?

 

[policy doctor]

For those of you who have been selling annuities for a while, I'm sure you have attended WV Harris seminars when he toured the country.

He certainly did a lot of training on stage which helped many an agent.

Well about a year ago, on his website, there was an article posted that the selling window for annuities was probably about 5 years. By then, they expected the laws to pretty much shut down the practice as we have now.

So that means, we have about 3 or so years left, and I believe that stat, especially as we read and hear articles on regulators tightening up sales practices. Did you know that there are law offices who specialize in recovering , or undoing, annuity sales? Heard that on radio here in Atlanta, as the lawyers discussed this on a financial show.

 

[James]

Yea maybe, but 2010 is coming quickly and the new tax laws will bring yet another wave of Annuities Selling. Tax free if use for LTC, so you roll up your IRA money in an Annuity for LTC needs and you get it back tax free! Just how hard is it to find a medical need of two or more daily needs to be fulfilled? Listen, I'm sure at 70 I can find a Dr to say I need a Cook and a pretty young thing to give me baths!

 

[elliottmarks]

I have a lot of annuity experience and I'll try to share a little knowledge that I have about the index side. They are called FIXED index annuities for a reason and that is because the client's investment is not placed in a sub account which is the variable annuity equivalent to a mutual fund but rather it is invested in the companies general account. The Insurance company mainly invests in bonds which are laddered... a very small percentage is allocated to options. The options portion is where the insurance company makes money... or tries to, the margins are actually quite slim. Their risk is controlled by establishing cap's, limiting participation percentages and what can, in my opinion, be described as some pretty shady crediting methods.

The best index annuity i have ever seen was the Key index offered by Keyport in the late '90s.... there was no cap and the client locked in gains annually and did not participate in losses.... That product isn't around anymore and Keyport took a bath on it. Actually, the failure of that product financially for keyport is what many in the annuity world believe may have led to the "smoke and mirrors" that we see today by combining caps, participation rates and different crediting methods.... oh, and not to mention that the company reserves the right to lower the cap at anytime.

I'm not saying that I'm not a fan of Index annuity's... I believe they have their place and client. I only wish the companies were a little more transparent with how the client will be credited their INTEREST... not market gains.

 

[elliottmarks]

One last thing to the originator of this post... you really want to stay away from FIA's with very high and long, or in some cases never ending, surrender charges. Also try to avoid those products that force annuitization unless it is something that you have sepcifically incorporated into the clients comprehensive retirement income plan.

If you're looking for a decent FIA I would recommend you take a look at the AVIVA/Amerus product. Also, ING's Secure Index used to be decent but I haven't looked at it in a while. As an FYI, the Jackson National products were the #1 FIA's sold by banks in the country.

 

[J.R.]

Hi Elliot, welcome to the forum.

Can you recommend any books, websites, etc. that break down annuities for the lay person? I don't sell annuities, but that will change this year. Is the appointment process similar to health (e.g, you can go direct vs. IMO, etc.). Thanks.