robert scott

June 20th, 2009 at 4:21 am

This post would be laughable if it weren’t so ignorant. First of all annuities can be suitable for investors inside an IRA or outside an IRA. It depends on the features and benefits of the exact product selected and why it was selected.
The number one feature of an annuity is not tax deferral as Jack suggests. It is SAFETY. Is it wrong or unethical for an advisor to recommend a product that keeps his clients money safe? Safety of principle is even more important in an IRA since it is going to be used for retirement. YOu got one shot at that. If annuities were so bad in IRA’s as Jack suggests, why does almost every state agency, local school system, university and 501(c)3 have their retirement 403(b) account funded with an annuity? Jack fails to mention that some fixed annuities outperformed even the benchmark stock market indexs over the last 10 years. Is that bad for investors? Who benefits from an annuuity? If it isn’t good for the client,the company and the rep, it shouldn’t be sold. Also Jack fails to accurately describe which of the 4 different types of annuities he is referring to. His suggestion that you cannot trust an advisor that would sell an annuity because the commission is too high is also rediculous. Maybe Jack was not aware that mutual fund salesmen have made more in the last 10 years in commissions than their clients have made in interest or growth over the same period. Advisors get an average of 1-2% in fees annually on the entire value of a managed account. Does this make all mutual funds bad or the broker who sold them untrustworthy? No it does not. So how do you trust a sales rep who would recommend an annuity for an IRA, like always…good common sense.

John Dean

April 21st, 2011 at 3:13 pm

Need some advise here :
I have a similar issue. I have purchased a variable annuity from a major insurance company. No issue here, the annuity is solid.
My financial advisor at a major brokerage firm advised me to move all the annuity funds from the original insurance company where it was held to my brokerage IRA account, instead to the money market.

However it dawn to me later (unfortunately after all annuity proceeds were moved to the IRA account), that by doing so I am subject to 20% tax withholding.

I beliieve that I got bad, bad advise from my broker which persuaded me to move tax defered funds – annuity – to another tax deferred funds namely IRA and doing so to subject me to significant losses upon my funds withdrawal.

That said, do I have any legal right here for legal action ??

I appreciate all feedback / advise on this matter.

Thanks

Concerned Investor

July 21st, 2011 at 10:54 am

I ended up following the same strategy as noted in the previous posts (allowing a financial advisor from New England Financial/Met Life, named Nick Yekani, who has a radio show) to convince me to put all of my IRA’s into annuities with minimum income benefit rider of 5%, selling it as a means of guaranteeing the principal and a 5% income annually. Well, four years later, this has proven to be a grave mistake …. the annuities have performed terribly and the “guaranteed 5% annual income” which he set up as a monthly withdrawal, is actually eating away at the principal, since the principal’s market value is way down (by over 1/3), based on the poor performance of the Metlife funds. I agreed to this strategy, so I cannot blame them for choosing this strategy; however, now that I am talking to the headquarters and realizing the full terms and conditions, I am realizing all of the representations that we outright wrong and false that were made by the agent, and while I asked the right questions then, I was provided the wrong answers by the agent. In the mean while, Nick Yekani is reeling in tens of unsuspecting customers a day, by virtue of his AM radio show … I’m not sure how this can be stopped, but someone needs to save the average consumer …

Rocky Boschert (money manager)

December 3rd, 2011 at 12:28 pm

In response to Robert Scott above, who I think must be an insurance agent defending his turf, let me say:

A variable annuity is a portfolio of mutual fund like investments (called “sub-accounts”) marketed to investors by insurance companies.

However, it is important to make this point very clear: Variable annuities are designed for after-tax investing, not pre-tax retirement plan money. In short, retirement plan money, whether 403(b) plans, corporate 401(k) plans, small business KEOGH plans, or the plethora of IRAs, should NEVER be invested in variable annuities. To put it in down home words, you don’t feed a cow milk to produce milk.

Insurance agents, either through poor training and mentorship, ignorance, or greed, do not disclose to investors the limited use and true value of variable annuities. Rarely will the sales rep confess that the best use for a variable annuity is to provide a tax-deferred alternative to bank accounts, certificates of deposit, and money market accounts.

And since all retirement plans inherently provide tax-deferral, the use of a variable annuity in an already tax-deferred retirement plan money is redundant and inappropriate. In fact, in a perfect and honest investment world, variable annuities should only be sold to high net worth individuals who are in the highest tax brackets in states with a state income tax.

The first glaring weakness of a variable annuity is their high internal annual expenses, often twice that of the mutual funds companies such as Fidelity or Vanguard. Furthermore, high annual insurance expenses inherently erode the total return performance of any investment within the annuity. Also, unlike most mutual fund marketeers, insurance agents oversell variable annuities because annuities generally pay the agent a higher commission than mutual funds.

Moreover, annuities contractually do not offer investors “volume” commission discounts for larger money investors. And all thing being equal, higher commissions also have a direct inverse relationship to investment performance. It’s a vicious circle that guarantees the insurance company and their sales reps reap big profits – at the expense of the annuity investment performance.

Second, variable annuities impose nasty surrender charges of anywhere from 5% to 10% of every contribution, sometime for as long as 15 years. Eventually, when an investor gets more sophisticated and wants to move their investment money to better performing, more cost-effective no-load mutual funds, the investor is saddled with the tough decision of paying a hefty surrender penalty – or leaving their money in a mediocre performing insurance annuity.

Third, and maybe most important, insurance annuity sales representatives don’t want to “manage” annuity investments. Insurance agents only get paid when they sell the next annuity, not by taking care of existing clients by managing their annuity assets.

Unlike fee-only investment managers, insurance salespeople make all their sales commission right up front and are mostly “rewarded” for new sales. In most cases, this is a major conflict of interest for the hapless sales representative. To be fair, however, all commission-compensated investment salespeople – including brokerage house representatives – have the same conflict of interest.

In the end, insurance annuities are generally not the best prescription for your financial health and should be used sparingly. Bottom line: Annuities should only be used in specific situations.

Unfortunately, the insurance industry, regarding annuities, engages in vague marketing hyperbole and too good to be true promises to sell products that are not suitable for many trusting investors.