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Guarding Your Wealth for Seniors
Oversight Needed On Equity-Indexed Annuities
By Jeffrey D. Voudrie, CFP
Oct. 24, 2005 - The sales of Equity-Indexed Annuities has increased
45% the first 6 months of this year. I’m concerned that the vast
majority of those sales are unsuitable for the investors buying them.
Oversight by the Securities and Exchange Commission (SEC) and the
National Association of Securities Dealers (NASD) is desperately needed
to protect retirees from being taken to the cleaners by agents hungry
for the large commission. Read on to find out how this oversight will
benefit you.
For almost 2 years now, I’ve been warning people
against buying Equity-Indexed Annuities. Hopefully, my articles have
caused agents all across the country to lose sales. That’s why I am
regularly attacked and berated by agents. When I started, I was a ‘lone
voice in the wilderness’. Now, the SEC and the NASD are interested in
the situation. The national media are covering the story more regularly.
The chorus of voices calling for change is growing. For example, The
Wall Street Journal had an article on October 15th that echoed my
complaints.
Greater regulation and oversight of these products
is needed because, even though they are technically an insurance
product, they are being sold as an investment. Anyone looking at their
sales literature can plainly see that. With promises of market gains and
the ‘guarantee’ that you won’t suffer any losses, this investment is
promoted as the answer to all your concerns. Investors are buying it as
an investment, not insurance. Therefore, they should be regulated as
investments and not as insurance.
Investors will benefit if Equity-Indexed Annuities
are classified as an investment. It will reduce, but not eliminate, the
potential for abuse. Here’s why.
First, being classified as an investment will
result in better disclosure of the risks involved with this product.
Equity-Indexed Annuities are complex products. Many of the agents
selling them don’t even understand their intricacies. Consumers are not
adequately warned of the dangers they face in these products. Most think
they can’t lose money in this investment and that’s simply not true.
For instance, many of those purchasing one of the
most popular Equity-Indexed Annuities fail to realize that if they pull
their money out of the contract when the contract matures that they
won’t receive the index-related returns they thought they would. In
fact, those wanting a lump sum from this specific product after 10 years
would be GUARANTEED of making a total return of about 1.5% for the
entire 10 year period. Few would ever buy this investment if they
clearly understood that.
Second, those selling investments are required to
make sure that the investment they sell is suitable for the person
they’re selling it to. When a commission-based investment is sold, it is
reviewed by compliance officers to verify suitability. Compliance
officers closely scrutinize investment sales because it’s their job to
protect their firm from lawsuits and regulatory fines. And they know
that their firms may be audited by the SEC.
No compliance officer would approve the sale of an
Equity-Indexed Annuity for 100% of a person’s investable assets—but I
see those recommendations all the time. No compliance officer would
approve of a transaction where the investor pays a large penalty on one
annuity contract to transfer the money into an Equity-Indexed Annuity.
This has become such a problem, though, that the NASD has issued
warnings about it.
Third, the high commissions equity-indexed
annuities offer create a huge conflict of interest for the advisor. If
you were an advisor and had the choice of making 2% or 15% on an
account, which would you choose? Is it any wonder equity-indexed
annuities have become so popular?
The Wall Street Journal article arrives at the same
conclusion that I have--older investors should avoid equity-indexed
annuities. And yet, who are these agents going after the most? Older
investors, of course, because they’re the ones with the most assets.
Don’t be surprised if in the not-too-distant
future, new regulations emerge to reign in the wild-west world of
equity-indexed annuities. Until that day arrives, don’t fall for the
equity-indexed annuity sales-pitch. There are much better ways to earn a
decent market return with low risk, and you don’t have to give up
control of your money to do it.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or go to
www.guardingyourwealth.com. You can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens. Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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