“Shame on you Mr. Annuity Salesman!”
Those were the words meandering through my mental theatre after hearing the story of a new client who had been victimized by one of the most unethical sales pitches in the financial industry – the pitch for an equity indexed annuity.
If you are at or nearing retirement, chances are that you likely have received an invitation to an annuity sales presentation. Annuity companies offer these all the time and they are usually elaborate and often include a free dinner at an upscale restaurant.
Some will even ask that you bring your brokerage account statements with you. That way, they can see exactly how much you have to invest and more effectively convince you to switch to their annuities.
That is what happened to our client.
A few years ago he was sold an annuity which had an upfront commission of 12%. That means if you had $100,000 to invest and you bought this particular product, $12,000 of your money would go directly into the annuity salesperson’s pocket.
On top of that, the annuity sold to him came with an 8 year surrender charge meaning he would be penalized with excessive fees if he sold the annuity within that period of time.
Did I mention he was 83 years old when he was sold the annuity?
So here he is at a time in his life when liquidity is of great importance to him and he is sold a product that penalizes him if he needs immediate access to his money. Find the logic there.
But here is where the story gets worse.
In the annuity he was sold, there was a provision that allowed him access to a 10% annual withdraw without penalty. Any guesses what the annuity salesman recommended he do with the withdrawn funds?
Put it in another annuity, of course.
And that’s precisely what he did.
The salesman, who markets himself as a “Retirement Specialist,” took the proceeds from the withdrawal and plunked it down on another annuity, triggering another upfront 12% commission charge, and starting the entire process over again. Sad.
It’s instances like this that make me echo the words of organizations like the Securities Litigation and Consulting Group which in recent years stated: “Annuities stand out as the investment most likely to be unsuitable since in virtually every instance, the investor would have been better served by a mutual fund or a portfolio of individual stocks.”
I wholeheartedly agree.
NBC recently presented a hidden camera investigation about the sales practices people use to peddle these shoddy products. You can view the video and full story at http://insidedateline.msnbc.msn.com/archive/2008/04/11/877725.aspx.
One final point: If you or someone you care about has been sold an inappropriate investment such as an equity index annuity, my advice would be to get in front of a qualified expert to evaluate your situation to see if they can help make the best of a bad situation. And please help spread the word to others.
Roland Manarin is president of Manarin Investment Counsel, Ltd. and portfolio manager of the Lifetime Achievement Fund. Roland has been featured by dozens of media outlets including CNBC, Bloomberg, Fox Business, and Marketwatch.com. In 2004 and 2007, Barron’s singled him out as one of the top financial advisors in the nation. Roland’s new book, "Manarin On Money" is scheduled to be released later this year. He can be reached at 402-330-1166 or email to investor@manarin.com. Visit www.manarin.com.
