The ONLY Protection for the Annuity Consumer
The Annuity Man
The annuity industry has unfortunately earned its bad reputation over the years due to misleading sales practices and too many over-hyped sales pitches. I don’t blame the annuity carriers because it’s impossible to oversee what your “agent/advisor army” is actually saying to the consumer. In addition, currently popular annuity types like Fixed Index Annuities (FIAs) are regulated at the state level…so who regulates the national TV and radio ads that always sound too good to be true?
For the record, Fixed Index Annuities (FIAs) do have their place in some portfolios as long as you fully understand their unique benefits and limitations. FIAs are life insurance products, not securities, and primarily solve for principal protection. They were introduced in 1995 to compete with CD returns and are also efficient delivery systems for lifetime income benefit riders. Unfortunately, these FIA product facts too often get overshadowed by the sizzled sales pitch.
Create Your Own Statement of Understanding
It’s the wild wild west of annuity sales out there, so how do you protect yourself as a consumer trying to make an informed decision?
The answer is to create your own statement of understanding in addition to the required carrier application. Below are the 4 basic steps to create that statement of understanding, and is the ONLY real protection you have when someone is trying to sell you that "too good to be true" sounding annuity.
- Listen to that agent or advisor’s sales pitch in detail and take notes or record that conversation or presentation.
- Write down in detail exactly how you understand that sales pitch, and how you think that annuity strategy will work based on what the agent or advisor said and how they explained it to you.
- Sign and date that detailed written synopsis at the bottom of the page.
- Have that agent sign and date your detailed synopsis right underneath or beside your signature.
That agent or advisor is either going to sign it and “own” those promises, or that pen is going to weigh 1,000 pounds. Either way you win. If they don’t sign, then you get up and leave and never speak to them again. If they do sign…and haven’t been factual…you have legal tender to present to the carrier to get your money back.
Annuities are Contracts
Annuities are basic contracts between you and the insurance company. Don't believe that, then buy one and you will have that contract (aka: policy) delivered to you after the purchase. So if you are buying a contract, it's imperative that you know what is in that contract. Duh! Don't take the agents word for it. Ask for a specimen policy before signing that application so you can read exactly what you are getting ready to buy. If that agent balks about getting you the specimen policy, then they have been permanently disqualified from working with you.
It’s important to know that annuities are commodities. There is no "best" annuity out there. If an agent says that they have the "best" annuity for you, that translation is that they have the best annuity for them. You have to quote all carriers, so don’t allow an agent or advisor to just show you one product. Make them show the best 4 to 10 contractual guarantees that solve for your specific situation. Remember that annuity quotes change every 7 to 10 days…just like a gallon of milk, so you need to get new quotes unless they are locked in by starting the application process.
Will Do. Not might do.
And finally, remember that there is never an urgency to buy a contract, so there should never be an urgency to buy an annuity. Make your informed decision on your terms and on your time frame.
I always say that you should own an annuity for what it "Will do.", not what it "might do." In other words, you always base your decision on the contractual guarantees of the policy. Never be swayed by hypothetical, theoretical, back-tested, step-ups, potential, or hopeful agent return scenarios.
Annuities are contractually guaranteed strategies that transfer risk to solve for a specific goal. If you don't need to transfer risk, then you probably don't need any type of annuity.
One last thing, don't ever buy the sales pitch dream because you are going to own the contractual reality. That's the brutal annuity truth.