There are several reasons why an annuity is a good fit or, worse, not a good fit for a consumer. Today, I wanted to share a real experience of what not to do when buying an annuity.
And to set the stage for this rant, my job has been training financial advisors on annuities from 2009 through 2021. I’ve seen it all. Check out my LinkedIn profile.
And now I’ve going to inform you what not to do.
Annuities are not for everybody
Look, I’ll be the first to tell you if annuities are bad news for a person. An example would be if you are low in liquid assets, do not buy an annuity. If you are emotionally or mentally unbalanced, don’t buy an annuity. Don’t try to fit a square peg into a round hole.
If it works, it works. If it doesn’t, find something else that does.
Just because you are buying from a “fiduciary” doesn’t mean you’re buying the best product.
Today I spoke to a depressed gentleman that wanted to change his past, but he couldn’t.
15 years ago, this man purchased a deferred variable annuity with an income rider and enhanced benefit that guaranteed him $687 a month for the rest of his life if he had just turned on the lifetime income benefit.
5 years ago, a financial advisor came into the picture and recommended this man move his deferred annuity, which had been growing for 10 years, into a new 5-year immediate annuity that would essentially pay this man his original investment back without interest over a 5 year period.
What this retiree doesn’t realize is he is making a huge mistake.
Today, he realizes after the fact; he made a poor choice moving that deferred annuity that had grown for 10 years (and had protected his retirement income) into a new annuity that paid just his original money back to him with little to no interest.
The first thought in my head was, why didn’t this guy withdraw from his current annuity each year for 5 years? He would have
- earned more interest,
- a ton more liquidity,
- and time to change his mind on the income rider.
My guess is this advisor wanted to make a sale. He wouldn’t have made a commission if he had advised this retiree to keep it in the same annuity and make withdrawals.
This consumer desperately tries to take the same money he received from the 5-year SPIA and re-open his old annuity, but the insurance company said no.
I explained to him that once you leave an annuity…you leave. There’s no changing your mind. You have to buy a brand new annuity and start over.
He then asks me what he can do?
I told him it was a bad idea to get back into another annuity and keep his money in the bank.
Because he had commented to me along the way, “I think I can come up with $100,000 to fund a new annuity.” That statement told me everything, which is he doesn’t have a ton of liquid assets.
Over and over again, he kept asking me the same question in different ways, hoping I would have a different answer to figure out a solution to his problem, and my answer was still no.
He wasn’t a good fit.
He then asked me, “how much a $100,000 annuity would pay him monthly“. I humored him and told him an immediate annuity would pay him roughly $523 a month for the rest of his life. He then replies, “I can get more money than that. This other annuity website told me they could get me $570 a month“.
He then tells me, ANOTHER advisor can guarantee him 7% or 8% a year with total control over his money. I asked him the name of the annuity and how it works? He couldn’t tell me.
I knew then; this was bad news for 3 reasons:
- He held back information from me.
- The other annuity website recommended a SPIA to him, leaving him no control over his asset.
- He didn’t understand the product that guarantees him 7% or 8% or couldn’t provide me the name.
What I didn’t hear from this consumer was that these 2 other annuity salesmen turned him away because he wasn’t a good fit but rather recommended a product regardless of it was a good fit for him or not.
What You Should Never Do When Buying An Annuity
You should never hold back information from the financial professional when buying an annuity.
The financial advisor should ask you a ton of questions when someone wants to buy an annuity.
This same retiree asked if the advisor that moved his money be held responsible for the poor financial choice. I replied, “I’m not sure. I don’t know you well enough now, or at the time you decided to move the money. Regardless, you did move the money. You did sign documents wiping you clean of the previous annuity“.
I then advised him to speak to his state’s Department of Insurance if he felt mistreated. He then went on to tell me that he already had done so, and there was an investigation. The investigation’s results found there was no wrongdoing in the handling of his money.
I was taken back.
I politely told the gentleman, you should have disclosed this at the beginning of the call, and I don’t have any more time to speak to you.
I wished him good luck and hope he finds what he is looking for.
It’s a Two Way Street
For Financial Professionals
After training financial professionals for 12 years, I’ve come to find that agents, advisors, fiduciaries,….whatever you want to be called, the best product is rarely sold to a consumer for various reasons.
9 out of 10 times, I can look at an annuity and give several reasons why it’s not a good fit for their client.
I have seen fiduciaries sell millions of dollars of the same annuity product to hundreds of pre-retirees and retirees and win perks and incentive trips for selling that same annuity to their entire client base.
I’ve seen a “fiduciary” buy a brand new yellow Corvette from a perk point program because he sold the same annuity to many people.
But does selling the same product or plan to every one of their clients live up to the fiduciary responsibility? Does every single person live the same retirement with the same financial situation?
I say NO!
Is it ok for fiduciaries to use scare tactics to convert a consumer into a client? HELL NO! It’s a breach of fiduciary duty.
Is ok for a financial professional to sell annuities without asking proper questions? I don’t think so.
I’ve come to find out that consumers should be held accountable if they’re not as forthcoming as they should be when deciding to purchase a long-term retirement plan such as an annuity.
This man that calls in today withheld a ton of information that could have set me up for legal liabilities in the future because he wanted an annuity even if he wasn’t a good fit.
You should always provide financial advisors the OPPORTUNITY to tell you that you are not financially fit for an annuity.
It drives me bananas. Be responsible. It’s your retirement.
We can only help you based on your information and not the information you do not give us.
Being labeled as a “Fiduciary” doesn’t make them the best at what they do. They’re not doctors or lawyers who’ve spent at least 8 years studying for their degree. Anyone can be a “fiduciary” in a fraction of the time that it would take a student to become a doctor.
And just because a financial professional has been “in the business” for 30 years doesn’t mean they’re offering the best solution every single time. Instead, they might be stuck using stale and dated advice.
If you’re a consumer wanting to buy an annuity, give as much detail about what you want and don’t want. You are only hurting yourself in the long run.
And damn it, annuities are a commodity like a CD. Shop and compare several annuities. Would you please not assume you have the best retirement plan out there? Guarantee it.