Fintech executive, writer, math geek, and investment systems developer. Founder and CEO of Altruist and Founder of FormulaFolios.

Crazy Lies (or mis-statements) of Annuity Sales People (who call themselves financial advisors)

Hello All, In my last post I talked about what was shaking in the world of the fantasitc (sarcasm noted) prodcuts known as index annuities.  What we learned, I hope, is that there are a lot of expenses you never know exist and a lot of people, companies, etc - that get paid when you buy said annuities.

I also wrote about how the marketing companies that promote the annuities to advisors, who in turn promote them to investors, position the annuities.  In the end, they focus on all the ways the advisor gets paid and how little flexibility there really is in equity indexed annuities - and of course, how to overcome those shortcomings so you actually buy them.  It's a lot of work for something that is supposedly so great for "safe money" investors.

Hopefully if you've been pitched these things, or are considering buying one - my post helped you avoid something that may not be nearly as good as it sounded when the well-trained financial advisor pitched it to you.

Which brings me to today's post.

Just last week I heard the unthinkable.

I met with a great guy who was awesome to meet with.  This gentleman was polite, hard working, and spent most of his life as an educator and coach.  From what I experienced he was a heck of a nice guy who through hard work and dilligence accumulated a nice nest egg for retirement.

As I got to know him I learned that he recently retired and had a pretty sizable retirement plan he was looking to roll over to something safe that he wouldn't have to worry about so he could focus on the things in life that truly are more important than money.  To my dismay, I then learned he was convinced by a fancy radio show host advisor who "specializes" in safe money investments convinced him that putting $1,000,000 into some indexed annuities was a great idea.  And it's not like that was the worst part.

Here's the worst part.

This supposedly honest advisor who helps his clients told his new client something incredibly mis-leading.  And it had to do with the advisors compensation for selling the million bucks worth of annuities.

The line was something like this:

"Mr. Client - when you invest in these here indexed annuities all of your money goes to work right away.  In fact, you even get a guaranteed bonus right up front.  There's no commission taken out of your account for my services - I just get a small setup fee for helping you establish your accounts."

I'd like to highlight a particular line in this sales pitch: "...a small setup fee..."

So let me break this down.

The advisor actually split the money into two separate annuities, each one with $500,000 each.  After looking up the exact contracts the investor was sold we found exactly what the "small setup fee" actually was in terms of commission.


One was 10% and the other 8%.

So this small setup fee was $90,000.


I'm sorry, but that is not a SMALL setup fee.

Look, I share this not because I have a problem with the annuities (even though I actually do).  What I have a problem with is that the advisor told his new client he was only getting a "small setup fee."  What a load of crap.  Some might call it a little white lie.  I think it's a blatant, huge lie, that if fully disclosed with honesty would make any logical investor more than a bit weary about the real suitability of the recommended annuity.

In future posts I'll talk about other topics but this sort of action by financial advisors really disgusts me.  I can't think of any good reason to mislead someone into believing complex financial products that pay ridiculous commissions should ever be proposed as no-load investments.  I don't care if there isn't an apparent commission - the reality is the sales people get paid huge, and most investors have no idea.

So next time someone tries to sell you something, just ask: "What exactly will your compensation be if I purchase this investment?"  If you don't think the number jive, then RUN.

'til next week,

Jason Wenk

Making an Impact in the Lives of Those you Cherish

Making an Impact in the Lives of Those you Cherish

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