Congress is looking into the sales of annuities and it’s about time. I am all for less regulation from the government, but when it comes to this topic I believe that there needs to be more oversight. I cannot tell you how many annuities I have seen sold to investors with false promises. Annuities can be a good fit in certain situations, but there are too many being sold by brokers who are only trying to pad their own pocket with high commissions or lucrative sales incentives provided by the insurance company they represent. I get emails on a daily basis from insurance companies promoting the latest and greatest indexed annuity and there is always a large commission to be earned if sold to a client. To me, this is a conflict of interest and wrong. In my opinion, no financial product should be sold to earn a commission. I have written articles about this in the past with hopes of enlightening investors to these types of sales practices.
Most of these sales start with a dinner or lunch at a nice restaurant. You get a postcard in the mail telling you about a seminar on social security and it leads to a pitch from a smooth salesperson promising you no market risk and a false promise of stock market type returns. This should be the first red flag. If there was a way to generate stock market returns with no downside risk everyone would be buying these products. Many of these sales are targeted to retirees and the novice investor. I have supervised the sales of these products in the past because I was a former supervisor of a brokerage firm office earlier in my career. One of the reasons I stepped down as a supervisor and left the brokerage side of the financial services industry is directly related to this very topic. I realized that these products were very difficult to understand not only for the client but also the broker selling the product. Wholesalers from insurance companies would visit our office and attempt to explain the product to the brokers in my office, and on more than one occasion the wholesaler didn’t even understand how the product really worked.
So if the representative from the insurance company doesn’t fully understand the product they represent, how on earth can the client buy the product understand it? Investors should fully understand what they are buying. They should also know how the broker or advisor is compensated. As Registered Investment Advisors, we are only compensated by the assets we manage, there are no commissions earned. This puts us on the same side of the table as each and every one of our clients. There are no conflicts of interest. If you would like to learn more about this please don’t hesitate to contact us. We can be reached at (772) 223-9686.