Recently, I read an article written regarding a financial institution exclaiming that annuities were too complicated for the average investor. The article went on the explain that because of the complexity, investors should stick to products that were much simpler to understand. Simple concepts and products recommended by the firm such as stocks, bonds, preferred shares, and mutual funds. Simple products that pay the advisor fees on a regular basis that would be much simpler to understand would it not?
The sheer audacity of a financial advising firm even suggesting that because they are more knowable than the investor, they should just be trusted. The firm reminds me of Jim Anderson, played by Robert Young, on the old TV series; Father Knows Best. Mr. Anderson always knew what was best for his family just like the brokerage firm, and they will help you make the correct decisions. Decisions that enriches them on an ongoing basis.
Are annuities complex? No, they are quite simple. Let me explain: a deposit is made with the annuity company, a contract is issued with a list of contractual benefits such as income, guarantees, no market risk is then guaranteed to the owner of the annuity. There it is all in written in the annuity contract, fully guaranteed by the insurance company.
The next time an advisor, or some annuity adversary, says “Index annuities are too complex.” Ask this: “So you are smart enough to keep me from losing money in an extremely complex global economic and geopolitical world, where the entire market can turn upside down while I am in bed sleeping, and smart enough for you to deserve receiving fees paid directly out of my money?”
If they are a financial planner, and it is their only job is to understand financial products, and over $57 billion in retirement funds moved into indexed annuities last year, how long do you think it should take them? Is your broker intentionally ignorant because of an ulterior motive or are they just not as informed as they should be?”
“Complex” is a lazy way of saying I don’t care enough to gain the knowledge needed to explain it. It is inexcusable. All of us have investment ignorance to some extent or another, but that should drive us to learn, not avoid or dismiss for silly and ignorant reasons such as “complexity.”
Just to clear up a point regarding annuities and compensation paid. 100% of a deposit paid for an annuity is in the annuity. There are no ongoing contractual fees. The annuity agent is paid a fee by the insurance company for finding the customer. Never is any of the compensation paid from customer funds.
Ask your broker or planner where the revenue to cover their compensation comes from?