by Stan The Annuity Man
I had a recent conversation with an annuity industry big wig that seems to be “in the know”, but I’m always aware of the pro-annuity agenda oozing through these discussions. It’s like talking to a Kool-Aid drinking Republican or Democrat that is “all in” with their specific political agenda, regardless of the facts. Most of what is said is pre-rehearsed agenda speak and you have to pay close attention to get some real facts.
That’s what happened to me when the nugget of truth and hidden reality came out of the annuity person’s mouth by saying,
“I know indexed annuities are overhyped and sold the wrong way, but customer complaints aren’t that high……so I guess it’s not really a problem.”
What?! So even though we all know there is a sales messaging problem with indexed annuities, and it’s an anything goes promotional environment, everything is OK because people are too embarrassed or scared to admit their buying mistake. Really? That’s like saying there’s no problem with females being assaulted by males on college campuses because they didn’t file a complaint. I know, harsh analogy, but you get the correlation. Just because there are no complaints doesn’t wash away the problem.
Here is the problem with the current indexed annuity sales message.
Indexed annuities were designed and introduced in 1995 to compete with CD returns and as a CD alternative. That’s what they are, pure and simple. However, that’s not how they are sold.
The typical indexed annuity sales pitch fraudulently promotes such catchy phrases like “market upside with no downside”, “market participation with principal protection”, and “reasonable rate of return.” All of these pitches are sales crap. In addition, carriers throw shiny things at the consumer like “upfront bonuses”, “high percentage monopoly money income riders”, and “confinement care junk coverage” to influence the sale. It’s an ugly annuity world.
The uninformed and financially uneducated don’t have a chance when a morals-free agent is pitching this too good to be true scenario. People want the sales pitch to be true. They want the perfect product (which it’s not). Too many fall for the high pressure sales tactics and falsely believe that “you can have your cake and eat it too” with an indexed annuity.
People buy the dream, and have no clue what they actually bought. It sounded good when the agent told them about it. They now own it, and in most cases are stuck in that indexed annuity for the life of the policy due to high surrender charges and the fact that they are now forced to try and ‘make lemonade’ with the contract.
The average dollar amount put into an indexed annuity is a little over $60,000. That’s a well know industry stat. This product was designed for and targets the middle class. Another primary target is the over 10,000 baby boomers who retire every single day in this country, and have available lump sums of money. You may think that politicians target voters, but they are amateurs compared to the annuity industry when it comes to pinpointing their customers.
The other sales statistic with indexed annuities is that the vast majority are sold within a 30-mile radius of the agent’s home. That means the agent’s prospects and customers are probably people they know. Church members. Rotary Club. American Legion. Friends. Family. It’s a well-known sales practice in the life insurance and annuity industry to list your top 50 ‘friends & family’ and target those people first when selling your product of choice. This same strategy happens across America with indexed annuities, and is probably a big reason that not many complaints are filed.
Studies have shown that people who have been part of a Ponzi scheme or have been a participant in financial fraud are too embarrassed to admit that they were dumb enough to be taken. Most never admit it, and just lick their wounds and try to block it from their memory.
In addition, it’s typically a long road to fight the fraud to get your money back. Often times, it involves retaining a lawyer. At a minimum, the fight for financial justice is very tenuous and time consuming with no guarantee of victory. Because of these obstacles, most people just throw up their hands, and chalk it up to a bad decision. That’s unfortunate, but true.
As the top independent annuity agent in the country, I hear indexed annuity sales pitch horror stories on a daily basis and advise people they should fight to get their money back. You would think that there are some “no brainer” cases that the annuity companies would immediately agree that there is fraud evidence and in turn return the money in good faith. You are wrong.
I’m sure there are exceptions to my experience, but most of the time I see carriers and the selling agent fight to the death to keep the policy in place. The carrier’s position typically states the customer had a ‘free look’ period to review the policy, and the agent’s position is to fight to not have to repay the high commission back to the company.
The last resort is to file a complaint with your state’s Department of Insurance, or Department of Financial Services, but this can be a black hole and a dead end for the consumer even though the sole purpose and function is to protect the consumer!
I would estimate that of all the horrible indexed annuity cases I have actually advised people to try and get their money back, only 10% have succeeded. I always tell people to use the ‘squeaky wheel’ theory and to be persistent, loud, angry, and unyielding when deciding to fight the annuity industry. That’s your only shot, and there is no guarantee that you will succeed.
The sad part of the indexed annuity story is that in some specific cases, the strategy does work well. They are not the ‘one size fits all’ product that most agents pitch and try to force down your throat, regardless of whether you need that annuity type or not.
Indexed annuities are for principal protection and CD type returns. Let me repeat that, CD type returns! In addition, they can be efficient delivery systems for contractual income rider guarantees for future income needs. These are the factual benefit propositions for indexed annuities.
In the very near future, you will see indexed annuities with very short (or none at all) surrender charges, and very low (if any) agent commissions. In other words, the bloated hidden costs and fees will be built back into the product to benefit the consumer. Like you, I’m looking forward to that day.