Shopping for annuities in the ethnic food section

by Stan The Annuity Man

I was working for Dean Witter (remember them!) back in the day when the Fidelity, Vanguard, Schwab experiment started.  Up until that point, the brokers (i.e. masters of the universe) at these large firms almost had a monopoly if a person wanted to get any type of financial product.  I distinctly remember some grand poohbah VP at Dean Witter emphatically saying that he did not see these online companies as a threat to the wire-house business model.  That’s about as dumb of a statement as when the head of IBM in the 1950’s said that he couldn’t image people needing a computer for their own personal use.  Both should be inducted into the corporate idiot hall of fame/shame.

Let me go on record to say that Fidelity and Vanguard have been good for the consumer.  Their low cost approach to mutual funds, ETFs, etc. have been pro-customer to say the least.  The choices provided are vast and thorough, and John Bogle (founder of Vanguard) has been a successful pied piper for low cost funds and indexing strategies.

But when it comes to annuities, the same plethora of product choices is nowhere to be found with these two monster firms.

I’m starving in the ethic food section of the grocery store!

I always tell people that shopping for an annuity strategy at Vanguard and Fidelity is like going into your huge grocery store, and only being able to shop in the ethnic food section.  There are some choices, but they are very limited.  You won’t starve, but you will have much to choose from.

7 + 5 = 7!

How about that stellar math!  The point that I’m trying to make is that Vanguard offers 7 total different annuity carriers and Fidelity offers 5.  The 5 that Fidelity offers are also offered by Vanguard.  That means between both behemoths, they offer 7 total carrier choices.  There are hundreds of high quality and highly rated annuity carriers!  And spare me with the internal salespeople at Vanguard & Fidelity with their BS pitch of “these are quality” and “we (Vanguard/Fidelity) only offer the best carriers.”  Total crap, and I have cowboy boots that are older than most people you speak with at these companies.

Annuities are contracts.  Annuities should be purchased for their contractual guarantees only.  ANNUITIES ARE COMMODITIES, and should be shopped with ALL carriers to find the highest guarantee for your situation.  All of those previous statements are indisputable facts.  If you are drinking the big company Kool-Aid, then you are making a huge shopping mistake.

No soup for you!

If you didn’t already know, there are many different types of annuities.  Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Multi-Year Guarantee Annuities (MYGAs), Variable Annuities (VAs), Fixed Index Annuities (FIAs), Charitable Gift Annuities (GGAs) are just some of the different strategies to choose from.

As the character in the TV show Seinfeld says “No soup for you!”  When shopping for annuities at Vanguard and Fidelity, you are not only limited to 5 or 7 companies…….you also don’t have access to all product types.  That’s just a fact.  No annuity for you!

Can’t charge on ongoing fee on a “fee-less” product!

Don’t forget that Vanguard and Fidelity are “for profit” companies.  They make their money charging fees (albeit low) on primarily mutual funds, and other products offered.  The reason that they are not ‘all in’ when it comes to annuities is that they can NOT charge an ongoing annual fee on a SPIA, DIA, or QLAC.  That asset is gone forever from a revenue standpoint.  There is no motivation on their part to push annuities, which is why they offer so few choices.

And just to set the record straight, there are NO ANNUAL FEES on SPIAs, DIAs, QLACs, and MYGAs regardless of who you buy it from.  Are we clear?

 If you are a specialist, then specialize!

If you have heart problems or a herniated disk, do you go to your general practitioner to solve for that specific problem?  Of course you don’t!  And even if you did go and see that GP, they would refer you to someone who specializes in that specific category.  See where I’m going?

I’ll say it for you anyway.  You don’t buy annuities from companies that specialize in mutual funds.  You buy mutual funds from them.  Buy annuities from an independent agent that represents all companies, or from a site that represents every carrier like  Shameless plug because I’m a co-founder of that direct to consumer site, but it is the future of the annuity industry.  What Vanguard and Fidelity is to mutual funds, is to the big world of annuities.

 Stop drinking the marketing Kool-Aid

One of the dumbest statements I hear from people that call me is that they bought a no-load variable annuity from Vanguard or Fidelity because of the low cost.  Even with no-load variable annuities, the choices offered at these 2 firms are limited and in no way competitive with other no-load variable annuities like the one offered by Jefferson National.  Once again, if you shop ALL CARRIERS for your annuity solution, Vanguard and Fidelity typically don’t win.

 Password Please!

Even if you ignored all of the facts that I have pointed out concerning the limited offerings available at Vanguard and Fidelity, to get a detailed quote typically requires you to register and provide a password.  You shouldn’t have to know the ‘secret handshake’ to get an annuity quote, which is why I co-founded the first direct to consumer annuity site, (another shameless plug for the best annuity site on the planet).  You can get live annuity quotes without providing any specific personal information.  Yes, the future is here!

 Annuities are commodities….so shop ALL CARRIERS!

The takeaways from this article should be very clear.

Number 1: Vanguard and Fidelity are fantastic pro-customer companies that provide a great and needed service to investors.  For people wanting market growth, I refer them to both companies.

Number 2:  Annuities are commodity products.  There is no ‘best annuity.’  You own annuities for what they “Will Do.”, not what they might do.  You own them for the highest contractual guarantee.  You fall in love with the number, not the name.  ALL annuity companies should be shopped when looking for the best transfer of risk strategy.  To put it bluntly, Vanguard and Fidelity are NOT competitive because of the small number of carriers they offer.  It’s really that simple.

Don’t feel sorry for these 2 huge financial brands.  They both have trillions (yes…trillions!) of dollars under management and charge a small fee on those assets.  I think they will survive, even though they are NOT in the annuity game.

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