| 25 August 2011
The next time you hear an advertisement for a “Wealth Advisory Group” or “Retirement Protection Specialist” on the radio bragging about how his or her clients haven’t lost any money in the market downturn, and that “some clients” have made up to 17% over some recent time frame, please run, don’t walk, to the nearest exit.
Most often, the sponsors of these very expensive advertising campaigns are nothing more than glorified insurance sales people posing as true financial planning professionals. They are hoping to get their 10% commission selling you an equity-indexed annuity, or EIA, before you figure out you’ve been had.
Now, don’t get me wrong, there is nothing wrong with insurance, and some types of annuities may truly play a vital role in a well constructed financial/retirement plan, but these so-called “advisors” often pitch EIA’s as the end-all-be-all to your financial needs – and aren’t too concerned about comprehensive financial planning. They certainly are not acting as fiduciaries, but rather in their own interests.
In theory, equity-indexed annuities sound like a great concept: participate in the market’s upside, and avoid all the downside! Wow, who wouldn’t want that! Right? The problem is that the end results often fall far short of the hyperbole. In fact, most EIA’s will only yield 5-6% returns over long periods of time. A 10% commission (the real motivation behind selling these things) is a very high price to pay for those types of returns. There are outrageous back-end fees to get out of these mistakes. And the guarantees aren’t always what they appear to be, either. In short, there are better, less costly, and more straight forward ways to protect your principal, while still having exposure to the inflation-beating returns potential of the investment markets. Insurance and investment strategies should be part of a comprehensive financial plan; they should not be the plan.
Remember, guarantees always have a price; there is no such thing as a free lunch – or dinner.