Annuities: Fear, Greed, and Your Annuity

Annuities are sold in a way to capitalize on your both your and your agent's fear and greed. There is actually a funny way of thinking about this.

On one hand there is the fear that you will lose your money, then the fear that your agent won't make his big fat commission off of you, which is closely
related to his greed of selling you the annuity over lower commission alternatives, which he plays off of your greed to earn a better rate of return than what the bank is paying and what he leads you to believe you can get from his annuity.

Wait, there's more!

There is also the fear that your agent has that you will find out what he or she didn't tell you about the annuity they are selling. Then their is the greed of the insurance company, who wants you to buy their annuity, yet doesn't want the responsibility of making sure it is suitable for you. So they are afraid to ask you the questions they would need to ask you to find out whether or not their annuity is a good fit for you, and therefore, those questions are completely nonexistent on their applications (fixed annuities), and only a couple are on the variable annuity applications (NASD made them do it).

Yet the greedy home-office people at the insurance companies who are trying to make as much money as possible for themselves and their shareholders, not for you, are afraid to do anything that could in your mind give you the slightest impression that they owe you any fiduciary duty.

In other words, don't ask don't tell. If they don't ask you too many questions, it's harder to sue them for failing to deal with information you give them in response to the questions they didn't ask. Don't believe me? Take a look at the application you filled out to buy your annuity.

Do you see what's missing?

Here are just a few:

1. What's your current marginal tax bracket?
2. What's your future expected tax bracket?
3. If you didn't buy our annuity, how much of your return would be from capital gains, etc. etc,
4. Have you received a projection showing the impact of all the fees our annuity charges?
5. Is your estate subject to estate tax?

But here is the problem with that. Can you see how if someone doesn't have the answer to these questions, they may not be able to determine what is suitable for you? And if you don't put these in writing and later try to blam your annuity agent for putting you in the wrong product, they can deny that you ever told them this.

It's plain and simple. When it comes to annuities, there needs to be stricter standards. I'm not saying you can't buy an annuity without having your FULL situation assessed, but it sure does help to guarantee you will be sold the right thing.

And the bottom line is, fear and greed play a huge role in buying (and selling) annuities. My best advice to you is to be well educated and well aware of this. I hope that by reading this, you can at least have some knowledge that will help you make the mistake of buying (or being sold) the wrong annuity.