There really is nothing wrong with annuities…as long as they meet these three criteria.
First, they are recommended for the correct risk level and not just someone who is trying to get out of the market for a few months to a year.
Second, there is a clear realistic expectation of what that annuity can return.
Third, the product is not consumer friendly giving unfair advantage to the annuity company.
Let’s focus in on the second reason. Insurance companies market their plan to advisors and advisors market the same products to clients. An insurance company has the responsibility to market responsibly to advisors and make a clear distinction between what is good educational information and misleading sales pieces.
I received this in an email from a top ten insurance company that should know better.
So, how do you interpret this ad? I interpret that you are going to give me an investment that is guaranteed from loss and is going to grow each year by 7%, guaranteed and provide income that is guaranteed to last the rest of my life. Please sign me up!
That is the furthest thing that is happening with this irresponsible marketing piece. They are talking about the growth of the income value which is drastically different than an investment that is growing year in and year out by 7% guaranteed.
You will never get the opportunity to liquidate your investment and take out that value with the 7% guaranteed growth as a lump sum…never.
The advisor thinks that if the insurance company is marketing that way, then they can do so as well. Regardless of the disclaimer that says “this is not to be shared with the public”, it is too tempting to market with what the insurance company is using.
Once again, annuities are not bad recommendations in the least. However, they continue getting a bad name because of the misleading marketing pieces used in the marketplace.