The 2024 Allianz Annuity Exodus?

Most people think that I don’t like Allianz annuity products when that is not at all the case. It’s true, I have serious issues with how many of the contracts are sold but I blame greedy agents and marketing organizations, not the company. Rates have risen substantially for retirement savers in the past two years and it makes contracts purchased before that not look so good. I’ve sold some as well that don’t have nearly as much growth potential as those purchased today. While we did the best thing possible at the time it can be seen as a mistake by some. Replacing those contracts has been good business for many agents including myself but it has to be done for the right reasons and I’ll cover that in more detail next week.

Every time an annuity is sold, the company that is going to get the money has to review and approve all the details of the transaction. The biggest part of that is a suitability assessment to determine whether the purchase is appropriate for the potential contract owner. The size of the contract in relation to overall assets and alignment with personal objectives are all part of the process. If the company doesn’t believe the transaction is suitable then they won’t approve the sale. This has happened to me a few times for various reasons and is not uncommon throughout the industry as well.

Receiving companies need to determine suitability mostly because it’s a liability issue. If an unsuitable product has been placed, the contract owner or even beneficiaries may be able to one day bring legal action against the company. This is really more serious than it sounds because every financial institution is worried about liability so they invest a serious amount of money into doing things the right way. It’s just part of the business and agents are used to it. Every single company that wants to sell an annuity has to do it. (More on When to surrender an annuity).

What is normal for the receiving company is non-existent for the company giving up money. If an annuity is being replaced there is often a surrender charge. It’s the responsibility of the receiving company to document suitability, but the resigning company almost always just deducts the surrender charges and sends the money to the new contract. I say ‘almost always’ only because recently it happened differently with a client who was swapping out of their Allianz annuity and taking the money to Nationwide.

She had purchased the 222 four years ago and it had only grown about 1% in total during that time. She wants to take income jointly with her husband in another three years but would have to wait six more years with the current contract to maximize income benefits under provisions of the 222. The Allianz 222 has performance-based income and because it had not grown much the guaranteed income would be lower than expected and come three years later than they wanted it. With the new contract, she’d be able to take far more lifetime income much earlier. There was no mathematical way the current 222 contract could compete with what’s available today.

Nationwide evaluated it for suitability and passed it right away by looking at the numbers involved and the client’s goals. The transfer form was sent and we expected Allianz to send the funds to Nationwide in a week or two, as is typical. What happened next was something that I’ve never seen in more than two decades in this business. Allianz sent a letter to the client asking for them to prove that canceling the existing contract is a suitable transaction. Allianz can’t do that because suitability is the purview and obligation of the receiving company. We called Nationwide to ask for their guidance in the matter and they responded as I expected. Allianz can not require that of a policy owner.

After talking to a couple of other brokers and agents, I learned that there is apparently a lot of money leaving Allianz and the company may be in damage control mode at the moment. It’s slightly speculative on my part but enough people confirmed it as a possibility that it’s relevant news in my opinion. Allianz didn’t end up holding the transfer much longer and the client has a new, more beneficial income contract from Nationwide. All financial institutions have a defined period of time to release customer funds but it’s not uncommon for any of them to throw interference as seems to be the case here.

This is happening all over the annuity industry right now and Allianz isn’t the only company dealing with it. Fixed indexed annuities with bonuses and higher growth potential now can be more beneficial and I’ve replaced a few of the ones I sold back then as well. But it may be more common with certain companies and I can tell you exactly why.

Hyped-up illustrations are something I’ve tackled consistently throughout my career. Even when rates were low agents were boasting about double-digit rates of return. With contracts like the ABC and 222 from Allianz that produced some fantastic projections and I felt as though it was very disingenuous to do so. Of the contracts I sold in those days, the buyers were told that 4% would be a reasonable expectation for growth. Some of my clients have received only half that but it’s certainly better than going that low from an expectation of 12% or more, with retirement income on the line as well.

Here’s a past podcast that addresses this issue specifically: BS Annuity Illustrations

Many people had serious retirement hopes placed on products that came nowhere close to working out that way. Right now it’s a good idea to review those for a better option. It’s not always the right thing to switch out and pay surrender charges but I feel bad for anyone who is stuck with extremely low growth when someone told them to expect much much more. Companies who allowed this to happen deserve to pay the price and my only hope is that agents dealing with it are smart enough to handle the situation in a way that helps each contract owner in a positive way.

Suitability review is something that every annuity sold has to go through but it’s the receiving company’s job to do it. Careful consideration needs to be done if you are replacing an existing annuity and a good advisor has that taken care of well before the insurance company even looks at it. I’ll cover it in more detail next week so you know what to look for if you’re considering it as an option.

Bryan

Continue Reading:

Fidelity – Investment Companies Now Recommend Annuities 

Alternative to Allianz Fidelity Annuity Recommendation

Fidelity Investments Annuity Marketing in 2024

Episode 146: The 2024 Allianz Annuity Exodus

Download The Episode The 2024 Allianz Annuity Exodus on Apple Podcast

Last Updated on August 26, 2024 by Bryan Anderson