Bobble Heads Talk about Annuities

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About a week ago, someone signed up on the website, maybe read a couple emails and watched the Flex Strategy videos.  Rather than schedule an appointment to see whether it would work for him, he went and posted a question on the Bogleheads forum.  You can only imagine the response he got from all the “experts” hiding behind an anonymous screen name and a photo.

Here’s the question: Anyone familiar with the guy at Straight Talk Annuity and his flex plan?
Fixed Index annuity with no income riders to get fees as low as possible. Maybe use it instead of bonds in combination with your equity allocation.When stocks do well withdraw from your stocks.When stocks lose you withdraw from your annuity to preserve your stocks.

I have to compliment the guy.  That’s a great synopsis.  But, of course they didn’t answer the question because they have no idea about how to distribute assets in retirement.  I mean no offense to anyone who lives off CD interest, bond coupons or stock dividends, but these guys are all about parking money and not touching it.  I like to talk about using money.

My first problem is I never met the guy.  I had no idea about his financial situation but he apparently took the videos to mean I thought he should buy an index annuity.  Well of all the people I’ve talked out of buying index annuities, it’s hard for me to believe that someone I’ve never met would accuse me of trying to sell one.

What you’ll see on this forum is a perfect example of confirmation bias.  These guys will say anything to back up what they already believe.  I started to respond to each claim but got bored.  No one ever really said anything of substance.  A quick page from a contract or illustration could refute any of the arguments.  Just remember that the question posed was drawing attention to a strategy, not a product.  I’m sharing this because it’s exactly the kind of crap you’ll run into when trying to verify things on your own.  But you have to push through and that’s why I’m doing this.

One guy kept asking for a prospectus.  Aside from the fact that I never proposed an annuity to this individual, fixed insurance products don’t have a prospectus.  A prospectus is a legal disclaimer for securities contracts.  It lets you know all the information about the company and investment offer so you fully understand that you can lose money but can’t come back later with a lawsuit.  A couple other guys thought they were smart and posted links to an annuity prospectus from both Brighthouse (MetLife) and TransAmerica which are obviously from variable annuities because those have mutual funds as the underlying investment.  Since the underlying investment is a security and can lose money then the SEC regulates variable annuities and requires a prospectus.

FINRA is the Financial Industry Regulatory Authority and does not regulate fixed insurance products.  So, I don’t expect them to have completely accurate information when it comes to guarantees in an insurance contract.  I’ll take what the insurance company offers in the guaranteed summary of values over what FINRA insinuates any day.  What FINRA did in this case is highlight how some contracts guarantee less than the initial premium in exchange for higher cap and participation rates, except they left out the part about higher growth potential.  This is a thing of the past and there aren’t many contracts that do this anymore.  It’s much like the fact that I’ve changed a lot of information on this website because annuities have evolved over time to become much more user friendly.

My proof of misleading information from FINRA and the SEC is that I took the series 65 test to become a Registered Investment Advisor a couple years ago.  I passed easily.  All of the questions about index annuities were written as if the products haven’t changed in 20 years.  I had to answer incorrectly to get them right.  And I answered all the questions about index annuities correctly, according to my results.  You can disagree if you want but you’re wrong.

The following comment is one of my favorites…

Stinky says that there is an excessive internal cost to these products.  While the investment banking team required to administer index annuities would certainly add cost over a traditional fixed annuity, the fixed rates on both products are within a half percent.  So I call this one bullshit.  At least he’s somewhat fair and doesn’t think an index annuity will kill a portfolio but I still say he’s off the mark.  You can trust the guy named Stinky if you want but let the current contracts speak for themselves… Below are a couple I shared in the last six months that show no fees, good growth potential and a surrender value that is no less than the initial investment, plus interest in both cases.

Double Digit Annuity Yield

What it’s Like to Own a Good Annuity

Time for a definition for those of you who are new at this.  The ‘surrender value’ is the amount of money you get back if you surrender the contract.

What is really funny is that the thread has evolved throughout the week.  It went from being a criticism of me to being somewhat comical.  Toward the end all the guys seem like they are trying to figure it out; talking about CDs, bonds, dividend stocks, taxes etc.  And they haven’t even come close to designing an income plan for anyone.  It’s not like there was a case study they were asked to comment on, these guys are just trying to be relevant.

The guy who asked for a prospectus added a laundry list of items anyone should look for when verifying if an annuity is legit.  I’m pretty sure that’s the same guy who says he worked at an insurance company for 40 years but obviously doesn’t understand that a prospectus is a very specific legal document that doesn’t apply to insurance products, unless it’s a VARIABLE annuity.  His list of required disclosures is more or less what I go over with everyone before a transaction occurs.  But he doesn’t know me and just assumes I’m an illiterate salesman.

There are lots of individual things I could pick apart if I wanted to start an argument.  They called me out by name and I almost went there and started to respond.  But I have better things to do and didn’t really have time this week.  If I’m going to write a response to anything I’m going to write it to the loyal readers on my list and ask you to decide for yourself.  This actually was some pretty easy material for my weekly newsletter.

Fortunately, the man who started the thread, eventually admitted that we had never spoken and only exchanged a few emails.  I think he actually bought a fixed annuity from a never-heard-of-before insurance company and it seems as though the Bobble Heads are impressed with daily account values.  Either way, there’s proof I never proposed anything since I never had the opportunity, aside from quoting a couple fixed rate annuity options.  That was enough for the Bobble Heads to jump to conclusions and assume I’m trying to do something I’m not.  If any of them had a better idea, they didn’t share it.

Bottom line:  I can prove what I say but they can’t.  One guy claimed to have evaluated three annuity contracts.  Wow!  I’ve reviewed thousands so you can choose who you trust.

Talk to you next week, where I plan to show you something that will make those Bobble Heads spin!

Bryan

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