Hidden Fees in the Allianz 222
When was the last time you had a moment when something complex became crystal clear to you? It happened to me on Thursday morning. I ran up against the Allianz 222 again and called a rep at a different company to get some clarification on a competing product. We talked about a lot of differences between the two contracts but one thing he said is something I had never realized before.
It’s no secret that I never liked the product but until now there was nothing specifically wrong with it. Most of my aversion came because too many people bought it with the wrong impression of what it could do. For those who are suited for this annuity the contract just ends up being so-so. It will never be as great as the illustration makes it seem since growth potential is quite limited, but you will get guaranteed lifetime income even if you have to wait a long time to maximize it.
To understand the catch, first you have to know what an allocation charge is. This is a disclosed fee charged against the contract in exchange for higher growth potential. Athene, Nationwide and several others use them regularly but I’ve always stayed away from them because it’s one way an index annuity can lose money. If the index returns zero and you are charged a fee for the allocation then you’ll go underwater for the year. It completely defeats the purpose of having a protected asset.
For too long I focused on the features vs. benefits of the Allianz 222 but didn’t go into the fine print because I refused to sell it years ago. So the rep informed me that Allianz does in fact have an allocation charge and he pointed me to the fine print at the bottom of the spec sheet. For convenience it’s copied below and I apologize for it being so small.
You can see that it clearly starts at 0% and will never be higher than 2.5%, but when would they ever charge the fee? Well it states that the fee will only be charged when “specified criteria are met.” Your next question is the same as mine. What are those specified criteria?
I don’t let things rest until I solve a problem so I had to call one person I know who owns it. I’d like to read the contract front to back so I can find how it’s disclosed but this person didn’t have immediate access to it so I’ll have to wait. The good thing is that she is an attorney so will be able to find and interpret the language very effectively. Based on what I’ve heard from others, one criteria relates to low treasury rates, with a specific level that is really low just like now. I’ve been told the other criteria seem more subjective and relate to poor conditions in the market or economy. When the answer comes I’ll update this post but for now this is mostly speculation. Regardless, the fee is in there and it wouldn’t be if the company didn’t plan to use it if needed.
Why would they do that? Obviously because the contract as illustrated is not actuarially sound so the company needs another pricing lever to make sure liabilities don’t get out of control. I hate clichés, but ladies and gentlemen that’s the definition of a bait and switch. It’s in the contract that a buyer signs and an agent is supposed to disclose all contingencies. But I’m not surprised that those idiots who sell this contract don’t actually read a specimen before presenting it to someone. Anyone considering it now has a very specific question to ask the agent selling it.
I’ve convinced a lot of people to avoid this deal but several went ahead with it anyway, preferring instead to trust the guy who fed them a steak. Had I known this before then it would have been the equivalent of dropping an atom bomb on that sales pitch. The best lessons are learned the hard way, of course. It’s just unfortunate when it happens with large sums of money.
This is something that makes all annuities look bad and in order to find a useful purpose for the good contracts, someone needs to speak up and tell the truth. Cue the person in my audience who asks how I know the contracts I recommend don’t do the same thing. Someone is going to read this and get defensive so if you have that question or any other comment then leave it below.
Best of luck out there…