Hidden Fees in the Allianz 222

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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…

Bryan

12 replies
  1. Paul
    Paul says:

    I have had the Vanguard VA for many years and am very happy with it. They are transferring it to their underwriter, Trans-America. Are you aware of any VA’s as good as Vanguard’s?
    Thanks,
    Paul

    Reply
    • Bryan Anderson
      Bryan Anderson says:

      Paul, I don’t spend much time with VAs but do know it’s more about the insurance company than the asset manager. Vanguard manages the funds so it’s cheap but there has to be an insurance company to back the annuity. Several companies have no-load VAs meant specifically for tax reduction that would have a similar low or no fee as the product you mentioned. Those are great contracts that work well in specific circumstances that I don’t see very often so I don’t spend a lot of time researching what’s available. I can do a quick search if you are interested so give me a call. I don’t sell the products but would be happy to assist if you need it.

      Reply
  2. Richard horton
    Richard horton says:

    Are there any annuity contracts with guaranteed lifetime income and some growth that you do like and recommend?

    Reply
    • Bryan Anderson
      Bryan Anderson says:

      Yes there are several good contracts but I will always devote time to verifying the value of top selling annuities. It’s a valuable comparison tool for many trying to make good decisions.

      Reply
    • Bryan Anderson
      Bryan Anderson says:

      Thanks Jerry – you were one of the lucky ones who was able to avoid this product. If that salesman calls and bothers you any more you can throw this right back at him.

      Reply
  3. Barney Fife
    Barney Fife says:

    Thanks for all your help and knowledge over the years. It’s been fun to watch you grow into your role. I trusted you with my money then and I still do. Keep up the good work

    Reply
    • Bryan Anderson
      Bryan Anderson says:

      Thanks Barney – it’s been a good ride and I appreciate the loyalty. If ever you need anything just give a call.

      Reply
  4. Sharon
    Sharon says:

    I have $100,000 IRA sitting in a money market making nothing. My advisor wants me to invest in ForethoughtLife Ins. (Fore Income II Single Premium Fixed Index Annuity) It offers a 10% simple interest bonus yearly until withdrawal, which I will do in 4 or 5 years since I am 69. It also has a cap on index fund yearly. I do have 2 smaller IRAs which I’m hoping to take RMD from. Is this a good investment??

    Reply
    • Bryan Anderson
      Bryan Anderson says:

      Sharon – it depends on which Fore Income II you’re talking about. There are 12 different versions of it so the specific one will make a difference. Is your goal maximum income?

      Reply
    • Bryan Anderson
      Bryan Anderson says:

      Sharon – this is not the best forum for asking specific questions about product selection. I responded to your comment above and also sent you an email. Since you are not a subscriber to my website then the email likely went to the spam folder. Call me if you’d like to talk about it or respond to me email and it will be easier to communicate.

      Reply

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