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Teach or Lose

If you think that annuities do not need an awareness month, try this Google search: “Should I buy an annuity?”

You will face a page of warnings and “helpful” advice. In fact, the first thing on the list is a guide from Forbes that pretends to be an unbiased information source. It even has the imprimatur of an Investopedia logo on it.

But it does not take long for the misinformation to start. This is the fourth paragraph:

When you think about it, investing your whole portfolio into a single investment doesn’t make sense for any financial instrument. These investors put themselves at considerable risk by placing all of their eggs in a single basket. They were also often whacked with innumerable hidden fees on their life savings. Many saw their monthly income drop as the investment markets took a tumble.

That is a perfect description of what an annuity is not. This would be true of stocks, mutual funds and other equities — pretty much anything but annuities. Security is precisely why someone buys an annuity.

Of course, variable annuities suffer in down markets, but those are securities, basically mutual funds in an insurance wrapper.

Fixed index annuities come closer to the Forbes description, but there is a floor against loss. Remember the “zero is the hero” rallying cry from the 2008 crash?

It gets goofier. The next paragraph uses that previous misinformation to launch into the land of fabrication.

Because of this situation, many states now regulate the percentage of annuities you can hold in your portfolio, and for good reason. If you’re thinking about putting annuities into your portfolio, first consider a limit on the total.

So, according to this, some states will tell me that I cannot put all my money into an annuity. I cannot find a reference to any state that would say individual consumers could not put all of their money into an annuity. Under what authority could they even do that? I can lose all my money in the stock market, but does any state tell me that I cannot put it all into equities? Well, maybe they should, according to this Forbes scare piece.

Of course, agents and advisors are under regulations and guidelines that would prevent them from advising clients to put all their money into an annuity. But even then, the advice would have to be either unsuitable for the client or not in their best interest to be considered improper.

This writer took an inaccuracy — that many saw their monthly income drop as the investment markets took a tumble — then went on to say, “Because of this situation …” leading to nonexisting regulation: “Many states now regulate the percentage of annuities you can hold in your portfolio.” Not only is this the first item in the search, but it is one of the most annuity-friendly pieces on the first page.

The next item, from CNN, highlights this piece of advice: “Typically you should consider an annuity only after you have maxed out other tax-advantaged retirement investment vehicles, such as 401(k) plans and IRAs.” Under the headline “How do I know if buying an annuity is right for me?” the article spends the first three paragraphs warning against annuities until the fourth, which recommends mutual funds.

The next article in the search is from Suze Orman. I don’t think it’s too much of a spoiler to reveal that she doesn’t have glowing things to say. Here is how she introduces the subject: “This is the great blanket investment to cover you when you’re about to retire, or retired, right? Not so fast.”

She goes on to talk about the horrible commissions and fees associated with annuities.

As you read all this and the ancillary arguments for the fiduciary standard, you would think every investment firm is run by monks with no financial concerns for themselves. Apparently, they seek only the financial well-being of their clients and accept mere pittance to stave off starvation.

But, in fact, we all know that they do pretty darn well. They make money even when clients lose theirs. The finance industry built its vast fortune on fees. And I think I saw a couple of movies that seemed to indicate they can get awfully rich by doing really slimy things.

This is not to say that the insurance industry is inhabited only by saints. It has its own problems and delinquents. But its main mission is to protect money. When clients buy an annuity, they are purchasing protection. That is the product and the business at their essence.

Some annuities and their sellers do go out of their way to make annuities sound like sexy investments. That has come back to bite many of those folks when regulators start nosing around. But, generally, companies have tightened their oversight. That was especially true with stronger suitability rules that went into effect after the Securities and Exchange Commission tried to regulate fixed index annuities with Rule 151A.

Companies have also reduced complexity. Frankly, even many agents didn’t understand some of the complicated products of 10 to 15 years ago.

In the end, a business is only as good as its ethics. If people are geared to separating clients from their money, they will figure a way around the rules.

At the center of this debate is an American public unprepared for retirement. In fact, people are pretty anxious about their later years, according to the 2015 Retirement Confidence Survey from the Employee Benefit Research Institute and Greenwald & Associates.

According to that survey, 65 percent of Americans said they were not at all confident or not too confident that they will  have enough money to live comfortably through their retirement years. Another 21 percent were somewhat confident. Only 12 percent were very confident.

That means about 88 percent of Americans were less than very confident that they will be able to live comfortably in retirement. That’s an extraordinary level of anxiety out there.

After all these years of a bull market and with all the advisors riding it, ordinary Americans are not much better off. We all know where that money is going — right to the top.

What is left for middle Americans? They are unlikely to have a pension. They might have a 401(k) in which they managed to save something. According to the U.S. Department of Labor, the median amount in a private retirement plan for workers in the public and private sectors is $44,000. To put that into perspective, a year in an assisted living facility for one person is $43,000, according to Genworth’s annual Cost of Care Survey.

Annuities can help Americans save and build on those savings. The products also offer choices for living benefit withdrawals along with other options.

You don’t need a half million dollars in investable assets to talk to an insurance agent. You just need to pick up the phone and call.

The insurance industry does not have all the answers, although it has some important solutions for consumers. But consumers are not getting straight information on these products when they seek it. Instead, they are being misled by a segment of the financial services sector for its own gain.

Obviously, we need greater annuity awareness. A couple of groups that we feature in this edition are focusing on the cause.

In fact, we at InsuranceNewsNet will be doing our part. We are starting an effort to get better information to consumers, call attention to the segment’s importance in the American economy and help uphold high standards within the industry. We will be rolling out those campaigns in the next few months.

With some of these efforts, maybe this time next year when people search for “Should I buy an annuity?” they will find a straight answer to help them write the next chapter of their lives.

What will you be doing to help the cause?

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. Steve may be reached at [email protected] Follow him on Twitter @INNSteveM. [email protected].

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