I've been fielding a lot of questions lately about equity-indexed annuities. Someone here in Dallas is advertising an annuity product that he says guarantees a 7 percent annual return with no downside risk.
Of course, that oversimplifies what the product actually is, which is an insurance contract with a payout value tied to a stock market index like the S&P 500. Equity-indexed annuities are really no better than their close cousins, variable annuities, and they're sold in much the same way.
Set aside for a moment that there are much better investment vehicles out there. My biggest problem with these annuities is the way they're sold. These products are frequently on the SEC and FINRA watch lists because they're aggressively sold to inappropriate investors, especially seniors.
Chris Hansen, the Dateline reporter famous for his hidden-camera investigations, recently focused on the annuity business. What he found is disturbing, awful, and not at all surprising.
See for yourself:
Play close attention to the way these guys give themselves fancy titles that don't mean anything and make promises that just aren't true. Also check out the "Annuity University," where salespeople are taught how to hit seniors' fear, anger and greed buttons and how to deflect questions about the products' liquidity and safety.
What disturbed me most, though, is how these scumbags try to buy credibility. They can pay $2,500 to have their name and photo printed on a book they didn't write. They can have their picture on the cover of a fancy-looking magazine, right beside Fed Chairman Ben Bernanke. And they can read a script for a phony national radio show and give out the audio CDs to potential customers.
This obviously struck a nerve with me, as I have a book coming out in October (which I did write myself), numerous articles on the web and in print (ditto), and a real radio show where we're live and taking calls from real people almost every week.
The ways these guys distort the truth to convey a sense of credibility show why the industry has such a bad reputation. If these guys will lie to you about their credentials, what else do you think they'll lie about?
People want to know who they're really dealing with. They want truth and honesty. If you're a commissioned salesperson, fine -- tell me that up front so I know what I'm getting into. The problem with the financial services industry is that there's so much incentive for advisors to confuse and mislead their investors. People deserve much more respect than that.
Kim Snider is the President and Founder of Snider Advisors, an SEC Registered Investment Advisor, focused on teaching individual investors a sensible, long-term investment approach focused on maximizing cash flow. For more information on Snider Advisors or the Snider Investment Method and how to stop enriching your investment advisors at your expense, please visit snideradvisors.com. Her book, How to Be the Family CFO: Four Simple Steps To Put Your Financial House in Order, will be in bookstores October 1, 2008.
Snider Advisors makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method® Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments, including the Snider Investment Method™ are subject to risk, including possible loss of principal.