Look Out!
Millions of Americans feel unsophisticated when they discuss
investment opportunities. If you are one of them, beware. A
legion of commission-based brokers and insurance agents is
just waiting to sell you the ‘perfect investment.’
Unfortunately, it can easily be an investment you will
regret for years to come.
I am referring to the latest product served up by the
insurance industry that is designed to meet your every
investing need. Equity Indexed Annuities (EIAs) are selling
like hotcakes. In this Guarding Your Wealth Special Report,
I will expose three things you should keep in mind when your
broker or agent recommends an EIA to you.
First, EIAs are purchased mainly by people who don’t
understand investing and thus don’t understand that better
alternatives exist. These investors are sort of like me when
it comes to car repair. Because I’m not an expert on
engines, I never really know if I can trust the mechanic’s
advice, especially since it’s in his best interest to get me
to replace as many components as possible. Luckily, I have a
friend in the car industry who usually arms me with enough
information to keep me from being taken for a ride.
For most people, it is the same when it comes to investing.
Because of the world of investing has become so complicated,
most investors seek the advice of a professional. But how
can you know that what they recommend is really what you
need, especially if you know they will make a bundle on the
deal? Fortunately, I’m going to give you the information
that will keep you from being taken for a ride and
regretting your decisions.
That’s why I am so opposed to Equity Indexed Annuities. They
are mainly sold to those who don’t understand the realm of
investing. Seniors over age 70 are particularly vulnerable.
Think about it! If EIAs were such a good investment,
wouldn’t experienced investors be buying them?
Experienced investors don’t buy EIAs.
Experienced investors aren’t going to lock themselves into
an investment for 7,10 or 12 years with only limited
choices. Experienced investors recognize that better
alternatives exist – alternatives that give them the
flexibility to select from a wide range of investment
options rather than just a handful. The next two Guarding
Your Wealth articles will specifically discuss these
alternatives and explain why they are better.
The second point to keep in mind is that those who recommend
them may not have your best interests at heart. The advisors
recommending EIAs are either insurance agents who don’t have
access to better alternatives or brokers who have access to
other alternatives but choose the investment that pays the
highest commission. The only reason that EIAs require that
you keep your money in them for 7,10, 12 years or longer is
because it takes the insurance company that long to earn
back the commission they paid the broker or agent to sell it
to you.
If the ‘professional’ you are talking to gets paid on
commission, a tremendous conflict of interest arises when
they recommend an EIA. They will make more in one hour
by getting you to buy an EIA then you will make in 3 to 4
years at the minimum 3% rate. When an agent or broker
has a choice between recommending a product in which they
make 1%-2% commission and one in which they could make a 10%
commission, which do you think they will recommend?
Third, when hidden motivations and conflicts of interests
are removed, EIAs are rarely recommended. Many financial
advisors, myself included, get paid solely on management
fees as opposed to commissions. If EIAs were such a
wonderful investment, wouldn’t it make sense that they would
also be widely used by advisors paid by management fees?
They aren’t.
Quite frankly, in my friendly opinion, if you are talking to
an advisor that recommends you purchase an Equity Indexed
Annuity then you should find another advisor. You need to
work with someone who has your best interests at
heart. You should work with someone who gets paid based on
how well they manage your money, not on how adept they are
at selling you.
So look out! Explore all of your options and remember—it’s
YOUR money!
Mr. Voudrie is a Certified Financial Planner and the
President of Legacy Planning Group, Inc., a Private Wealth
Management firm in Johnson City, TN. He can be reached at
877-827-1463, at www.guardingyourwealth.com or by emailing
jeff@guardingyourwealth.com.
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