Response: Securities attorney tests financial professionals with Jeopardy-style game
December 31, 2009 by Harriet Johnson Brackey
PDF for Setting It Straight with Chicago Tribune
ORIGINAL ARTICLE CAN BE FOUND AT: Securities attorney test financial professionals with Jeopardy-style game
Mr. Kern:
I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
I recently had the opportunity to read an article by Harriet Johnson Brackey in The Chicago Tribune, “Securities attorney tests financial professionals with Jeopardy-style game.” There were a couple of false and disparaging remark made about indexed annuities in this article, and I wanted to bring it to your attention.
First, indexed annuities have not been referred to as “equity indexed annuities” since the late 1990’s. The insurance industry has been careful to enforce a standard of referring to the products as merely “indexed annuities” or “fixed indexed annuities,” so as not to confuse consumers. This industry wants to make a clear distinction between these fixed insurance products and equity investments. It is the safety and guarantees of these products which appeal to consumers, particularly during times of market downturns and volatility. Your help in avoiding any such confusion is so greatly appreciated.
Second, indexed annuities are NOT investments. They are insurance products, similar to fixed annuities, term life, universal life and whole life. Stocks, bonds, mutual funds, and variable annuities are investments. Insurance products are regulated by the 50 state insurance commissioners of the United States. Investments are regulated by the Securities and Exchange Commission (SEC). Insurance products do not put the client’s money at risk, they are “safe money products” which preserve principal. Investments, by contrast, can put a client’s money at risk and are therefore appropriately classified as “risk money products.” Investments do not preserve principal. In the future, it would be greatly appreciated if you would make the appropriate distinction between indexed annuities, which are insurance, and investment products.
Third, the complexity of financial services products is relative. Ms. Brackey suggests that an indexed annuity is “complex.” Some would say that a fixed annuity is complex. However, if someone can understand that they have the ability to deposit their money with an insurance company, defer taxes on the monies until they begin taking income, receive 10% withdrawals of the account value annually without being subject to penalties, and have the ability to pass on the full account value to their beneficiaries upon death- then they can understand nearly every indexed annuity sold today. As far as the indexed interest crediting is concerned, 95.2% of indexed annuities offered today have crediting methods based on the simple formula of (A – B)/B. My grandmother didn’t even attend college, and she fully understands indexed annuities.
Fourth, and most importantly, indexed annuities pay their indexed gains and minimum guarantees even if the product is not “held to maturity.” The maturity date on a fixed annuity is the latest date at which the consumer MUST take a lifetime income stream. However, they have the option of taking this income any date prior to the maturity, and many times as early as year one. During the product term, the client also has the option of accessing as much as 20% of the annuity’s value, without being subject to penalties, through the penalty-free withdrawal provision. The minimum guarantees on indexed annuities are payable in the event the market does not perform, or in the event of a cash surrender. Indexed gains are credited annually on 97% of indexed annuities sold today. The remaining 3% of products credit indexed gains anywhere from two to 10 years. Ms. Brackey’s article infers that indexed annuities are bad, and misrepresents how they work.
Indexed annuities are a retirement income product that:
A. Can guarantee an income that one cannot outlive
B. Protect the amount paid in from declines due to market losses
C. Give you access to your money when you need it; indexed annuities allow annual penalty-free withdrawals of the account value, typically at 10% of the annuity’s value (although some indexed annuities permit as much as 20% of the value to be taken without penalty). In addition, 9 out of 10 fixed and indexed annuities permit access to the annuity’s value without penalty, in the event of triggers such as nursing home confinement, terminal illness, disability, and even unemployment
D. Guarantee to return a minimum of the premiums paid, plus interest, at the end of the annuity’s term
E. Guarantee to pay the full account value to the designated beneficiary upon death
F. Provide an opportunity to get a boost on retirement by providing an up-front premium bonus which can provide an instant boost on your annuity’s value; this can increase the annuity’s value in addition to helping with the accumulation on the contract
G. Provide tax deferral (you are not taxed on annuity, until you start withdrawing income)
H. Allow you to reduce your tax burden (accumulate your retirement funds now at a [35%] tax bracket, and take income at retirement within a [15%] tax bracket)
I. Allow you to accumulate additional interest, above the premium you pay in. Plus, you accumulate interest on your interest, and interest on the money you would have paid in taxes. (Frequently referred to as “triple compounding.”)
I know that a publication as well-respected as The Chicago Tribune cares deeply about journalistic integrity. The U.S. economy is the worst it has been since the Great Depression. Your readers are looking for help on their retirement funds, investments, and insurance products NOW more than ever. Providing them with accurate and credible information is how you can best serve them. I truly hope that you’ll consider a correction to this article in light of this.
Should you or your staff ever have a need for information on the insurance market in the future (particularly indexed life insurance or indexed annuities), please do not hesitate to reach out to us.
Thank you.
Sheryl J. Moore
President and CEO
LifeSpecs.com
AnnuitySpecs.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax
