From the Desk of Charlie McCullough
In past blogs, I have told you about my parents, Donald and Janice. My family is fortunate to have them living with us. I think it is a great opportunity for our children to learn from the wisdom of the older generation, and it is an ideal way for my wife, Lisa, and I to keep an eye on them. Recently, we were reminded of just how susceptible the elderly can be to financial scams and other hucksters who prey on unknowing victims, and how lucky we are to have them in our lives on a daily basis.
My parents had just returned from a meeting with a potential new insurance agent. They were thinking about moving their current plan to another firm and were investigating their options. When they got home, they indicated that they were considering purchasing an indexed annuity product through this agent, because he suggested it was a wise investment and would be an excellent addition to their current portfolio.
While I was not completely aware of the intricacies of indexed annuities, I did recall a conversation I recently had with my advisor at Financial Fiduciaries regarding the value (or lack of value) these products hold. My advisor indicated that annuities were not only difficult to understand, but they were also very costly. In fact, the fees can be as high as 4-7% and every guarantee has a fee or string attached to it. Additionally, if a purchaser wants to get out of the annuity, surrender fees can be as high as 10%.
My dad showed me the brochure that the agent gave him about the annuity product he was pitching. After reviewing it, I could see why they were targeting my parents (and most likely other elderly people) with their propaganda. The language of the marketing material had a huge fear factor included. It spoke of market uncertainty and even offered an 8% guarantee (see comment above about “strings” attached to guarantees). Unfortunately, the brochure did not disclose any of the hidden costs or other stipulations. Instead it said, “Some restrictions may apply.” In general, the entire piece was a confusing jumble of empty promises and unfounded claims.
After reviewing all the information my parents had received, I called my advisor at Financial Fiduciaries who gave me the real story about indexed annuities. The only reason they are offered as retirement investments is because the person selling them makes a lot of money – end of story! My advisor also said “if people really had the big picture about annuity products, most would choose not to purchase them.” Armed with this information as well as viable investment options (in which my advisor did NOT receive any commission or bonus kick backs) I was able to give my parents the proper counsel about logical steps for their retirement plans.
Charlie and Lisa McCullough are fictitious characters who are utilized to illustrate situations in which people might find themselves. Their family and friends are also fictitious. While their stories are inspired by actual situations encountered by Financial Fiduciaries professionals working with clients and prospective clients, they are not intended to provide any specific investment advice. Each situation is different and any general advice provided in the context of these articles may not be suitable for all individuals. Always consult a professional for advice specific to your situation.