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JMacDonald

Annuity Scam

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I think that they were mostly fixed, some included long term care coverages. There were different ones at the different groups. It seemed to me, although I didn't really look at them in much detail, that the costs associated with purchasing were very high, and the annuities had different extras to reduce the payout benefits.

I think, that in in variable you were guarenteed some things if you gave up dividents. I don't remember that much, but I felt at the time that they were bad deals.

Frankly I don't remember that much about what was offered, but, these products offerings are readilly available to the public.

 

Ira

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Guest TR1982

Ira,

I just don't believe that you can make broad statements about whether an investment product is suitable for large groups of people. Besides, there is NO evidence that large groups of people of any age are being sold any kind of annuity that is not suitable for them. You will always find certain cases of abuse, but that is true in every industry, every business. This kind of reaction by government is exactly what consumers DO NOT NEED. In the end, we will all be victims of the law of unintended consequences and pay the bill for the law of unfunded government mandates. It is far better to let the markets work these things out. It is definitely not in the best interests of companies to be perceived as cheating their customers and they will change things if that is the case.

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TR, I wonder if there is a sales history available of products sold to seniors. Some may be suitable, others not.

 

"It is definitely not in the best interests of companies to be perceived as cheating their customers and they will change things if that is the case. "

 

True, this thread talks about some recent bad publicity, although fairly insignificant to the market as a whole.

 

Being cheated(I prefer taken advantage of), and being perceived as being cheated are two different things. I think that many of these seniors are being taken advantage of but do not perceive this.

 

 

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Usually the products being hawked are either Equity Indexed Annuities, which I don't favor and are rarely disclosed correctly and Variable Annuities that have some sort of guaranteed living benefit or guaranteed withdrawal benefit. They like to be able to say the words "six percent" even though there is nothing in the product that actually states they will earn 6%. They can hold these wonderful dinners because the commissions are very large and they only need a couple people to buy into the fantasy.

 

"The returns of the market without the downside risk" - Sign me up!

 

ScottyD

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Thanks Scotty.........for the clarification.........we were to busy concentrating on the fancy dinners, in the fancy restaurants, at fancy prices to worry about the product details which the advisor treated us to, unfortunately at the expense of the person(s) who bit .........Ira

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Usually the products being hawked are either Equity Indexed Annuities, which I don't favor and are rarely disclosed correctly and Variable Annuities that have some sort of guaranteed living benefit or guaranteed withdrawal benefit. They like to be able to say the words "six percent" even though there is nothing in the product that actually states they will earn 6%. They can hold these wonderful dinners because the commissions are very large and they only need a couple people to buy into the fantasy.

 

"The returns of the market without the downside risk" - Sign me up!

 

 

Scotty, can you go into a bit more detail here? If Equity Indexed Annuities ARE disclosed correctly, what are their strengths and drawbacks? Are there circumstances under which they would make a good investment?

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Guest TR1982

The concept of EAA's is interesting. All of the market upside but none of the downside. The problem lies in how that would play out over 20-30 years. Would the insurance company be able to pay off if the market tanked? I am in Scotty's camp on these things. I am always a bit suspicious of these promises.

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FT,

 

It would take a lot more time to explain these products than I have at the moment (trying to finish quarterlies before vacation and just moved into a new home, short on time!), but I'll give you the short.

 

These products might work if the commissions were stripped out (currently average over 8%, but usually over 10%). Even if they were stripped out I think it would still be a stretch. There are so many factors that could go into determing the return that it would take pages and pages. As a fee only advisor if an equity indexed annuity was offered without commissions built in - would I recommend it for a client? That would depend on its structure, but most likely not.

 

The drawbacks are that dividends are not included in return (on the flip side down years give you a 0% return and reset the index value at the lower value) and that participation rates, averaging, and spreads could reduce the return to a similar return as a fixed annuity. Why take the risk of having years with 0% interest if your return would be no different than a similar fixed annuity.

 

Again, this is a really lame arguement against EIA's as I just don't have the time right now.

 

ScottyD

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