Again, I remind you that these post headings are Myths. And, again, this is one propagated by AARP’s financial entertainer, Allan Roth. (UPDATE: since the publication of this blog, AARP removed all reference to equity indexed annuities from Mr. Roth’s online article. But if you have the paper version, please refer to it.)
In the April/May issue of AARP’s newsletter, Mr. Roth lumps equity indexed annuities (EIAs) in with “5 Bad Money Moves” such as oil drilling partnerships, time shares and private REITS. Really?
I take issue with this ignorant and astoundingly inaccurate portrayal because I frequently recommend EIAs for a variety of excellent reasons, reasons that dramatically separate them from the other risky investments mentioned:
That’s for starters. Of the $84.9 billion investors placed in fixed annuities in 2013 only $8.3 bil. were fixed immediate annuities (the worst ones, which Mr. Roth likes because they are “simple”. And maybe also because AARP sells them?) $39.3 bil. were equity indexed annuities:
Courtesy of Insured Retirement Institute
Mr. Roth goes on to characterize those of us who use EIAs as greedy snake oil salesmen pursuing gigantic commissions through itinerant bait & switch seminars & classes. If we eliminated all transactions that made a profit for someone, commerce would grind to a halt. We don’t mind paying a 10,000% markup on bottled water, a 90% markup on the coffee we drink nor a 3.5-7% real estate commission. Every savings and investment option also has pros and cons, costs and benefits.
As a fiduciary adviser, I have to be able to demonstrate that my recommendations are the best for my clients. And we’re talking about long term, face-to-face relationships, Mr. Roth, not a mass audience that will forget your article in a week (in this case, fortunately). Believe me, if insurance companies could sell their annuities online, by mail or through financial entertainers they certainly would.
Which brings me to the title of this blog, “Always Talk To Seniors as if They’re 8 Years Old“. In his five “Warning Signs” Roth astoundingly states, “My rule is never to buy anything I couldn’t explain to an 8-yr.-old” because everyone- even educated adults -should avoid that high-falutin’ “fancy language”. Yes, I know. That is the prevailing journalistic standard. It really is. (Which explains a lot about the dumbing-down of Americans.) But I would never treat a client the same way I would treat an 8-yr.-old child. How pompous and insulting. Many of my clients are professionals; lawyers, doctors, engineers, professors, carpenters, CPAs, managers. They are capable of understanding the best options.
I do tell my classes and my clients to never make a financial decision without the two elements of TRUST: evidence and understanding. Fame (such as appearing in the AARP newsletter), a nice suit and hair, toothy smiles, etc. are evidence of nothing. Make your adviser explain everything you doubt or don’t understand. Insist on evidence for all claims. There are no stupid questions. You deserve better than Mr. Roth. Sometimes complexity is superior. Otherwise we would all use horses instead of cars.