Its Time To Speak Out: Annuities Have A Legitimate Place In IRAs
“Conventional wisdom” (or is it the regulators?) says Americans should not own annuities in their individual retirement accounts.
In particular, over the last three years, increasing regulatory pressure has made justifying the sale of variable annuities in IRAs increasingly onerous. The pressure is so great that many investment professionals have simply stopped using this strategy–to avoid increased scrutiny by their broker/dealers.
We need to keep things in perspective: whats important is for investors to have the fullest opportunity to provide for their beneficiaries. This means taking advantage of the death benefits available in most VAs today.
Its time for the insurance community to speak out to help the regulators see the truth that is obvious to many in the industry. Stated simply, annuities do have a legitimate place in IRAs.
No investment is suitable to every investor in a specific class, period. On the other hand, no investment is unsuitable to every investor in a specific class, either. Investment professionals are paid to know the difference.
If there are abuses, deal with those who are guilty of the abuse. Creating a regulatory environment which defacto precludes an otherwise suitable investment recommendation from being made based on regulators misinformed prejudice is tying the hands of those trying to do the best job they can for their clients.
Look at the losses incurred over the last 20 months in this country in IRAs that were invested in the stock market. Those losses should help people realize that most Americans would gladly pay the increased cost of a VA, versus a mutual fund, for the sole benefit of the death benefit protection included in most of todays VAs.
Indeed, which check would you want your beneficiaries to receive–your IRA account value of March 2000 or the account value on September 2001?
The innovation and creativity of the variable annuity industry has not been recognized by regulators. The death benefits attached to todays VAs are a tremendous value for investors who have to face the risk of market value and the need to provide for loved ones. With nearly 50% of investors invested assets now residing in qualified plans–which either are now, or will be at some point in the future, in IRAs–its time to lay conventional wisdom aside.
VA providers now offer: enhanced death benefits (through annual step-ups, guaranteed minimum step-ups, or highest account value) and term life insurance riders. All provide specific benefits suitable for most IRA investors.
In addition, for those who dont die prematurely, annuities are the only investments that offer an income stream guaranteed for life.
What better funding vehicle can you find for an IRA? Can you name a single mutual fund or CD that gives that guarantee?
Personally, I have read too many articles on the subject of the VA costs that miss the point. There is no question, VAs do cost more than mutual funds. However, a person who makes a decision to purchase anything based simply on price, without any consideration of value, is a fool.
Price is only an objection in the absence of value.
Ask any investment professional which check he or she would rather deliver to loved ones of those who die from heart attack, cancer, or any other circumstance–IRA proceeds invested in a mutual fund, or a VA with a stepped up death benefit? The rest of the debate is moot.
Patricia J. Abram is senior vice president and chief marketing officer at American Skandia, Inc.,
Shelton, Conn. Her e-mail is firstname.lastname@example.org.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.