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Life Health > Annuities > Fixed Annuities

Give Annuity Customers A Fair Shake, Advisors Say

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Las Vegas

“Annuity customers want a fair shake, not a shakedown,” said Michael J. Cajthaml, a general practitioner and president of McHenry County Investment Services, McHenry, Ill., during a panel discussion here on fixed annuities.

He was addressing how the industry should position its products in the marketplace.

The panel was part of the annual Producers’ Forum & Expo sponsored by National Association for Fixed Annuities, Milwaukee, Wis.

Fixed annuities, and especially equity indexed annuities, have an “unbelievable” future, noted another panelist, Danny Duffy, an investment representative with the Nevada Federal Credit Union, Las Vegas.

That’s because most people today are more concerned with not losing money than with making money on their deposits, he said. They see annuities as good ways to preserve capital.

But to achieve its potential, Cajthaml insisted the industry needs to do a better job of keeping its practices beyond reproach. For instance, “why should there be 15 years of surrender penalties?” he asked. “Why should penalties be as high at 20%? And why do beneficiaries have to take the proceeds over 5 years?”

He also questioned why some sales representatives never fully explain the penalty provisions or the death benefits as well as other matters, and he pointed to questions about suitability and disclosure practices.

“We need to clean our own houses,” said Cajthaml. “If we don’t, someone else will.”

In that vein, he urged the EIA industry to agree to some upper limits on EIA products: sell products that pay low first-year commissions and trailer compensation in the later years; set the surrender charge period to no longer than 9 years; and pay commission no higher than 7%.

Concerning the negative headlines that come out about annuities, Duffy had some words of advice. If clients ask about the articles, he said, “welcome the questions, and point out that the articles don’t point out everything about annuities. Also, compare fixed annuities to CDs, noting that they are something like a tax-deferred CD” and not securities.

The articles seem always to target the EIAs having high commissions and long surrender charges, Duffy said. “But I don’t sell those products.”

In reviewing products mentioned in the articles, he said he always asks himself, “would I sell this product to my own mother?” He frames his response accordingly.

Cajthaml said none of his own clients say they have seen those articles, and the panel moderator Carl Stern, founder and chairman of Imeriti, Inc., a Del Mar, Calif., insurance wholesaler, agreed most people don’t see the articles.

“I think it’s the industry people who read those articles” and get upset, said Stern.

Still, to the extent the articles point out problems, such as annuities being sold with 20-year surrender charges, “I think the problem is us, not the article,” said Cajthaml.

As for the future of the EIA product, “people who are concerned with preservation of assets love it,” maintained Cajthaml. “I call it a SWAN product–sleep well at night.”

One suggestion: The EIA industry should agree to some upper limits on EIA products


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