Rube Goldberg was a cartoonist who was famous for depicting gadgets and inventions that performed the simplest of tasks in extremely complex and convoluted ways. To this day, there are annual contests named in his honor where the winner is the person that creates the most complicated machine to solve for a brainless task. Mr. Goldberg unfortunately passed away in 1970, but his legacy has now found its way into the world of fixed indexed annuities (FIAs).
I continue to be dumbfounded about how complex our industry is making these products. Rube Goldberg would be proud of this unneeded complexity, and laughing at how ridiculous some of the product designs that annuity actuaries are pumping out to the FIA army of agents.
Before I get started, and for the record, I think indexed annuities do have their place in some people’s (not all) portfolios if the contractual realities and legitimate return expectations are fully explained to the prospective buyer. If you don’t know this already, it’s important for everyone to remember that indexed annuities were actually designed to compete with CD returns, not the stock market. That’s a fact, and something that I think should be prominently displayed on every piece of indexed annuity promotional material (print or digital) in bold letters. I know, I’m a dreamer.
Selling the dream
What I am talking about here are the indexed annuity presentations I am emailed by people, not to mention the numerous Internet video promoters and their too-good-to-be-true charts and dream-slinging annuity sales pitches.
My point is that I’m convinced that most indexed annuity buyers don’t fully understand how the index options work. I know that most agents think they “cover it” by saying such clichés as “you get some of the upside with no downside” and by showing the often-used and worn-out “stair-step” chart. I think we all can agree that those typical agent measures are not enough from a client comprehension and suitability standpoint. That’s an understatement.
Spreads, caps, point to point, monthly sum, annual sum, and all of the other actuarial return calculation craziness would make Rube Goldberg proud and probably inspire him to start his own “hybrid” (aka: “hype-brid”) FMO. The Rube Goldberg Senior Planners, or something that is overly generic and misleading.
2.5% x 12 = 30% potential annual returns