From Oct. 15-17 many of the major players in the annuity world gathered in Scottsdale, Ariz. at the Westin Kierland Resort & Spa for the 2014 IMO Summit. You can read more information about annuities from the event.
Prior to the 2014 IMO Summit, NAFA sent out a paper (“Answers every investor needs to know about annuities”) that can benefit advisors as well as consumers. On the following pages, NAFA answers four of the most important questions you’ll ever receive about annuities. These nuggets can be vital in helping producers educate clients and prospects on annuity products. 1. I’ve heard that annuities pay “high commissions”- is that true?
Insurance companies pay the annuity salesperson for the sale of an annuity. They are paid when your policy is issued and accepted by you. However, the payment isn’t taken out of your premium, and the commission payment isn’t taken out of the amount you pay into the annuity.
Commissions paid once on the sale of a fixed annuity are often, over time, less than the ongoing management fees charged to your investment account.
Fees paid to your investment firm are taken out of the assets they manage on your behalf. The SEC advises that “before you hire any financial professional—whether it’s a stockbroker, a financial planner, or an investment adviser—you should always find out and make sure you understand how that person gets paid when they sell securities. Investment advisers who sell securities or security products generally are paid in any of the following ways:
* A percentage of the value of the assets they manage for you; An hourly fee for the time they spend working for you;
* A fixed fee;
* A commission on the securities they sell (if the adviser is also a broker-dealer);
* or Some combination of the above.”
Depending on your needs and preferences, insurance commissions or any of the above compensation methods have potential positive and negative benefits, all of which should be considered when choosing financial products and the professionals who sell them. 2. I’ve heard that FINRA and the SEC have reported that there are a lot of consumer complaints with annuities and that the insurance companies reserve the right to change the terms of the contract?
The SEC report you may be referring to was issued in 2004—over a decade ago—and the complaints were related to variable annuities. Since then, complaints have plummeted to such an extent that neither insurance nor annuity products are mentioned as a concern in the 2014 FINRA Regulatory and Examination Priorities.
Instead, FINRA warns investors to be wary of advisors pushing interest-rate-sensitive securities, such as mortgage backed securities and long duration bonds, bond funds and ETFs. In 2013, there was one annuity complaint for every $200 million of paid fixed annuity premium.