I believe that indexed annuities and equity sales practices to sell it may be the next big scandal investment you will know. It is necessary understand why and to think twice before buying one of these products.
We have seen many scandals of recent years in relation to funds mutual variable annuities and, more recently, insurance companies. The common theme in all these scandals has been the existence of hidden conflicts of interest.
There is an implicit trust when someone buys a financial product. When someone is uncomfortable making a purchase on your own, seek advice from a financial advisor. They expect the counselor to make a recommendation that is in the best interest of the client, not the counselor.
Unfortunately, most counselors financial offset only by the commission they receive from the sale of financial products. The more it sells, rather than doing. If not sold, do not eat. This alone only creates a tremendous conflict of interest between them and the customer.
Consumers understand that conflicts of interest in other purchases they make. You would not expect that a car salesman to recommend a vehicle that is not offered by the dealer. So consumers consider the recommendation of the seller, with a healthy dose of skepticism.
That same skepticism should be applied to the purchase of financial products. Those who buy mutual funds or stocks are fully aware of the Commission are extra. However, Equity Indexed Annuity few consumers are aware of the committee of his advisers are doing their shopping outside. I'm not against an adviser livelihood, what bothers me is when a client is not aware of the powerful forces that influence what your adviser recommends.
So I feel annuities Indexed equity investment may be the next big scandal. The hidden conflict of interest between counsel and client is greater when an equity indexed annuity is recommended. There are great incentives to motivate a consultant to recommend an Equity Indexed Annuity over any other financial investment incentives that are not disclosed to the client.
An advisor can make more sales commission of an Equity Indexed Annuity than any other investment can offer. Much more. In some cases, the amount of the commission is three to four times greater than in an investment like a mutual fund.
Equity Indexed Annuities (EIAs) are not regulated at the federal level but each state Insurance Commissioner. Although equity indexed annuities are technically an insurance product, are marketed as an investment. But all an agent has to do to sell them is to sit through a five-day course and pass a simple test in health and life insurance.
The structure and practices of sales commission based on almost all other investment products are regulated by the Securities and Exchange Commission. Mutual funds, stocks, bonds and variable annuities are regulated at the federal level. Equity Indexed Annuities are not.
If an advisor is to place 100% of assets for a client invest in a variable annuity or a single stock or mutual fund, likely to face fines and possible license revocation. By least, they open themselves and their company to potential claims. However, I often hear that a client advisers to be put 100% of their money in annuities Equity Indexed.
Under federal regulation, an advisor can not recommend a client to pay a penalty of 7% out of an annuity and move then move the money into another high commission product. That's like a broker to get constantly buy and sell stocks so they can earn a commission and is called churning. However, I see that advisers with 'bonus' to offer some equity-indexed annuities do just that.
I am an advocate for the individual investor, and apparently, one of the few in the financial services industry ready to speak against this popular product. But Equity Indexed Annuities are beginning to attract attention. I was interviewed by CBS MarketWatch just last week about the dangers associated with Equity Indexed Annuities. Those in Congress are recognizing the need in the heart.
Cache Counsel: Annuities pt. 2
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