Give the people what they want
Well, well, well, well."
The O'Jays, 1975 #1 Hit
I was listening to a national Investment Advisor's radio show this morning (Saturday). A listener called in and asked the following: "I'm 55 and have $200,000 in a 401(k) that is invested in a fixed annuity. I'm getting ready to retire, and cannot afford to lose this money. What should I do?"
The hosts' response: "It depends, what is your risk tolerance? On a scale of 1-10, where would you say you fit in on the risk scale?" The caller replied "about a 4". The hosts went on about asset allocation and fund selection to help him meet his objective. And typically, they described how it was a bad decision to put a qualified savings vehicle inside of an annuity. "You already have tax-deferral, and now you are adding more fees to your investment". "Anyone that recommends that you should rollover your 401(k) into an annuity is just after a commission." And of course, the hosts were more than willing to get his contact information and help him with that $200,000!
At the very beginning of the call, the caller stated that he could not afford to lose ANY of this money. He already answered the risk tolerance question. This individual would not sleep easy knowing that he was exposed to any loss, no matter how small. There is not an asset allocation model that can guarantee against a loss of principal due to market conditions. Fixed/indexed annuities are a viable solution to risk-adverse savers who are concerned with outliving their retirement income. Americans need credible and reliable information on financial services products now, more than ever. There is no excuse for the perpetuation of inaccurate information. Consumers deserve the most appropriate product for their needs.
It is important to note that the radio show hosts are investment advisors. Their background is in the securities business, not the insurance business. This is important to readers and listeners to know because registered representatives' solution for "safety and accumulation" is offering stocks and bonds (which are securities products that carry risk of loss). By contrast, the insurance agent's solution for the same problem is a fixed or indexed annuity (which are insurance products with no risk of loss due to market volatility). Why isn't the registered representative/advisor a fan of the fixed/indexed annuity? For starters, he is familiar with the processes and routines that are associated with the SEC's regulation (which is very different than those of insurance products' NAIC regulation.) In addition, securities products pay generous, consistent commissions (trails and AUM) where fixed/indexed annuities pay commissions only one time, at point-of-sale. For this reason, it is very likely that the financial advisor does not sell fixed/indexed annuities at all. And if he/she is not selling fixed/indexed annuities, then he/she is competing against insurance agents and advisors that do. Our nation's financial advisors and insurance agents have long fought a battle to control 100% of their clients' assets. It is a shame that everyone cannot learn to "play together" and ensure that the client has ALL of their financial needs met, using THE most appropriate products for their needs, regardless of whom is able to sell it to them.$
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