Crazy Lies (or mis-statements) of Annuity Sales People (who call themselves financial advisors)

Tuesday, April 12, 2011 | 5 Comments

Hello All,

In my last post I talked about what was shaking in the world of the fantasitc (sarcasm noted) prodcuts known as index annuities.  What we learned, I hope, is that there are a lot of expenses you never know exist and a lot of people, companies, etc – that get paid when you buy said annuities.

I also wrote about how the marketing companies that promote the annuities to advisors, who in turn promote them to investors, position the annuities.  In the end, they focus on all the ways the advisor gets paid and how little flexibility there really is in equity indexed annuities – and of course, how to overcome those shortcomings so you actually buy them.  It’s a lot of work for something that is supposedly so great for “safe money” investors.

Hopefully if you’ve been pitched these things, or are considering buying one – my post helped you avoid something that may not be nearly as good as it sounded when the well-trained financial advisor pitched it to you.

Which brings me to today’s post.

Just last week I heard the unthinkable.

I met with a great guy who was awesome to meet with.  This gentleman was polite, hard working, and spent most of his life as an educator and coach.  From what I experienced he was a heck of a nice guy who through hard work and dilligence accumulated a nice nest egg for retirement.

As I got to know him I learned that he recently retired and had a pretty sizable retirement plan he was looking to roll over to something safe that he wouldn’t have to worry about so he could focus on the things in life that truly are more important than money.  To my dismay, I then learned he was convinced by a fancy radio show host advisor who “specializes” in safe money investments convinced him that putting $1,000,000 into some indexed annuities was a great idea.  And it’s not like that was the worst part.

Here’s the worst part.

This supposedly honest advisor who helps his clients told his new client something incredibly mis-leading.  And it had to do with the advisors compensation for selling the million bucks worth of annuities.

The line was something like this:

“Mr. Client – when you invest in these here indexed annuities all of your money goes to work right away.  In fact, you even get a guaranteed bonus right up front.  There’s no commission taken out of your account for my services – I just get a small setup fee for helping you establish your accounts.”

I’d like to highlight a particular line in this sales pitch: “…a small setup fee…”

So let me break this down.

The advisor actually split the money into two separate annuities, each one with $500,000 each.  After looking up the exact contracts the investor was sold we found exactly what the “small setup fee” actually was in terms of commission.


One was 10% and the other 8%.

So this small setup fee was $90,000.


I’m sorry, but that is not a SMALL setup fee.

Look, I share this not because I have a problem with the annuities (even though I actually do).  What I have a problem with is that the advisor told his new client he was only getting a “small setup fee.”  What a load of crap.  Some might call it a little white lie.  I think it’s a blatant, huge lie, that if fully disclosed with honesty would make any logical investor more than a bit weary about the real suitability of the recommended annuity.

In future posts I’ll talk about other topics but this sort of action by financial advisors really disgusts me.  I can’t think of any good reason to mislead someone into believing complex financial products that pay ridiculous commissions should ever be proposed as no-load investments.  I don’t care if there isn’t an apparent commission – the reality is the sales people get paid huge, and most investors have no idea.

So next time someone tries to sell you something, just ask: “What exactly will your compensation be if I purchase this investment?”  If you don’t think the number jive, then RUN.

’til next week,

Jason Wenk

In Index annuities Index Annuities (bad) Index Annuities are bad Investor Alert

5 Comments to Crazy Lies (or mis-statements) of Annuity Sales People (who call themselves financial advisors)

  • Dean

    You got great points there, that’s why I always love checking out your blog.

  • Steve

    Jason I just “found” your blog and think it’s great stuff. I’m RIA and insurance licensed, self manage primarily portfolios composed of ETF’s on a quarterly fee basis.

    I avoided FIA’s for years for the many reasons you describe. I did begin to use them, (reluctantly) in recent years to some degree. You’re right, none of them lived up to the claims. I’ve used a number of companies and products, nothing has done over 3% to 4% annually the last 5 years or so. Which is OK for “safe money” but certainly doesn’t live up to the hype. Not that I expected them to or presented them to clients in that manner.

    • Jason Wenk

      Hi Steve,

      Glad you found the blog and thanks for reaching out.

      Sounds like you’re on the right path – and glad to hear there’s still plenty of “good guys” doing the right thing for their clients. Keep it up!



  • tracker

    I heard some guy on the radio claiming *up to* 8% returns with never a negative (I like the “up to” part, that and when he said that returns were “2, 3 or 4 times a CD” and I LOL’d because CDs aren’t doing jack right now and 4x nothing = nothing). I’m sure this guy on the radio was selling exactly what you’re talking about. They never say exactly what they’re selling and/or investing your money in. They avoid that.

    I think a good word of advice would be to pony up a few hundred bucks for a lawyer to read the bleeding contract before signing anything. $90k as a fee?! $400 and a lawyer would have caught that BS. And if it wasn’t disclosed… I smell lawsuit.

    • Jason Wenk

      Hi Tracker,

      Thanks for finding my blog and adding your thoughts.

      Generally I subscribe to the school of: “If it sounds to good to be true, then it usually is.” In the case of many annuity claims I find this is often true. Used correctly, annuities can be very useful. When returns are mis-stated or exaggerated, that’s no good.



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