ATTORNEY NEWSLETTER
Agents Earn High Commissions On Deferred Annuity Sales
The Riskier The Investment The Higher The Commission
Commissions Versus Fee-Based Advice
Risky investments like fixed indexed and variable annuities, non-traded REITs (real estate investment funds), and private placements typically pay out high commissions – some as high as 10% – to brokers who sell them. For someone whose entire compensation comes from commissions, the choice between selling a mutual fund that pays a commission of 0.25% or a non-traded investment or deferred annuity that pays out 10% can be a tough temptation to overcome, regardless of which product would be better for the client. It would take 40 sales of the mutual fund to equal the income from one sale of the non-traded investment or annuity. Not surprisingly, a recent industry study revealed that brokers who charge commissions are two to eight times more likely than advisors who charge fees to recommend risky investments. And the targets of these risky, high commission generating sales are often older investors according to the same studies. Evans Law Firm, Inc. recommends seniors avoid deferred annuities and risky investments altogether. If you have already been sold an annuity and you’re over 60 and live in San Francisco, Marin County or elsewhere in California and have suffered a loss due to cancellation, replacement, fees, or full or partial surrender of a deferred annuity, call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy.
High Sales Commissions, Fees and Caps
Agents earn a significant sales commission every time they sell a deferred annuity and the commission can run as high as 10%. Commissions are paid “up front,” at the inception of the policy, and come directly out of your first premium payment. It takes a long time for any investment to recoup that kind of upfront outlay. To lure consumers, carriers and agents use marketing gimmicks like a “premium bonus” that they claim will repay you the commission money over time. Don’t buy it (literally). These “premium bonuses” are phantom amounts that you will most likely never see. The bonus is not an amount of money you can withdraw to pay yourself back for the commission outlay. If you need to withdraw funds this supposed “bonus” will disappear. The upfront sales commissions are not the only cost you will incur in these deferred annuity contracts either. Deferred annuity contracts include annual administrative fees, mortality (or insurance) expense fees, rider fees (for enhanced policy features like income “guarantees” or death benefits), and subaccount fees, charged against the return you are credited with for the chosen index. In addition to these incremental fees eroding your return, your return will be subject to cap and participation rates. A cap sets the maximum return you can see, so even if you chosen fund inc4ases 15% over a one-year period, for example, your contract may cap your return at 7 or * % and you never share in the greater growth. You also will never see 100% of the index’s growth because of “participation rates” set by the carrier which typically limit you to a 80-90% participation in the growth of the fund. Note that caps and participation rates are cumulative so you really can lose out even when your chosen index performs well.
Penalties On Withdrawals
But perhaps the greatest downside of any deferred annuity or other risky, private placement investments, is their illiquidity. That is, once you’re in, it’s hard (and costly) to take your money out. Withdrawal or surrender charges can be as high as 15% of the amount you need to withdraw and the surrender period may last ten years or more. It really is impossible to look ahead so many years and be confident you will not need your money. Circumstances change and can change rapidly for an older person who suddenly needs greater care at a big cost. Direct mutual fund, by contrast, do not penalize you if you need your money or want to switch investments. Even if you don’t make any withdrawals and you stay in the contract, the fees, caps, and participation limits set by the insurer will erode your return. We have seen policyholders see zero returns on substantial amounts of money over a one-year period; even a bank savings account producing some interest would have been better. Bank deposits moreover are insured up to $250,000; annuities are not insured investments. Whatever you do, when considering an annuity always consult a professional with nothing to gain from a sale before you buy. Studies show that fee-based advisors (as opposed to commission-based brokers) are less likely to recommend risky investments, Also, consult your tax advisor because any decision regarding annuities has tax consequences.
Contact Us
If you or a loved one has suffered loss on the surrender, termination or transfer of an annuity in San Francisco, Marin County or elsewhere in California call Ingrid M. Evans at Evans Law Firm, Inc. at (415) 441-8669 (or toll free at 1-888-50EVANS) or by email at <ahref=”mailto:info@evanslaw.com”>info@evanslaw.com</a>.
Annuities and life insurance produce large sales commissions for brokers but are often inappropriate products for consumers, especially seniors. Leading providers and distributors of life insurance and fixed, variable and fixed indexed deferred annuities in California are listed below. We are not in any way suggesting that any of these carriers or distributors has done anything wrong. Rather, the list is provided solely as a reference for our readers.
AIG/American General Life Insurance Company
Allianz Life Insurance Company of North America
American Equity Investment Life Insurance Company
American General Life Insurance Company/AIG
American International Group, Inc. (AIG)
American National Life Insurance Company
Athene Annuity & Life Assurance Company
Athene Annuity and Life Company
Athene USA
Aviva Life Insurance Company
AXA Equitable Financial Services, LLC
AXA Equitable Life Insurance Company/AXA US
AXA Advisors, LLC
Brighthouse Financial, Inc./MetLife
EquiTrust Life Insurance Company
Fidelity & Guaranty Life Insurance Company
Genworth Financial, Inc.
Genworth Life and Annuity Insurance Company
Genworth Life Insurance Company
Guggenheim Partners, LLC
Guggenheim Partners/Security Benefit Life Insurance Company
ING USA Annuity and Life Insurance Company
Jackson National Life Insurance Company
John Hancock Life Insurance Company
Lincoln Benefit Life Company
Lincoln Financial Group
Massachusetts Mutual Life Insurance Company
Metlife/Metropolitan Life Insurance Company/Brighthouse Financial, Inc.
Minnesota Life Insurance Company
Nationwide Investor Services Corporation (NISC)
Nationwide Life and Annuity Insurance Company
Nationwide Life Insurance Company
New York Life Insurance Company
Northwestern Mutual Investment Services, LLC
Northwestern Mutual Life Insurance Company
Northwestern Mutual Wealth Management Company
Pacific Life & Annuity Company
Pacific Life Insurance Company
PacLife
Security Benefit Corporation
Security Benefit Group, Inc.
Security Benefit Life Insurance Company/Guggenheim Partners
Security Investors, LLC
Security of Denver Life Insurance Company/Voya
Transamerica Life Insurance Company
Voya Financial Advisors
Voya/Reliastar Life Insurance Company
World Financial Group Insurance Agency, Inc.
