Annuity Chart They Don't Want You To See

Sometimes I just type random annuity words into google to see what comes up. You'd be surprised.

This weeks treasure is a document from The Annuity Source, Inc. and it lists all the latest annuities they are selling and the commission rates.

It's marked "For Agent Use Only. Not For Consumer Distribution", but it's available on the open net...so, here it is (18 pages of annuity products and their commission schedules):

Annuity Commissions

Wait, That's Legal?: The Annual American Fidelity Dance Ripoff

I come across a lot of ridiculous things in the 403(b), but some things rate off the chart, a real WTF event or moment. That's why I'm creating a new segment on the blog titled "Wait, That's Legal?".

In this first edition of WTL I'm going to focus on a situation that should be illegal. In fact, when I tell people about it they almost always come back with "wait, that's legal?" (yes, I'm very creative with my titles).

My wife's school district offers a Section 125 plan. For those not familiar, this is a plan that allows an employee to defer money pre-tax to be used for qualified medical expenses and for qualified child care. Not only is the money taken out of the paycheck on a pre-tax basis, if used for qualified expenses it is not taxed when withdrawn. It's tough to find a pre-tax and tax-free benefit and we use ours every year.

The administrator of my wife's plan is an insurance company, American Fidelity (yes, I've written about this before). It turns out that American Fidelity runs the Section 125 plan for free, meaning they don't charge the district for their services. Running a Section 125 is not cheap, so how is it that American Fidelity can do it for nothing? Coercion.

Most Americans have their health insurance premiums paid for out of their paycheck. The advantage is that if paid through a paycheck, the premiums come out pre-tax for both State and Federal taxes (it might vary on the State level). This is a perk of the tax code and one need not do anything to receive...unless of course you are an employee in my wife's school district (or other American Fidelity plans that are run in a similar fashion).

In my wife's school district every employee is assumed to NOT want their health care insurance premiums taken out pre-tax. If they want this "perk" they are forced to meet with an insurance agent from...American Fidelity. When they meet with that agent they are in a room with just that agent and the agent attempts to sell the employee any number of needless insurance policies and 403(b) products.

American Fidelity sells Accident, Cancer, Disability, Term Life Insurance, Whole Life Insurance, Youth Life Insurance and Critical Illness Insurance in addition to a terrible 403(b) product. Taxing your health insurance benefit is a ploy to get every school district employee to meet one-on-one with an American Fidelity sales rep. American Fidelity even pays for substitute to take over Teacher classes while they meet. Folks, this is nothing short of coercion.

I had the unfortunate problem of having my wife NOT meet with one of these sales reps one year and guess what, the district started taxing our health insurance benefit. A benefit that everyone receives for free and almost no one would refuse is suddenly taken away because we refused to meet with a person selling crappy insurance products during school hours.

I asked the district why anyone would want their health insurance taken out after-tax and the response was "There are employees who do not pre-tax the premium due to social security credit needs." This is not only a lame excuse, it's not true. Pre-tax health insurance has no affect on social security credits. Even if this were true, it's a tiny minority of employees who would want their health insurance taken out after-tax, they should be the ones required to meet with the agent (though a simple form would take care of it).

I believe the only reason the district forces every employee to meet with an American Fidelity sales agent is so that they can guarantee American Fidelity a steady flow of leads to sell their crappy products and make up the costs of running the Section 125 plan.

To which my response is "Wait, that's legal?".

Every year my wife has to do the American Fidelity dance...leave her classroom in the middle of the day to march up to the front office to meet a sales agent who has no interest in protecting her best interest, solely to say "please deduct my health insurance on a pre-tax basis" and change my Section 125 elections (we can't do this online...?). This year was interesting because the sales agent didn't even ask her if she wanted her health insurance premiums taken out pre-tax, my wife reminded the agent that she wanted her premiums pre-tax and the agent said "we already took care of it!". Even the agents know it's a ploy and have it automatically marked pre-tax and they don't even take the time to ask otherwise. If that's not proof of a sales scam, I really don't know what is.

School Districts everywhere are feeding their employees to the wolves simply to pay for a program that most employees would gladly pay for out of pocket (we paid $6 per paycheck for our Section 125 plan at another district). This practice needs to stop and the state insurance commissioner needs to look into these sales tactics.

Don't believe me, here is the receipt from my wife's meeting yesterday. I also have proof of when our benefits were taken out after-tax.

This has to stop. This is not ethical and it certainly shouldn't be legal.

Scott Dauenhauer, CFP, MPAS, AIF (This is an opinion piece)

How Is This Still A Thing? Annuity Ads

John Oliver has a segment on his HBO show Last Week Tonight named “How is This Still a Thing?” and lately I’ve been scratching my head wondering the same thing about annuity advertisements.

8% Annuity Returns? Hmmm…curious.

I received an e-mail from this company (above) the other day advertising “Annuity Returns” of 8%+. If you are a consumer and you see such a high interest rate compared to what the rest of the world is paying ($7 Trillion in assets globally currently trading at negative rates) are you not likely to click to investigate further? Who wouldn’t.

It's a F**k n' Great Life at F & G Life - Puerto Rico!

http://wealthmarkadvisors.com/fg-2016-power-producer-conference

St. Regis in Puerto Rico Anyone? Just Sell F&G Annuities...Sad.

If you want a great vacation in Puerto Rico all you need to do is sell $1.5 million in annuity products from F & G Life.

Yes, that's right, for selling on average only $125,000 per month of annuities (that's maybe 1  - 5 victims) an agent can get a 4 night stay at a top resort in Bahia Beach, Puerto Rico.

It's an F'n Great Life at F & G Life! But for the teachers it's just F'n Gallows.

The Safe Income Plus Fixed Index Annuity sold by F & G, the surrender period is 11 years. The commission is 7.25% AND also may qualify for the trip featured in this post.

Let's review. An agent sells $1.5 million of this product to its base of clients and receives potentially over $100,000 in commission plus a trip to the St. Regis in Puerto Rico. That's quite an incentive to sell F & G Life Indexed Annuity products. I wonder if this product would sell at all if not for the high commission and potential for an amazing vacation? My opinion is that it wouldn't.

Do you know what's behind the recommendation of your "advisor"? This type of incentive needs to be stopped. The insurance industry is hooked on Indexed Annuity products and the commissions and incentives that come with those sales, it's their crack.

If F & G has such great annuity products, wouldn't they sell themselves? Wouldn't real advisors WANT to recommend their products?

In this low interest rate/high volatility environment the ability of an index annuity provider to support a decent rate of return to the end client is severely restricted. Add in generous commissions and luxurious trips and it's nearly impossible for the end client to get a reasonable rate of return.

Yes, index annuities are great for retirement, just not yours (they're great for the agents retirement)!

Scott Dauenhauer, CFP, MPAS, AIF

Confessions of an Equity Indexed Annuity Salesperson?

Response letters to potential regulatory changes can be a gold mine. I was recently reviewing some old responses to an SEC rule that would bring Equity Indexed Annuities (EIA) under the umbrella of the SEC and require insurance agents who sell them to be registered (Registered Reps of a FINRA Broker/Dealer).

One agent for a company called #ValuTeachers wrote a response and I'm excerpting it below. Please consider that if I were to write a parody response letter to the SEC (posing as an insurance agent selling these products) it probably wouldn't look much different. The entire letter is at the end.

Claim/Statement #1

"To make the equity index annuity a security product would damage the ability of people who need this particular product to receive a fair representation of the product."

My Response:

Two things, first, no one NEEDS an EIA product, no one. Second, a sales agent that is highly motivated to sell a particular product because of its high commissions and potential luxury vacation rewards is NOT capable of providing a "fair representation" of anything. If this agent is truly concerned about representing any product fairly, he should be lobbying for the end to commissions in exchange for product sales.

Claim/Statement #2

"It would first make thousands of current Life insurance representatives have to get securities licensed to continue selling the product. Most will not do so leaving the current clients that they have stranded. This rule has not been thought through with the clients' best interest in mind. If so the SEC would realize the need to keep this an insurance product which is already being regulated by the insurance departments in the various states. If we force thousands of life insurance representatives to get licensed what if they choose not to."

My Response:

An insurance agent who advises clients on what to do with their investments, including talking about the stock market, should certainly be regulated more than the state insurance commission regulates. 

This agent claims that if forced to register as a representative or an advisor, most insurance agents would rather abandon their clients than register. What exactly does this say about such agent or agents in general (I know a lot of insurance agents who are good people and would never abandon their clients)? It says they are lazy and really don't care about their client (note, I don't believe all insurance agents are lazy, just ones that agree with this particular agent). If they really cared, they'd not abandon their clients over a specific product requirement. I find it ironic that this agent believes the SEC should have "the client's best interest in mind" but that the agent shouldn't be required to put the client's best interest first...notice he is not arguing for a fiduciary standard. If thousands of insurance agents choose not to register in order to sell EIAs, fewer EIAs will be sold and more investors/savers will have been protected.

Claim/Statement #3

"Many questions come to my attention in thinking of the client. 1. Are current insurance agents out of compliance for taking care of their current client base when they call and have questions about a product sold to them by their insurance agent but they are not securities licensed? 2. If the insurance agent is not securities licensed but continues in servicing their client and a registered representative files a complaint with the SEC because the insurance agent is discussing securities without a license how can you regulate that? 3. Should the thousands of clients that have billions of dollars in these products be penalized by having their friend and trusted advisor that is an insurance agent no longer be able to help them with their equity index annuity? 4. Will the SEC pay the surrender charges incurred by clients when a registered representative transfers them out of their current equity index annuity and into another product? 5. Will the SEC be able to monitor the activity of the sell of equity index annuities as it has shown it's lack of ability to look into it's current obligations. The headlines are evidence to this very fact! WALL STREET CRISIS! Where is the SEC now that everyone has made their money and left."

My Response:

This rambling and nonsensical statement goes after Registered Representatives as criminals and again builds a straw man. Insurance agents will not abandon their clients and source of income if forced to register, they'll register and if they don't, someone else will steal their clients. This is not an attempt to avoid needless regulation, it's an attempt to stay essentially unregulated. The insurance industry still allows what amount to kickbacks in their sales process and allowing such a system to continue is the real purpose of this agent in my opinion, a perpetuation of a corrupt system.

Claim/Statement #4

"It has been my experience in dealing with securities licensed people that the only thing that everyone needs is to put money in the market and securities. Any fixed annuity is almost below them when in fact often times people instruct them to give them a safe investment. Whoops! Insurance companies sell insurance products and broker/dealers sell securities products. This is not a time when we need to be arguing over what type of product should the equity index annuity be but whether or not the SEC a federal organization that cannot even handle it's current obligations be given authority to regulate even more that they cannot." 

My Response:

So this agent's limited experience now makes him an expert on all products sold across the industry. He presents no evidence. He does get one thing right, insurance companies sell insurance products! But B/D's sell all sorts of products, not just market based securities. If you only have an insurance license, all you can sell is fixed annuities (which are not investment, but savings products), it's the same old adage, if all you have is a hammer, everything looks like a nail. I'm certainly not going to argue that the products B/Ds sell are good for clients, but the main reason (left unspoken), in my opinion that this ValuTeachers/LSW agent doesn't want additional regulations is because it will end up cutting his commissions and all the perks received from the insurance companies. This is about the gravy train, not the regulatory train.

Claim/Statement #5

"It is evident with the current crisis on Wall Street that the SEC should spend more time regulating Wall Street and leave the insurance products to the insurance companies."

My Response:

Umm, AIG anyone? They were an insurance company, right? Nuff said.

Claim/Statement #6

"I urge you to give careful consideration to this rule and see through the mere attempt at increasing the number of people paying fees to the SEC. The product is harmless in most cases to the investor. There have been abuses as there have been in the selling of mutual funds to investors who have said they do not want any risk. The SEC handles the registered representative that does wrong and the insurance departments are handling the insurance agents that do wrong."

My Response:

The SEC doesn't regulate brokers (Registered Representatives), FINRA does (technically there is some overlap). Can anyone with a straight face really say that the state insurance departments have a handle on the sale of Equity Indexed Annuities? Anyone who reads this blog knows they don't. These products do cause harm and are mostly sold because of the high commissions and lack of any need to register combined with sales contests that send agents to Cabo, Maui, Monte Carlo...etc.

Conclusion

I've reprinted the letter below, I found it on the net, here. This letter provides some insights into the way EIA agents think. They are attempting to defend their turf and their income, but we need to make sure that the defense of their income doesn't come at the expense of the client. EIAs need more regulation.
Scott Dauenhauer, CFP, MPAS, AIF

ValuTeachers Letter to SEC

Warren Commission: Villas, Castles, and Vacations

Senator Elizabeth Warren began an investigation of insurance company non-cash compensation methods several months ago, what she found will be shocking to most people, but not to those of us who've been following the unethical sales practices of the annuity industry for decades.

Titled Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry, the document outlines some of the incredible perks that insurance agents receive in addition to commissions when they sell annuity products. Warren hinted at some of these perks in a Senate Banking Committee back in April, you can watch her below:

In this report Warren attempts to discover the entirety of non-cash compensation, though she isn't entirely successful, here's an excerpt:

"Kickbacks pose an especially dangerous problem. When companies can offer kickbacks to agents for recommending high-cost financial products, and when those kickbacks are hidden from the customers, the likelihood that consumers will be duped into buying bad products increases sharply. 

To explore the prevalence of this type of conflict of interest, in April 2015 Sen. Elizabeth Warren (D-MA) opened an investigation, asking fifteen leading annuity providers for information on whether they offered non-cash incentives such as lavish cruises, luxury car leases, and other perks to annuity sales agents to promote their products and whether their customers were aware of the agents’ compensation arrangements."

Reading this report one wonders how the insurance industry continues to get away with such unethical and clearly conflicted business practices, it's a testament to the power of that industry and Warren is confronting them head on.

Dan Otter of 403bwise.com and I recently did a podcast on such compensation practices and you should be able to listen to it soon by going to www.teachandretirerich.com and clicking the podcast link.

I encourage you to watch the above video and then dive into Warren's report.

2015-10-27 Senator Warren Report on Annuity Industry

It's time to put a stop to these unethical compensation practices.

Scott Dauenhauer, CFP, MPAS, AIF