Response: The DOL ruling basically means three things to advisers and consumers in the financial services industry:
1. No misleading statements to clients
2. No more than reasonable compensation
3. Making sure the product selected is in the client's best interest
In other words... Do the right thing.
Having said all that and let's face it, rules have always meant to be bent, broken or in some cases completely disregarded and I'm sure that this is no different. However, from a consumer standpoint there are some safeguards, things you should expect when dealing with a financial professional, that should become the new standard based on what this regulatory package expects. Here is an example of my business process that I feel eliminates the risk of things going bad for both the client and myself.
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Response: I recently wrote a response to a question that someone posed to me with regards to getting a second opinion on their annuity, to which I responded that it's always a good idea to get a second opinion about anything if you feel you are having a lopsided conversation. Meaning, if you are getting all the good, but feel as though the negative aspects are being left out... you might want to take some more time before making a decision. One blog reader posted a comment that essentially said that all annuities are bad, only snakes sell them and gave his interpretation on how an indexed annuity works and the advice that he offered his family members.
"Steer clear of annuities. The insurance company caps your return, invests your money in the markets and keeps all above the guaranteed cap. Example, they guarantee 4% a year to the annuity holder on $100,000. Then, they invest the entire $100,000 in stocks of their choosing. Imagine a year like 2013 when the stock market averaged returns of about 34%. In that year, the insurance company keeps 30% and gives the annuity holder their 4%... What a great deal. It is a terrible product and only snakes sell them. If you ever want out, it takes fierce phone calls and about two to three months to get YOUR money back from them. I know because I had to help relatives get out".
At first I thought it was comical how an "armchair" expert could have things so absolutely wrong and then I became concerned. I have conversations weekly with people who are clearly stressed over either their purchase of an annuity or own one or a handful of them and learn something about them that they didn't know when I provide them with a detailed Annuity Report Card. My point in this response is that seeking advice from someone that you know who may be very smart... may not be the best choice for your source of information. These are confusing, complex investment vehicles that and there are a lot of bad ones out there as well as bad people selling them. However, making an emotional decision about what to do from someone who doesn't understand what they are speaking about might just very well take a bad situation and make it even worse.
My advice is not to seek advice or even a second opinion, just get it from a qualified source and someone who is willing to tell you not only the good, but the bad as well. Getting those good and bad details in writing.. even better.
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Response: The question to day is all about that ugly word "commission" when it comes to purchasing annuity. People who sell books and sit at pretty desks on television and even those that don't sell annuities most often throw out the blanket statement that commission on annuities is "too high". I read a lot of stuff and I've never read or hear anyone ever say what they would consider an appropriate commission level is... all we know is that they are too high.
I'm going to kill the elephant in the room and share a secret with everyone... EVERY financial transaction you make on ANY product has some type of commission or fee. I know there some smarty pants out there talking about "No Load" mutual funds etc... but no matter whether you are purchasing a mutual fund, stock, bond, REIT, annuity, car or home... you are paying a commission.
Now that we have that out of the way... let's talk about what's appropriate and what should be a red flag. With my 25 years of experience I will tell you that just like everything else, there are "consumer oriented" annuity contracts out there that actually make the client money, offer them some liquidity etc. and there are also what I would consider "broker oriented" annuity contracts that mathematically don't work and pay the broker more than they should. Here is lies the issue... THEY ALL LOOK THE SAME! Hence the blanket statements and on and on. Let me give you a bit of advice... ask the advisor how much they are making on the deal. If it's more than 6-7%... it's time to start asking questions and a lot of them. One other thing to be aware of is that everything you're told is now quickly and easily verifiable on the web. My proprietary Annuity Report Card® spells everything out for our clients in writing so they can see ALL fees, charges, back end charges, liquidity parameters etc. These are the primary items that will affect how much the insurance company is able to pay the advisor.
I'm going to be doing several features on the DOL Fiduciary Ruling and will get into this topic a bit more, until then please keep the questions coming at www.annuityhack.com or call or text your question to 561-657-3360
Carl Barnowski has 25 yrs. of experience as a retirement income expert specializing in principal protected annuities.