Insurance Agents and Companies Facing Tough Times

In my humble opinion, I believe that insurance agents and companies that sell annuities primarily, are having a rough go of things. There are four main types of annuities that are sold by insurance agents. There are also other types such as hybrid policies, but we will save that discussion for another blog article. The four main types are as follows:

1. Fixed Annuities
2. Indexed Annuities
3. Variable Annuities
4. Single Premium Immediate Annuities

Fixed annuities are where the insurance company declares a rate of interest based on current market rates and agrees to pay the annuity policyholders that rate. The problem right now is that these rates are 2% and less, so they are pretty much unappealing to consumers. The agents who normally sell these annuities are finding it very difficult to sell these, so they have gravitated to Indexed annuities.

Indexed annuities, when rates were higher, were real popular. A quick refresher on Indexed annuities is in order here. Indexed annuities, like their name implies, is based on an index such as the S&P 500® index. My dad was an insurance agent and was full of quips and jokes about insurance companies. One of my favorites of his related to when an insurance company changed the terms of their products. For example, Indexed annuities. When my dad found out that the old policies were not as favorable for his clients, he would quip..."that was the old deal. This is the new deal." You see, insurance companies have a routine. They come out with great products and push their agents to sell, sell, and sell some more. Then, after they get the policies on the books, they basically screw these customers.

For example, when Indexed annuities first came out, you could get cap rates around 10%. This means that if the S&P 500 made 10% or more, then your annuity would be credited with 10%. Sounds great, doesn't it? What the agent did not tell you was the insurance company has the right to change the cap rate anytime they please. So, after these customers bought these Indexed annuities with 10% cap rates, a scant few years later find out that their cap rates have been lowered to around 2.75%. This means that if the S&P 500 makes 15%, then you get 2.75%. As my dad would say..."that was the old deal. This is the new deal."

Of course, then we have another annuity type, the Variable annuity. Insurance companies made a major mistake with these products, too. They put all these Guaranteed Benefit riders on them and now they find themselves not being able to live up to the guaranteed part. In fact, several companies have even gone so far as to try and buy the guarantees back from their policyholders. If these insurance companies have resorted to this measure, then perhaps it might be time to take notice. Especially, if you have one of their Variable annuities.

Never mind the fact that most insurance agents have no clue how to invest these Variable annuities on your behalf. Nor never mind the fact that the expenses on these can run easily close to 3% a year, not even counting the commission that you have to pay.

Finally, we have the Single Premium Immediate Annuities. This is where you give the insurance company your money, let's say $100,000, and then they agree to pay you an income stream for life,  or one of their other payout options. In the past, when market interest rates were 6 or 7%, these were good options to consider. However, today with current interest rates so low, the SPIA's, as they are called, are only crediting you about 0.25% over the life of you annuity. Instead of getting 6% in interest on the income stream that you receive, you will only get the paltry 0.25%.

Insurance agents using a bucket approach have found themselves in a quandary. The bucket approach does not work with SPIA's right now. When rates go back up, then these will probably come back into vogue, but not right now. The bucket approach is a split annuity approach where you use a SPIA and also a deferred annuity. You combine the two to grow back to your original investment in 5 years. The problem is that the numbers do not work very well unless interest rates are high.

When you look at all of these products, it is apparent that insurance companies and their agents are running out of viable options to sell to clients. Here is why:

1. Do you want to buy a Fixed annuity that pays 1% and you are locked into it for 10 years?
2. Do you want to buy an Indexed annuity that while the stock market is going up over 10%, you are only getting 2.75%? Plus you would be stuck in it for 10 years?
3. Do you want to buy a Variable annuity with guarantees only to find out that the insurance company is in financial trouble and they want to buy the guarantee away from you? Plus you would be stuck in it for 10 years knowing they might not be able to pay you at all?
4. Do you want to put your money into a SPIA where you cannot get your money back with most payout options? A SPIA where they only give you your own money back plus a smidge in interest? Does that sound good to you?

Tough times are happening for insurance companies and their agents who sell these annuity products. These agents are crying in their beer right now. The old process of running a seminar doesn't work. These agents were okay spending $6,000 to put on a seminar when they had high interest rates, because they were selling annuities like beer on a troop train. Now however, they do not have appealing annuities to sell. They have been losing money on these seminars, because no one is buying these four products like they used to when rates were higher. Some old guard agents are trying radio and TV with ads like..."we have never lost a penny of our client's money." Sad fact is they are not making much money for their clients either and the guarantees are at risk.

If you own any of these annuities, then you may want to obtain a second opinion from an unbiased source. You may not be getting what you thought you were getting when you bought it.

Remember what my dad said. That was the old deal. This is the new deal.

A second opinion is always in order.

Multiple Seminar Attendees Get Bad Advice

It is amazing that even when you lay yourself out there for all the world to see, people still gravitate towards the advisors (don't make me laugh) who claim to protect seniors. I recently held a seminar where I showed people my background right in the seminar. I showed them how to look up my background in several different places on the web. Further, I explained to them that I am compensated by fees. Apparently some people do not care if you are honest and upfront to them. They would rather someone lie to them and take them for as much commission as possible.

Recently, I received a call from someone who attended my seminar and they wanted to know how to get a hold of one of my competitors. This senior person was confused about who she was calling and could not remember whether my competitor worked for me or the people that ran the other seminar that she went to recently. If she is already confused, sadly this means that my competitor will likely have a field day and take her for everything they can.

This competitor is not licensed as a financial advisor but rather only as an insurance agent. They blatantly promote on their web site that they sell annuities. They also claim to offer financial planning. Here is a news flash. You cannot say you do financial planning unless you are a Registered Investment Adviser. This firm is breaking this rule big time. ( I always wonder, why is it so easy for me to find these snake in the grasses, but the regulators never can seem to find them?)

They also have video testimonials on their web site (which the last time I checked were illegal.) It is very obvious in these video testimonials that the seniors in the videos were "coached" to say certain wonderful things about the annuity sales person. The whole purpose of these video testimonials is to establish trust and credibility for the seniors that view them and sell more annuities, of course.

This firm of annuity sales people claim to have an office, but I know their office to be one of those that you just rent when you have a meeting. The sad thing is that they will not tell the seniors that they are advising that the office is not really their office. Nor will they tell them that the mailing address to this rent by the appointment office is there to imply that this really is their office.

I have an ethical question for you: Do you think it is alright to operate your business in this manner and not tell prospective clients that this is really not your office?

My answer is not no, but h**l no!

A senior who needs help planning for long term care will have a problem when they have a portfolio of annuities. Most of these annuities will have a 10 year surrender charge. This is because they pay the agent the most commission when they have a 10 year surrender charge. A lot of these annuities can be converted into a guaranteed income stream, but if they are trying to qualify for public benefits, then they will have a big problem. A lot of the annuities sold out there have a minimum of 10 years that you can annuitize. However, if an Elder Care Attorney advises that the annuity can only have a 5 year term, then this will disqualify the senior from public benefits. This means that they will have to spend their all of annuity money for their long term care needs BEFORE they can qualify for public benefits. Do you really think the annuity sales person is going to admit this potential problem when they are looking at commissions of $7,000 to $10,000 or more? Keep your assets. Take my advice. They will not tell you about this at all, because if they do, then they would lose the potential commissions.

I will keep telling people my background, disclosing all conflicts of interest, explain my fees and delivering great advice while I am up against competitors like the one described above. You see what guys like me are up against? I do not mind competition, but come on man! At least be legal and ethical competition.

Stay safe out there. Watch out for your mom and dad.

Sad But True

It breaks my heart when I see people getting taken advantage of by registered representatives (RR) and insurance agents. Especially, the elderly. I had a prospective client come in and I reviewed their (I hate to even say this) portfolio. Forty percent of their portfolio was in Non-Publicly Traded REIT's. Readers of this blog know how I feel about these (again, I hate to even say this) investments. Of course this is what the registered representative (RR) had sold the client. When an RR puts people in these Non-Publicly Traded REIT's, it is out of pure greed. These investments pay 7 to 10% in commission to the RR while locking in the client for 10 to 12 years or more. Apparently, this RR sees no problem in selling someone in their eighties a non-liquid investment that may or may not give them their money back before they turn 90 something. Nor does this RR see any problem with locking up 40% of an elderly client's money for 10 - 12 years. Is steam coming out of your ears? It is mine.

I thought that I would look up the background of this RR on the FINRA Broker Check site. Seems like he had a complaint for selling...guess what? You guessed it...Non-Publicly Traded REIT's. As luck would have it, he won the complaint against that client by saying that he had three meetings with that client where he explained the risks and that client knew and signed off on the risks. You see this is how Suitability in the world of Wall Street broker-dealers works. RR get away with this kind of behavior all the time.

But wait, it gets worse. I have not told you about the insurance agent and their antics yet. The rest of this prospective client's portfolio was in...guess what? You guessed it...Annuities. Several of these annuities, I know for a fact, pay 10% commissions to the insurance agent and have 14 year surrender charges for the prospective client. So, I am looking at this situation and I see the whole portfolio locked up for between 10 to 14 years for someone in their eighties. Insurance agents are subject to similar Suitability rules. As long as the prospective client is explained the risks and signs off on the risks, then this is perfectly legal to do. Legal maybe, but ethical, no stinking way.

So, I carried my background search a little further. I decided to look up this insurance agent's background. Seems like we have a few issues with this (dare I say it) professional. Apparently, this person had their securities licensed revoked and also had served two years probation on their insurance license for...guess what? Right again. Complaints about selling annuities.

This prospective client had paid roughly $60,000 in commissions to these two professionals.

I know what you may be thinking, but this kind of activity is so common amongst RR's and insurance agents that it is not worth complaining about it. Think about it this way. If each of them are making $30,000 off of this person, then they are probably doing the same with everyone. Therefore, the likelihood of them making several hundred thousand dollars a year is a very high possibility. As a result, they can easily pay for their legal defense to fight any complaints. This would just be a cost of doing business.

Like my title says...sad, but true. With a caveat from me, don't let this happen to you or someone you know. Do not do business with banks, insurance agents or Wall Street firms. Their first priority is to generate commission revenue for themselves. Clients are of little concern.

Florida Seniors Annuity Bill Dies in Committee

How does a bill to protect Seniors from unscrupulous annuity peddlers die in committee in the Florida House? Especially, after it passed 39 to 0 in the Florida Senate? It says on the Florida House web site that the Annuity Contracts for Seniors died in committee. Which committee? The Insurance, Business and Financial Affairs Policy Committee killed it on May 2, 2009. They also said that it was indefinitely postponed and withdrawn from consideration.

http://www.myfloridahouse.gov/Sections/Bills/billsdetail.aspx?BillId=41174

Why on earth would a bill that passes 39 to 0 in the Florida Senate get totally dismissed in the Florida House? We can only speculate that the insurance lobbying efforts were powerful and successful in squashing this bill to protect Seniors.

This bill would have limited all annuity contracts to 10 year surrender charges. It would have made it a felony to twist and churn Seniors out of their money to buy Annuities. Perhaps the biggest item in the bill was that if an insurance agent had previously lost their securities license, then they would automatically lose their insurance agent's license. Apparently, there are scores of insurance agents in Florida who have lost their securities licenses, but continue to do business as insurance agents. It seems to this humble blogger that getting rid of these insurance agents would be a good thing.

The first sign of a chink in the armor was when in the Senate version, the maximum surrender charge period was expanded from 5 years to 10 years. Alex Sink, CFO for the State of Florida wanted the 5 year surrender period, but it appears the insurance lobby won out by expanding that to 10 years.

Oh, the world of politics. Should we really be surprised that this bill died in the Florida House? I think not. What we have here folks, is an example of the insurance lobby at work. Not only were they successful in killing the bill, they were also successful in giving unscrupulous insurance agents new life to continue their misdeeds.