November 01, 2018
Annuities. Are they good or bad? Berry’s Bites
Annuities. Are they good or bad? There is a lot of talk about whether annuities are good bad. In reality, they are just a tool. What’s more important is where are you getting your advice? From an annuity salesman or a true fiduciary.
Chris Berry here with the Berry’s Bites. Today, I read a couple articles talking about annuities. The question always is, are annuities good or bad? And that’s not really the right answer. All they are are a tool. Everything’s a tool. It’s whether the tool is used correctly or not. You couple this with a Wall Street Journal article I just read that said with the death of the fiduciary role … so, if you don’t know, the Department of Labor was talking about instituting a fiduciary role where basically anyone that gave advice on qualified accounts, a lot of times, we’re talking about 401(k)s and IRAs, basically, there are some fiduciary responsibilities placed on those people.
Too often, if someone is just a annuity salesman, then they don’t owe a true fiduciary standard to the client. All they owe is what’s called a suitability standard. A lot of insurance professionals try to get around this by aligning themself with true fiduciaries, because what happens a lot of times is that there’s perceived higher commissions with these annuities.
There’s a couple interesting conversations or discussions that I read, a couple interesting articles. On this one site, it was talking about whether assets under management or annuities were better for clients. A lot of people were either all on on one side or all in on the other side.
In reality, the advisor or insurance professional, whether they are managing assets under management or annuities, it actually ends up being the same in terms of the money going into the advisor’s pocket a lot of times, because for example, let’s say a advisor charges 1% for the assets under management. Well, guess what? That 1% is coming out of your pocket. If you look at that over four or five years, that might be greater than the commission an annuity might put into a insurance professional’s pocket. I think it’s a little bit of a misnomer that annuities are high commission. It’s really not that different than assets under management.
Now, that said, I think annuities are oversold, because too often, people might just have an insurance license, but they won’t have a Series 65 where they’re a true fiduciary where they can do assets under management, whether they just haven’t taken the test, don’t want to put in the effort. But a lot of times, I feel like it’s they don’t want the oversights or that fiduciary responsibility.
That’s one thing to really think about is where you’re getting this financial advice from. It’s important to ask if the person you’re sitting across from, not just if they’re aligned with, but if they are truly a fiduciary, because otherwise, they might be selling you something that’s just suitable for you but maybe not in your best interest.
That said, I’m not saying annuities are good or bad. Understand they’re just a tool. Sometimes it’s the right tool to use. For example, sometimes we have to do a Medicaid crisis plan that involves a Medicaid compliant annuity, and that’s our only choice. In the past, we used to be able to do something called a Sole Benefit Trust, but at least in the state of Michigan, they came down hard on those. They said that really the only option we have is to utilize an insurance company and use a Medicaid compliant annuity.
Annuities, they’re not good or bad. They’re just a tool. But you need to make sure that it’s the right tool for you. The best way to do that is make sure that you’re sitting down truly with a fiduciary, someone that has your best interest in mind, not someone who’s an insurance salesman, because in their situation, if all they can do is sell insurance, then their only tool is the annuity. The only tool then really is like a hammer, and everything looks like a nail to them. You want to make sure that you work with someone who is independent. You want to make sure that you work with someone that has access to all the tools so that they can utilize and advise you on the tool that’s best for you.
This has been Chris Berry with Berry’s Bites.