It turns out, when brokers are forced to look out for your interests instead of their own, they end up selling you fewer annuities.
I’ve been a critic of annuities for years (decades?). Loaded with fees and backed by guarantees that are only as good as the banks behind them, annuities are hawked like a snake-oil retirement solution to unsuspecting investors.
I wrote back in 2014 that:
The issue is that annuities are sold with a full-court press on those that don’t invest for a living. They’re promised rates of return that sound good on paper but will be wiped out if the insurer goes bankrupt and the government doesn’t bail it out.
With interest rates at basically zero there is no way insurers can meet the promises they’ve made. It’s a hope and prayer. It’s why I would never put any serious money into an annuity.
In 2017 rules governing how brokers could invest in their clients’ tax advantaged retirement accounts changed to fiduciary status. Fiduciary management is something else I’ve been writing to you about for years. Is your advisor on your side? Or his own? You need to know if your manager is held to that higher standard or not. In 2016 I warned investor to be vigilant about their advisors:
If you choose to work with an investment advisor, wealth manager, financial planner, stock broker, retirement specialist, you name it, there really is only one question for you to ask up front. Are they held to a fiduciary standard or a suitability standard for all account types, not just IRAs? At Richard C. Young & Co., Ltd. we’re held to the fiduciary standard (sign up for our monthly client letter here, free even for non-clients).
The difference between the two are night and day. You would think this topic would be crystal clear. It’s not. Most are held to a lower suitability standard. In other words: They don’t have to buy you the best, low cost product if they have one that is similar or suitable with higher fees.
Like any purchasing decision, you hire any of the above and trust that they do what’s right for you. Too often that is not what happens. If it were the case, annuities wouldn’t be the huge money making behemoth that they are. I am shocked at the product that gets stuffed into portfolios by the self-serving in this business.
You need to be vigilant and crystal clear on this subject. You want to work with a fiduciary—someone who is held to the highest standard.
Now, after the new rules on retirement accounts were put into place, annuity sales are plummeting reports Greg Iacurci at InvestmentNews:
The Department of Labor fiduciary rule and the interest-rate environment delivered a one-two punch to annuity sales last year, pushing them down for the third consecutive year.
Compared with the previous year, overall annuity sales dipped 8% in 2017, to $203.5 billion, according to the LIMRA Secure Retirement Institute, which tracks insurance data. All major product lines were in the red.
“One of the biggest impacts we saw was from the regulatory side of the business, particularly with the DOL fiduciary rule,” said Todd Giesing, director of annuity research at Limra.
The fiduciary rule, which was partially implemented in June, raises investment-advice standards in retirement accounts such as 401(k)s and IRAs. One of the goals of the Obama-era regulation was to curtail conflicts of interest that may exist when brokers sell financial products for a commission, as they predominantly do with annuities.
The fiduciary rule, major parts of which have been delayed until July 2019 and may be changed by the Trump administration pending a review, led to uncertainty among insurers and distributors such as broker-dealers, which contributed to a disruption in annuity sales, Mr. Giesing said.
Annuity sales into IRAs were down 13% in 2017, whereas those in non-qualified taxable accounts — which weren’t directly affected by the fiduciary rule — were down only 1%.
Latest posts by E.J. Smith (see all)
- Your Questions, My Answers: Custodial Accounts and Gifts to Minors - November 16, 2018
- Your Retirement Life: Is Owning a Second Home a Good Idea? - November 16, 2018
- Your Retirement Life: College Towns - November 15, 2018