4 Red Flags to Watch Out for in Your Annuity Provider
A new Ohio law was passed in February 2021 that attempts to impose ‘best interest’ fiduciary standards onto life insurance and annuity providers (you can learn more about the law here, here, and here). While this initially might spark hope, unfortunately the ‘best interest’ standards are extremely vague. If a salesman is able to argue why their product benefits their client, they are allowed to sell whatever financial product they want.
Operating in these separate silos of insurance agent, financial advisor, CPA, tax lawyer, etc. leaves room for abuse to the consumer. Many annuity providers and so-called financial advisors plant their product as a solution to a variety of problems, when in reality another product is likely more useful. Below are 4 cautionary tales from clients that have come to us for help in the past. If any of these situations have happened to you or a loved one, or are currently happening, we encourage you to seek out additional financial tools and professionals.
Pushing Annuity Sales, No Matter the Age
There are some financial advisors that will sell annuities to people in their twenties! While the argument can be made that money will grow in an annuity, and hence be a great product for a consumer, there are much more downsides to purchasing an annuity as a young adult. If you need to get that money out before retirement age (at age 59 and a half) you will have to pay penalties.
One particular client in their forties came to us as they were changing jobs and evaluating their personal finances. We found out together that all their retirement savings were slammed into a variable annuity! Having all your eggs in one basket is simply not a good idea, especially in a variable annuity that has a large fee structure. This client’s former ‘financial advisor’ sold annuities and didn’t bring to the client’s attention other financial tools that they could use. The continually accumulating fees greatly eroded their potential wealth and growth for the future.
Now, both of these types of situations will still happen under the new Ohio law because a creative argument can be made that these salesmen still acted in the best interest of their client. They still provided some value to their client, albeit other tools could have provided more value.
Another client that came to us was in her nineties. Her Certificate of Deposit (CD) matured, and the in-house advisor at her bank pressured her to move her money into an annuity. This locked her money up for many years, and the advisor didn’t educate her about other alternatives. She didn’t have much time to see any substantial growth from her annuity.
Again, this transaction will still be allowed to happen under the new Ohio law.
The Most Abusive Case We’ve Seen
The last story is something that actual would not be allowed under this new Ohio law, and is the most abusive action we’ve seen by a financial advisor. This person was in their sixties and wanted to secure some safe financial growth for the future. Their former ‘advisor’ in this situation was aware that this consumer that they were selling an annuity to had dementia and was heading towards long-term care in the future. This annuity did not even allow access to funds for a long-term care need. There are plenty of other tools out there that DO allow access to funds for long-term care needs, and even provide ENCHANCED benefits for long-term care. They would have to pay penalties to get that money out of the annuity on a monthly basis to pay for long-term care.
Situations like these are why financial professionals need to broaden their horizons and surround themselves with a network of experts in different areas. At our financial planning firm, DuPont Wealth Solutions, we draw on a variety of experts to best serve our clients.
Annuities are not in themselves bad, nor the financial industry as a whole. Many financial salesmen are simply trying to make a living like the rest of us. However, many also try to make their discipline work to the exclusion of other tools that will do the job better.
If you are looking to ease some long-term care concerns, and develop a retirement income plan please call 614-389-9711.