In a word – profit.
Many annuities are extremely profitable – to the annuity company and certainly to the salesman/woman. If you knew that a salesperson was seeing a fourteen per cent (14%) commission and a trip to Bermuda for convincing you to invest your 401(k) rollover into an annuity you would see his motivation to selling you his product. If you knew the annuity company profits on these contracts are some of the highest found in any financial products you would understand their interest in pushing their products, too.
A gentleman who attended one of our live events described his three hours (total over two meetings) with a radio based annuity salesman. He then invested $157,000.00 in an annuity contract. When he found out the salesman has received $21,980.00 in commissions (in three hours) and locked him into a contract with severe restrictions for fifteen (15) years – he was more than a bit unhappy.
The ‘player’ in the middle between the annuity company, the salesman, and you is likely a marketing company. Sometimes referred to as a FMO (financial marketing organization) these companies broker annuities to their salesmen and earn handsome commissions when one of their salesmen sells an annuity to you. FMOs have recently ‘discovered’ the power of radio and make all the arrangements for the salespeople to produce a show in their local market. The (significant) costs of producing these shows are bundled in the revenue generated by the salesmen selling annuities to the (sometimes unsuspecting) listeners.
You should not take this radio trend as an indictment of all annuities. Annuities come in many different forms. Annuities are also offered by many different kinds of companies. Properly used, many annuities can bring significant advantages to an investor’s financial situation. Improperly used, the effects can be painful. This is the case with any type of tool. In the hands of a professional, the results can be very pleasing. In the hands of someone else – not so much.
If you have questions or comments, please send them to Gene@AskMtM.com