Episode 10: Fisher Investments Annuity Insights Report

Today we’re scrutinizing Fisher Investments Annuity Insights, taking a harder look at its claims to reveal a more balanced perspective on annuities.

In the financial world, just like in the auto industry, there’s a prevalent strategy of competitive disparagement. Much like how Ford might target Chevy, investment firms often set their sights on annuities to sway your investment choices. However, while it’s one thing to compete, it’s another to mislead by omitting crucial details. This line between criticism and misinformation is what prompted me to make this in-depth podcast episode.

Fisher’s article on annuities, structured around nine pivotal questions, mixes facts with conjecture and occasional misinformation.

The 9 Questions Inside Fisher Investments Annuity Insights Report

What type of annuity do I own or am I considering?

There are several different types of annuities, but the most prevalent are Fixed Annuities, or what is also called Multi-Year Guaranteed Annuities or MYGAs, Fixed Indexed Annuities, and Variable Annuities. Each serves a different purpose, and it’s about understanding what you want your money to do for you.

Annuities are not one-size-fits-all; they come in various forms, each serving distinct purposes:

    • Fixed Annuities (MYGAs): Think of these as the stable bedrock, offering a guaranteed return similar to a certificate of deposit.

    • Indexed Annuities: These are the balancers, tied to market benchmarks like the S&P 500 but capped to limit both risk and reward.

    • Variable Annuities: The adventurers of the group, allowing investments in sub-accounts with variable returns and associated risks.

Your financial goals dictate which type aligns best with your needs. It’s a decision that hinges on the fundamental question: “What is the purpose of my money?”

Have I read and understood the contract?

This is particularly relevant to Variable Annuities. They are super complicated to understand and they do have very high fees, with an average of 3.75% per year. You could definitely lose money inside of a Variable Annuity.  Annuities like Fixed Index Annuities and MYGAs, however, are easier to understand and have no risk of loss due to a market downturn.

What types of expenses does the annuity have, and what is the overall cost?

Most annuities don’t have a single flat fee. Fixed Indexed Annuities and MYGAs, for instance, don’t suffer losses unless you forfeit the annuity during the surrender period before the term is up.  Life insurance companies, that issue these annuities, are heavily regulated and have several safety nets in place.

Will I be charged a fee if I withdraw assets from my annuity too early?

Annuities have what’s called a surrender schedule (this link is a podcast on surrender schedules). The main thing to remember about the surrender schedule is it’s only applicable if you surrender the entire annuity. And if you’re working with a competent annuity advisor, this should never be an issue because those provisions are already taken into consideration.

I think the most irritating thing about this particular section inside Fisher Investment’s “Annuity Insights” Report is they failed to mention that if you need your money back from your stocks, the negative impact of a market correction could far exceed any annuity surrender charge.

For instance, if you need to pull a lump sum of money out of your stocks and your portfolio is down 20%, what is your surrender charge? It’s 20%, but they never use language like that and I think it’s a very unfair and misleading double standard.

What conditions must I meet to take advantage of the advertised benefits?

Many benefit riders are useful if the purpose of the annuity is to provide guaranteed lifetime income. The only time that you would have to “annuitize” your annuity would be if the original annuity you have was not set up for income and then eventually you wanted to convert it to an income.  However, several options could work out a lot better than “annuitization”.

How can performance floors and caps affect my returns?

Floors are meant to prevent you from losing anything when the market is down. Caps are a trade-off for this protection. The annuity company does not pay your growth out of their pocket, so they could care less if the market is up 1% or 1,000%.  It does not affect their bottom line whatsoever.  Here is a link to a podcast where I explain “How Annuity Companies Make Money.”

How are annuity income and principal taxed?

If your money is in a qualified account like an IRA or 401k, you’re going to pay normal income tax on the money when you take it out. If you are using after-tax money, there are some different rules when it comes to the income for annuities.

I break down some examples in the podcast.  However, you should always check with a tax-professional when it comes to paying your taxes.

What impact will inflation have on my annuity income?

Unfortunately, the majority of people out there do not have enough money just to have a consistent 3% increase every single year. So when it comes to income planning, it normally works out best to get as much guaranteed income as you can from an annuity and use your remaining assets to help offset inflation.

When I pass away, what impact will the annuity have on my survivors?

For estate planning, get an estate planning attorney involved.  That is a true niche market of advisement. The best way to transfer money to beneficiaries is not stocks, bonds, mutual funds, CDs, or even annuities. It’s life insurance.

My Overall Assessment of The Fisher Investments Annuity Insights Report

As we wrap up today’s deep dive into Fisher Investments Annuity Insights, I want to share my overall assessment of this report. Fisher Investments has put forward a perspective on annuities that, in my view, lacks the depth and balance necessary for a complete understanding of these financial products.

First and foremost, the general tone of ‘Annuity Insights’ tends toward a broad-brush criticism of all annuities when the vast majority of the report is referring to Variable Annuities.  And that is one thing Ken and I agree on – Variable Annuities suck!  At least the ones that are being offered these days.  This is why I refer to them as “the wolf in sheep’s clothing”.

While it’s true that Variable Annuities can be complex and laden with fees, painting all annuities with the same brush does a disservice to those who might benefit from them. Fisher’s report seems to miss the nuances of MYGAs and Fixed Indexed Annuities, which can offer the stability and protection that some investors are seeking.

Furthermore, the report’s approach to explaining the costs associated with annuities oversimplifies a complex matter. In my experience, transparency and understanding of fees are critical. Yes, some annuities have expenses, but they are not always as prohibitive or hidden as the report suggests. A good question to ask when it comes to fees is, “What am I getting in exchange for this expense?”.  

In the podcast, I dive much deeper into some of these nuances and include several examples where we can easily see that many of these points completely omit real-world application. I encourage you to give it a watch or listen, and if you’d like to discuss anything that is directly concerning your situation, you can schedule a short call on my calendar.

Podcast Episode: Fisher Investments Annuity Insights Report

Reading Time: 4 minutes

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