One thought on “214 When Fixed Annuities Make Sense”
In podcast #214 on fixed annuities, I agree with your assertion that dismissal of annuities might be a sign of bias. However, the assertion that the commission on annuities is different because the value of the account starts at what you purchased is a little misleading. If you were to enter into a contract and then cancel one day later, you would pay the surrender charge (you did mention this later in the podcast). The surrender charge is there because of the commission that you paid. If that commission was not there, or was smaller, then the contract terms could be more favorable for the purchaser without any loss of profit for the insurance company. If you do keep the product for a long time, then yes, the average commission is smaller than the annual AUM fee for a typical money manager. However, many investors can reproduce what that money manager can do by going to a fee-only advisor (not AUM) and pay even less overall. The whole thing about the company paying the commission is not really true, it is coming from the reduced payout that you get from the contract and if you get out of the contract early, you will be down money, just as if you had paid a front-end load.
In podcast #214 on fixed annuities, I agree with your assertion that dismissal of annuities might be a sign of bias. However, the assertion that the commission on annuities is different because the value of the account starts at what you purchased is a little misleading. If you were to enter into a contract and then cancel one day later, you would pay the surrender charge (you did mention this later in the podcast). The surrender charge is there because of the commission that you paid. If that commission was not there, or was smaller, then the contract terms could be more favorable for the purchaser without any loss of profit for the insurance company. If you do keep the product for a long time, then yes, the average commission is smaller than the annual AUM fee for a typical money manager. However, many investors can reproduce what that money manager can do by going to a fee-only advisor (not AUM) and pay even less overall. The whole thing about the company paying the commission is not really true, it is coming from the reduced payout that you get from the contract and if you get out of the contract early, you will be down money, just as if you had paid a front-end load.