Harry’s in his early 70s and still runs several companies, the most profitable of which cranks out plastic in Georgia like you would not believe. Phyllis is his wife. They’re worth millions (mostly due to Harry’s grit and sweat) most of it tied up in real estate and businesses. Since only a small portion of their substantial wealth was liquid, Harry and Phyllis were quite concerned about Harry’s ability to finally retire and enjoy the time they had left.
This couple came to a workshop after watching the value of their products at a major brokerage house nosedive nearly 35% in less than a year. As it turned out, they had been with the same outfit for something like twenty years, and were barely breaking even after all that time, when they should have doubled their money many, many times in that period, given what the markets had done in the 80s and 90s.
Of course, when they came in after the seminar and laid their portfolio on our conference table, we found it full of those high-commission annuities, even though it had been built at a stockbrokerage firm. The largest part of the portfolio was in a very expensive variable annuity, which had dropped something like $100K to $150K in the short time that they owned it. Once again, they did not know that they owned an annuity, or just precisely what they owned, only that whatever it was had a guaranteed return of principal in (I’ll say) eight years.
As is often the case, losses were exacerbated by very poor choices of fund accounts, resulting in a concentrated portfolio exposing the owner to far more risk than anyone involved (salesperson or buyer) ever realizes until it’s too late.
The hidden fees, which Harry and Phyllis said they knew nothing about, in this jewel went something like this: 1.25% mortality charge (fortunately, they wound up with the cheapest life insurance option), up to 1.3% for the most expensive available “sub account,” and a whopping 1.5% for the eight-year “guarantee.” Total charges ran to something like 4%, and, had the broker checked the box for the most expensive life option, could have approached 5% per year! The surrender charge was $40,000. A huge name insurance company issued this annuity.
The rest of their portfolio was comprised of other very expensive products, but none as breathtaking as the crown jewel described above.
But The Annuity Salesman Was “A Nice Man”…
Harry and Phyllis described the broker who sold them this load of stuff as a “very nice man.”
Stunned after the results of this analysis, Harry and Phyllis went into denial, hoping, I suppose, that things would magically recover and they would be able to retire into the sunset. It would be less painful to put the papers back into the box under the bed, than to confront the carnage of their financial life.
The preceding story is based on an actual situation and was shared by an investor we met in our professional practice. The names and non-material details have been changed to protect identities. The essential facts dealing with product representations and sales practices have been faithfully recorded.
This case history may amaze, amuse, and incite you. It may also inspire you to take action if you had a similar experience.
Most importantly, this case study may help you to realize that you are not alone, if you feel that you may have been subject to less-than-forthcoming annuities sales tactics. From the high number of cases we’ve seen like this, we can only infer this kind of monkey business is too common where these products are concerned.
Camarda offers free Portfolio Stress Tests which can include annuity cost/benefit analysis and rescue plans. To request one just click here – no cost or obligation.
