by Charles L. Stanley CFP ChFC AIF
In general, you cannot purchase an annuity without the involvement of an insurance salesman. Insurance salesmen make their living by selling insurance products for a commission.
Every sale that is compensated by a commission has an inherent conflict-of-interest. So, the natural question is, “Can you trust the recommendation of a salesperson to be in your best interest as a consumer?” Unfortunately, following my two decades in the financial services world, I would have to say your odds of getting a recommendation in your best interest are quite slim.
The more informed you are, the better your odds are of purchasing the right investment product. I know this article will make a lot of insurance salesman angry with me. I don’t mean to say that all insurance salesmen are evil. They are not all evil, even if some insurance salesmen are. There are many extremely ethical and honest insurance salesmen in the industry that do an excellent job for their customers.
But my question still needs to be answered. With an inherent conflict-of-interest, will the recommendation you receive be in your best interest? That is, will the insurance salesman act as a fiduciary when advising you on whether or not to purchase an annuity and if so which one? This points to why your education is critical.
An annuity agent is not a fiduciary to his customers and is not held to a fiduciary standard by the insurance department of his State and, at present any way, even if he is a CERTIFIED FINANCIAL PLANNER practitioner, he is not held to a fiduciary standard by the CFP Board of Standards when engaging in a sales process as opposed to a financial planning process.
Annuity agents are held to a suitability standard, not a fiduciary standard. If you want to be sure the advice is in your best interest, cough up a few bucks to a Fee-Only Financial Advisor to evaluate the situation for you before you make any purchase.
To locate a Fee-Only fiduciary advisor, go to www.napfa.org, the National Association of Personal Financial Advisors (NAPFA). All NAPFA Registered Advisors voluntarily sign a fiduciary oath annually. They receive no compensation from product that is sold, that is, no commissions to be a conflict-of-interest. Be sure to ask if the NAPFA Registered Advisor has the expertise to evaluate an annuity. Not all do because many of them have not come through the insurance business.
Again, I know insurance salesmen will deeply dislike this article because even if their advice is good and proper, it will slow down their sale and their pay day. I understand, but I am not writing this to support insurance salesmen, I am writing to protect the general public through greater understanding and through knowledge of how to act rather than being acted upon. My intent is to put you, the consumer, in control of the process instead of the sales person.
The Most Important Question
Before taking any action, you should ask yourself one simple question and be sure you have a complete answer to it, “Why are you considering the purchase of an annuity?” or, in another form, “What are you trying to accomplish with this money?” If you don’t take the time to accurately answer this question, then you are leaving yourself open to “suggestion” by some annuity sales person’s presentation.
A good salesman will introduce all sorts of bells and whistles and convince you that you can’t live without them. Actually, all the bells and whistles may have little, if anything, to do with the real reason you would be considering investing in an annuity…if you stopped and took the time to carefully think about it. This is the most important question! As a general rule, you waste money when you buy bells and whistles. When it comes to saving and investing, wasting money is the last thing you want to do.
