Annuity specialist Stan Haithcock (aka “Stan the Annuity Man”) recently posted a sobering article reporting that an indexed annuity executive is “fed up” with how indexed annuity products are being pushed by insurance companies. The article is posted here.
According to this post, the indexed annuity industry insider acknowledged that insurance companies issuing indexed annuities manipulate and craft contractual functions to achieve needed profit – not for the protection of the annuity purchaser (who is typically a retiree). Of course, this profit first scheme is contrary to the insurance company’s up-front promises of “principal protection” and income benefits tied to equities that will beat bank certificates of deposit and savings accounts. According to the article, such conduct by the insurance companies amounts to a “bait and switch.”
Mr. Haithcock’s post also notes that agents selling indexed annuities are not adequately trained concerning the indexed annuity complexities. This point only confirms my previous post concerning the existed of “embedded derivatives” in indexed annuities that the agent is unable (and not told how) to value.
As I mentioned in an earlier article, even some banks appear to recognize that the products are too complex for the market. InvestmentNews noted that Wells Fargo Advisors does not carry these annuities “largely because of the complexity that comes with combining an annuity with structured products.”