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2 Biggest Myths And Why You're Being Misled

Kirkland, Washington, October 12, 2009 -- The Internet has changed our way of business and life... But the one drawback is that anyone can publish false or misleading information and present it as fact.

If you are considering an annuity as part of your retirement planning or wealth-building strategy, you need this information.

The fixed and indexed (non-variable) annuity industry has been on the receiving end of a well-crafted and aggressive "anti-annuity" campaign. Much of the false and misleading annuity information on the internet almost always comes from stockbrokers and securities-based financial planners who gain nothing when someone invests in a fixed or index annuity.

We feel this is wrong and misleading, and the same type of thinking and action that started the entire financial crisis in the first place.

The following "Myths vs Facts" information sets the record straight about fixed and index annuities and their advantages for retirement planning and building wealth.

MYTH

Fixed and Index annuities are a bad financial tool.

FACT

• Equity index annuities, which were designed to offer credit linked to the upside growth of various markets WITHOUT the downside risks of loss in those markets, were introduced in the mid-1990's and significantly grew as more and more people used them for predictable retirement planning. Today, over $123 billion is invested in indexed annuities.
• Fixed and index annuities are insured and protected assets and can be used to build a predictable and comprehensive financial plan.
• Fixed and index annuities are excellent retirement and estate planning financial tools because they are safe money -- perfectly suitable for the money that cannot be put at risk of market loss, like the money saved in retirement accounts. Fixed and index annuities are guaranteed against stock market losses.
• On the other hand, as we've all found out, it's risky to use variable products like variable annuities that are invested directly in the stock market and are exposed to the ups and the downs of the market. These variable products are designed for younger people who have time to make up for stock market losses.
• Variable products require higher risk tolerance.

MYTH

Fixed and Index Annuities are expensive and pay large commissions at your expense.

FACT

• The "expensive" and "large commission" mantra is aggressively repeated by financial advisors and brokerage firms that sell mutual funds, stocks, and bonds. These are typically investment or advice salespeople who make much more money by "trickling it away" from your account ongoingly in a small but compounding way. Here's a quick investment example that highlights why these folks knock index annuities.
• You grow $100,000 in an index annuity where your advisor gets a one-time 9% commission. You invest another $100,000 with a broker in equities who charges a modest annual fee of 1.50%. Assume the hypothetical growth rate in both accounts is 7.20%. Below is a 10-year, year-by-year account of how you and the advisors fair.

• Which one of these advisors is paid the most over the 10 years? As you can see, the index annuity expert ACTUALLY charges a SMALLER commission than the advisor who sells mutual funds, stocks, and bonds. EVEN MORE IMPORTANTLY, the index annuity expert's commission comes from the insurance company so it does not hurt your actual growth, while the broker's commission is taken directly from your account. So why do these financial planners and brokerage firms continue to misrepresent index annuities?
• The main reason financial planners and brokerage firms discredit fixed and index annuities is their fees. Even if they are licensed and knowledgeable about the strength of these products, there is less profit for them if you utilize these financial tools. For instance, a securities broker will discourage a client from converting a taxable IRA into a tax-free Roth IRA with a one-time fee annuity strategy even when they are aware (or should be aware) that it is in their client's best interests to do so.
• Why? Because the securities brokerage firm collects a fee that continues and compounds annually on the amount of money it actively manages. If they're making 1.5% ongoingly by managing $10 million, that's $150,000 a year. If their clients convert to a Roth IRA with a protected annuity strategy, one-third of that managed money goes to the government immediately for the upfront tax liability. That means the brokerage firm will lose fees on $3 million in just the first year.
• The securities brokers would rather keep collecting fees on the money you will eventually pay in taxes anyway, rather than show you how to AFFORD to get those taxes paid off at lower costs now, as this would have the broker lose their commissions on those funds. The client-friendly Roth IRA strategy with protected annuities is not securities-broker friendly, so there is no incentive for them to use it. It creates a spigot of money leaving their firm.

FINAL FACT

At Leverage Planners, none of our clients lost money in the financial crisis America is still experiencing.

If you have questions about turning your 401(k), IRA or other retirement plans into a Roth Conversion, please contact David Donhoff at (425) 223-4520.