Heard the stories about people who are sold an annuity but later aren't sure what they've invested in? I have, because my mom is one of these people. At the urging of a financial adviser at her bank, she recently switched her IRA from money market funds to an annuity because she was told she would get a higher rate of return (although the annuity pays just 4.5%). When I asked her what type of annuity it was, what the fees were and how long the surrender period was, she couldn't answer my questions because the financial adviser hadn't told her.Michael Furois, a financial planner in Chesterton, Ind., has heard plenty of complaints from clients who were sold annuities before coming to him but didn't really know what they were buying. "It's a complicated product that most people don't understand," Furois says. "If people understood the ins and outs of annuities, there would be fewer sold."http://kiplinger.com/columns/basics/archive/2002/basic0425.htm;o)
One of the best questions you can ask the Fiancial Advisor is what do they get paid for selling an annuity? Annuities pay out some the highest commissions of any investment product. That is why they are favoirtes of some Financial Advisors to sell. That is also why they have the long surrender period. If the Isurance company pays the broker so much up front, they need to have the surrender period in place to make that money back in case you close the account.Ask them what their commission is in an annuity versus the commission they would earn in a mutual fund based investment. Most Finacial Advisors are looking out for your best interests and deserve to get paid for the work and service they perform, however the money they can make selling annuities can hardly be justified.As has been pointed out repeatedly here at the Fool, annuities are very rarely the best investment vehicle.Bill
Some companies get brokers/FAs to sell their annuities by advertising how much commission they pay rather than what the product is.In general, do yourself a favor and stay the hell away from annuities. I study the industry for a living and I can tell you that you do not want to buy these things. If you absolutely must buy one, do yourself a huge favor and talk to a tax advisor or CPA who does not sell them. If you still feel the need, go talk to TIAA-CREF. At least they keep their fees low.
There's an Annuities board in Fooldom. Enter Annuities in the board box below and press find.Its fairly quiet over there, but you will find a nice collection of discussions on the subject and some of the sublities like 1035 transfers.
Annuities are also something that you can comparison-shop for. A site I've found useful for comparing is www.annuity.com
Here's one more thought for "delighted" - his/her mom might have been persuaded to convert her IRA to this annuity due to its Medicaid Planning considerations. It's one place where irrevocable annuities can have a fit. Delighted might look into this perspective - if for no other reason than it could affect his/her own future. Good luck!
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