I say, “Buyer beware…”

How many of you have been invited to feast at a nice restaurant compliments of some “financial seminar”? Recognize any of these attractive zingers?

No Stock Market Risk
No More Tax on Your Social Security
Guarantee Your Retirement Income

Sounds good, right? Just what you are looking for and, hey, you get a free meal out of it, too. What could possibly be wrong with this equation?

Well, it’s not the message, and probably not the food. Heck, the people sponsoring the night might be nice and professional, too. So, what’s the problem? Look under the hood. What’s the engine that’s driving this expensive production? That’s where you’ll likely find the problem.

The engine in this case is likely an annuity of some sort (fixed or index) sold not by a fully (securities and insurance) licensed professional, but rather a simple one-size-fits-all insurance annuity salesperson who doesn’t even understand the stock market, or real estate, or private placements, or investment advisory accounts, or any of the other appropriate options for people to compare and consider before investing.

Consider this. With only a simple, basic insurance license and absolutely no knowledge of, or license to discuss mutual funds, stocks, private placements, or advisory accounts, an annuity salesperson can offer you:

No Stock Market Risk
No More Tax on Your Social Security
Guaranteed Retirement Income

…and a lot more wonderfully sounding catch phrases. The issue I have is not necessarily with annuities, but rather with the way they are sold. The salesperson is not a fully licensed financial planner, does not understand the world of investing and has a very limited number of products to sell. But the most egregious issues I have with this production are the (1) commission rate, and (2) surrender fees.

Most fixed annuities offer the salesperson an unbelievable commission rate of between 8% and 12% of the money invested! That means, if you invest $100,000 of your IRA money into a fixed annuity, the salesperson who sold it to you might make a whopping $12,000! Ya, I think I’d “splurge” and pay for a dinner for that kind of money, too!

Even worse than that are the surrender fees. Let’s say you get into one of these annuities and then change your mind in a year once you see that your money is not really growing much. You might have to pay as much as $16,000 to get out of a $100,000 investment in one of these annuities. And the news gets worse. You see, this “surrender penalty” might take up to 10 or even 20 YEARS before it is eliminated! Sign me up for that one… Not!

Before you accept an invitation to a financial seminar with all the nice sounding buzz phrases, check out who is selling what. If you don’t, you could end up paying $16,000 for your dinner that night.