Looks Like I'm Hitting A Nerve...

Q. Why don't you stop beating the dead horse about advisors reaping huge commissions for recommending EIAs? Most reputable advisors, such as myself, who work with the utmost of integrity and recommend what is right for the client, don't earn HUGE commissions, as you keep harping on. We earn a respectable commission and use shorter term accounts, say 6-8 years. My professional guess is that the cost to the client may very well be quite a bit less that your on-going annual fee you charge over many years. As you know, the client pays no sales charge for the EIA. Are the EIAs right for everybody, absolutely not. I know I could generate a professional article detailing the pitfalls of a fee- based advisor, just as you continue to do about EIAs. Sure there are unscrupulous "annuity salespeople", but please stop harping this to death! Most of us work with the utmost of integrity and have been in the business for many years.


A. Thank you for your email.

Unfortunately, I must remain true to my convictions and I cannot endorse the use of EIAs in any way. Also, EIAs are now attracting a lot more attention from regulators on a national basis who share the same concerns I do.

"utmost of integrity and recommend what is right for the client"

If an EIA-type vehicle is absolutely what your clients need, then why not recommend an Equity-Linked Certificate of Deposit to them? It will provide the client with all the benefits of an EIA without all the surrender penalties--although you won't earn as much.

This weeks article deals with the issue of commission-based versus fee-based and will address my views on the differences.

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...and there's More!

Q. Do you realize how messed up you are when you talk about annuities? First they are not an investment..... They are a safe place to put your money just like your CD's. And your take on life insurance is just as sick. Did you remember to tell your audience that the 20 or 30 year term policy that they carried will expire. And like your step-mother, their health may change unexpectedly. I don't think she was buying any life insurance... let alone permanent insurance. Goofball if you are successful in life you will always need life insurance and I hate to tell you but term insurance doesn't cover the need.... I think you need to go back and take some insurance courses. You are a little young and wet behind your ears...One day you will mature..

A. I appreciate your comments, but can't agree with them.

As far as education, it appears that I've taken a few more insurance courses than those required for the CSA.

I do use permanent insurance and have written several policies--for sure not as many as you. The times that I use it are to fit a specific need.

You say that if someone is successful that they will always need insurance. That's simply not true. If they are successful enough that they will have an estate tax problem they may have a need for permanent insurance. But if that's the case, the amount sold to them earlier in life was probably much less then they needed.

On the other hand, most people who are moderately successful don't have a need for insurance later in life. The three reasons to have life insurance are as income replacement, to help cover estate taxes or to create a larger inheritance for their heirs.

If someone retires at 65, they no longer need insurance for replacement reasons if they have built a nest egg large enough to provide for their standard of living the rest of their life.

If they aren't in a taxable estate situation then they don't need it to pay for taxes.

If they don't care about leaving more to their children they don't need it for that either.

Why then does someone in that situation need expensive, permanent insurance--other than to provide a commission for the agent selling it?

And in my experience, that covers probably 90% of the people out there. If they need income replacement while they build a nest egg then term is a much more efficient way to do it.

You are not the first to complain about my views and I know you won't be the last. I find it interesting that I haven't had any financial planners complain about my views. The only ones that complain are those who stand to profit from selling these investments.

Most likely, you heard about me from one of your clients who used the information I provide when they decided not to follow your advice. If that's the case, then I have accomplished my goal.

Have a great day!

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