In Defense of Annuities

NAFA, the National Association for Fixed Annuities, believes the public is well-served by hearing all voices and opinions on financial choices and products in an objective, balanced, and fair manner. Mr. Voudrie has published many articles on annuities. It is apparent by reading the list of titles that Mr. Voudrie does not believe in the benefits... of fixed annuities. With titles like, "Investment from Hell: Annuities," "Give me a Break," and "Why you Shouldn’t Annuitize," it is clear that Mr. Voudrie does not view these retirement products favorably.

This association is dedicated solely to the promotion of fixed annuities and even with that single-minded purpose, we recognize and value the many other financial products available today. This variety and choice ensures that individuals have a diversified and fluid financial plan. One that can address the numerous and varied objectives for saving and retirement planning. NAFA doesn’t stand against variable annuities, mutual funds or other investment products, we stand FOR fixed annuities. Jeffrey Voudrie is described as a “syndicated columnist” at SeniorJournal.com. It is important to understand that Mr. Voudrie is also “president and owner of Legacy Planning Group Inc, a Private Wealth Management firm in Johnson City, TN that represents select clients. A Financial Services veteran, Mr. Voudrie began his career with Edward Jones in 1987. He later served as a Vice President of First Tennessee Brokerage. He founded his own firm in 2001.”

Mr. Voudrie is a Certified Financial Planner and having held that designation since 1992, I am very familiar with CFP requirements. Certified Financial Planners are bound by the Code of Ethics and Professional Responsibility. There are two principles of the code that are applicable here:

• Principle 2:Objectivity
  
• Principle 4:Fairness
  

The Code states that “Objectivity requires intellectual honesty and impartiality. It is an essential quality for any professional. Regardless of the particular service rendered or the capacity in which a CFP Board designee functions, a CFP Board designee should protect the integrity of his or her work, maintain objectivity, and avoid subordination of his or her judgment that would be in violation of this Code of Ethics.”

The Code also states that “Fairness requires impartiality, intellectual honesty and disclosure of conflict(s) of interest. It involves a subordination of one’s own feelings, prejudices and desires so as to achieve a proper balance of conflicting interests. Fairness is treating others in the same fashion that you would want to be treated and is an essential trait of any professional.”

In the CFP Renewal and Certification program, an outline for INSURANCE PLANNING AND RISK MANAGEMENT has an area on education with a specific section on Annuities and lists over a dozen recommended courses related to annuities. Clearly the College for Financial Planning believes in the importance of annuities and requires ongoing education about them.

NAFA does not believe that fixed annuities are right for all of the people all of the time. Fixed annuities offer the ability to elect an income that cannot be outlived at guaranteed rates sometime in the distant future, the capability to safeguard and insure principal and previously credited returns, and the benefit of accumulating and holding retirement funds in a tax-deferred vehicle that allows the asset to grow more quickly than would otherwise be the case in a similar, but taxable, vehicle.

Even for already-tax-favored funds such as IRA money and pension funds, the additional guarantees and longevity insurance make a strong case for annuities. The variety of withdrawal provisions without penalty and without exposure to loss of principal through market risk –- annual withdrawal amount, death, terminal illness, nursing home confinement, Required Minimum Distributions, and unemployment -- can be advantageous to some consumers.

In addition to tax-deferral, the other significant tax benefit is that interest accumulations do not count in determining whether, and to what level, Social Security provisional benefits will be taxed. This is a significant benefit to customers, and especially middle-class retirees who derive a significant percentage of their income from Social Security not currently consuming all of their assets for living expenses.

And, because an annuity is a contract, it generally passes to heirs through beneficiary provisions rather than through the probate process. For those without a will, this is one way in which assets can be passed to a named beneficiary not subject to the intestacy provisions of the state and without the delays and costs associated with state probate. Since the cost of probating assets for a decedent can be significant, again, especially for middle-class retirees, this is another benefit to a senior wise enough to have some of his or her assets in a fixed deferred annuity.

Fixed annuities are insurance products, and insurance companies are in the unique position of being able to meet the needs of those who are concerned about having their principal exposed to market risk. It is the convergence of those individuals who want safety with the unqualified capability of insurance carriers to provide it -- guaranteed -- that has created this substantial interest in and satisfaction with fixed annuity products.

Choice of products in a financial plan is always a matter for individual determination after an objective and fair presentation of options and alternatives has been offered. Only a well-informed client can make an appropriate decision, and how can one be well-informed with only half the story? NAFA invites individuals seeking balanced information to visit NAFA and read the extensive information available or to link to any one of its member websites by clicking on the MEMBERS tab. All this information is available to the public, and because our association requires neither identification nor any personal contact information, this is an anonymous way to become fully apprised of the complete insurance picture.

Kim O’Brien, CFP Executive Director, NAFA

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