The following are in response to Robert Huebscher’s article, Fantasy-world Returns for Equity Indexed Annuities, which appeared last week.
Dear Editor,
Robert’s comments are on point.
I had read this research before it was published in the Journal of Financial Planning. At that point the conclusions seemed suspect. I am pleased that Robert had brought these issues to light in his commentary.
The Journal of Financial Planning is a good publication. I believe it is peer reviewed, but not a blind-juried journal. A juried journal would probably not have allowed this to be published.
On another note, I do not see mention of the fact that investors who buy these index-linked annuities are essentially buying a bond in the insurance company. In order to diversify this risk, an annuity buyer would need to buy from many different companies.
Jay L. Shein
Dear Editor,
It is not at all surprising that the authors of that study used "fuzzy math" to conclude that index annuities are anything but a boondoggle for the commissioned salesperson. There aren't many absolute truths in the financial advisory business, but one is: "All index annuities are bad investments."
Peter Searles
Dear Editor,
It seems to me that the more the so-called experts publish their conclusions about the inability or ability to mimic the performance of Treasury/Index Funds/Equities, etc. in various combinations, the more they miss a point or two in their search for proof that equity-indexed annuities (EIAs) are the devil's work and to be avoided at all costs.
I have been working in the EIA market since the mid-1990's and have not had one unhappy client amongst the hundreds of clients I have helped; whereas, as a Series 7, 63, 65, 24 over the years, I have experienced the pain of portfolios which decline and bring the resultant phone calls we all dread.
This will not be a lengthy treatise, and I will bring it to a close with a couple of bullets:
- EIAs were never and will never be created to compete with any security or combination thereof. They provide:
- Principal guaranteed against loss.
- Potential for sharing in a part of the growth of several security indexes.
- EIAs are a retirement vehicle, not a trading opportunity; therefore, they are long term in design.
- Since the advent of lifetime income riders as supplements to EIA contracts, the following features are responsible for the billions being invested in them every year:
- Guaranteed growth of an income base (for up to 20 years)
- Guaranteed lIfetime income even if the cash value falls to zero.
Their basic simplicity is divine.
Ronald Knox
President
Chesapeake Income Advisors
Hockessin, DE
Robert Huebscher responds:
My criticism was of the study, not of the EIA product. It would take a study with proper methodology to convince me that EIAs have the investment value that this study claimed.
Dear Editor,
This is an excellent article and thank you for publishing it. When I first read the EIA “white paper” co-written by Professor Babbel, I questioned how he was given confidential information about Equity-Indexed Annuities issued by insurance companies. All the companies with which I do business state that all of the insured’s (annuitant’s) information about their annuity is strictly confidential and will not be given out, without written permission by the contract owner.
Brooks Euler
Dear Editor,
Thank you for taking the time to dissect this faux research paper. Nearly every day I see such drivel masquerading as research and most of the time they get away with it because I (and I assume scores of others who spot the flaws) don’t have time to respond in detail like you have done here. Yet the industry needs it. And so thank you again.
Joe Nagengast
Target Date Analytics LLC
