Why the Investment Industry Hates Annuities

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Almost everyday it seems that some financial journalist or investment expert comes out with an article, video or column that says: “annuities are a very bad deal stay away from them.” Some go farther and try to claim that all annuities are a rip off or that anybody who sells them is a sleaze ball who is trying to rip you off.

 

To many observers it appears that the investment industry and a lot of the financial experts hate annuities. Yes there are some valid concerns and complaints about this type of investment but there are also very good points to them. Yet there appears to be no other investment out there today that seems to generate such strong emotions and outright hatred from most investment experts.

 

Part of the reason for these emotions is abuses in the annuity business which appear to be no worse than abuses in other areas of the investment industry. Unfortunately a lot of this passion appears to be an attempt to steer investors away from vehicles that will not make brokers or advisors a lot of money.

 

Low Turnover Means Low Profits for Brokers

Brokers like you to be buying and selling investments constantly for one reason: they earn a profit or commission every time you make a trade. They charge you a commission whether you buy or sell so they want you to be buying and selling all the time.

 

Obviously an annuity contract is a long term investment that a broker or investor will sell only once. Since they can only make money from it once brokers dislike such an investment. This is the same reason why brokers dislike indexed funds people tend to hold them for a very long time.

 

This is also the reason why the investment industry is constantly pushing IRAs, 401ks and other investment accounts. Persons buy and sell stocks and funds through them. The investment professionals know that people that invest in this manner will be more likely to trade so they will make money. Something else to remember is that these companies make money whether the market goes up or down because people trade. They want you to encourage trading not long term investing.

 

Short Term Mentality

Another problem is that the modern financial industry has a short term mentality. It focuses on what is happening to the market today and how stocks or bonds or commodities are moving right now. Part of this comes from the financial media which focuses on the immediate action rather than the big picture. Another motivation for this mentality is the profit brokerages and exchanges make from immediate trades.

 

Obviously a very secure long-term contract designed to provide a steady return will not appeal to those with such a mentality. Many of them actually appear to hate investments with those characteristics. Others simply ignore anything that is not exciting or glamorous.

 

Not Entertaining Enough

Today’s media-driven financial industry focuses on what is glamorous, exciting and controversial. There is little about an annuity contract that is glamorous, exciting or controversial. The media isn’t likely to report on such an investment and experts are not likely to discuss it because it is receiving no media attention. This is why many financial professionals and the general public seem to be ignorant of annuities they attract little attention.

 

Yet the lack of controversy or excitement is why annuities are an excellent retirement investment. They are not volatile instead they are steady and reliable so they have the characteristics that make an excellent retirement savings mechanism. Unfortunately a secure investment designed to produce a steady stream of retirement income is not very entertaining so both the media and the financial industry tend to ignore annuities.