Watch Out for Annuity Scams in This Low Interest Rate Environment
It is no secret that the financial markets are down and investors are looking for safe investments. It is also no secret that interest rates on CDs and money market account are very low. The combination of volatile markets and a low interest rate environments create a perfect storm for sales pitches related to deferred variable annuities and equity-indexed annuities.
On the surface, these annuities appear to be the perfect solution. However, you need to know that these products in general are very complex, extremely expensive, and not appropriate for most investors, especially those in retirement. Because these investments so complex, most people who are in them did so at the recommendation of a trusted financial provider. Before purchasing one of these products, it would be wise to educate yourself using unbiased educational information without the sales pitch.
Self-education is the most effective way to avoid becoming a victim of bad investment advice. One thing you need to know off the bat is that these products pay extremely high commissions to the brokers who sell them, Variable annuities typically pay an upfront commission of 5-7%. Equity-indexed annuities are even worse, paying commissions of 9-11%. Compare that with the commission paid on the average mutual fund of 2%.
It is no wonder that annuities are the investment of choice for many brokers. When it comes to these types of investments, it really pays to do your own research just to make sure that the broker is not recommending the annuity solely for his or her own benefit.