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Aug 13, 2007 -- A new class-action lawsuit filed in the annuities field

Clark has often talked about how free meal seminars offered by annuity salespeople are to be avoided at all costs -- unless you want to get indigestion in your wallet for the rest of your life. An annuity is basically an insurance contract. The money you put in is not taxed until you spend it. Salespeople love to sell them because they get giant commissions. In fact, the commission is so large that it's hard for even a decent person to avoid the temptation of selling this garbage. Now The Wall Street Journal reports that a class action lawsuit has been filed against Allianz. This German-based company has been selling equity index annuities to older people via seminars, infomercials and free-dinner events.

Equity index annuities promise a portion of the gain of the stock market, while assuring holders against losses. They offer the allure of getting money without risk. But Clark thinks they're a piece of trash because all insurance companies cheat you on the gain -- only giving you a tiny portion of the actual gain in return for their guarantee of safety against market loss. Worse still, you usually have to stay in for 15 or more years to get the benefit. So salespeople target senior citizens, who may not live long enough to qualify for the guarantee. And if you are lucky enough to get wise to how bad equity index annuities can be, you may lose between 10 and 15 percent in penalty fees for surrender if you try to get out. Regulators across the country are calling this an instance of fraud. As Clark says, the "just say no" rule applies here to these free meal seminars.

Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.

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What others are saying

  • Annuities
    You are so stupid. Insurance agents don't sell and annuity and hope that the seniors may die before the policy pays out. Annuities are insurance against outliving your income. What a moran....
  • Index Annuities proven good by Wharton
    Let's try that url again -- http://fic.wharton.upenn.edu/fic/Policy page/RealWorldReturns.pdf
    I hope this will convince the skeptical, the naysayers, the misinformed...
  • Wharton Business School on index annuities
    Copy & paste this link http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf
    OR go to the front page of www.indexannuity.org
  • indexed annuities
    I have been in business 32 years and have sold indexed annuities since their existence. One of the greatest concepts ever invented. Aviva's BPselect is the best product. Especiall for someone who doesn't need there money and has a desire to leave it to their children. Clark only knows what he understands and i bet he couldn't if tell you how they work.
  • Aviva Annuity
    Aviva has several types of index annuities for a consumer to choose from that best fits their needs. The product I approve of has no caps and you only pay a small fee if you have any gain. It also gives you a window depending on the terms selected to lock down your gain making it very attractive. They have also added an income advantage rider that guarantees an 8% minimum increase regardless of what the S&P does and will step up the 8% growth if the S&P performs better than that. It's a very consumer friendly product and a great place to park your money for safety and securty without market risk.
  • annuity
    can't get to my money unless I pay a 12/12% penalty.
  • AVIVA Annuity
    Can someone(liscensed ins. agent) comment on the AVIVA EIA.
  • EIA Annuities
    As a dreaded "retirement specialist" selling annuities, I want to add my two cents. I have been interested in the finance area for years and felt like this would be a great, safe way to enter the market. I have been selling annuities to teachers for the last school year and doing well. Our company ONLY sells fixed and Equity-Indexed annuities to teachers, no variable or market-based, so teachers can never lose their principal. For teachers, this type of investment makes sense. They are able to save, deferring taxes, and the longer-term annuity they are able to purchase, the more interest they can earn on their savings. If they have a long-term career, why not tie it to long-term savings? If an emergency occurs, their savings are available through hardship clauses -- including medical, purchase of home, educational needs, etc. In addition, we charge NO fees to the teacher. I am leaving this over the summer because the pay was so low. It truly is a great product for a non-profit employee. If they leave employment, they are able to roll it over into a 401K or another 403b and not incur any fees. The withdrawal fees are mandated by the IRS to encourage savings. I agree with some who have written . . . this is one investment tool and is a great one for the right folks. Our school district mandated that teachers were not able to invest in anything more than a 10-year product. So.... now career teachers cannot invest in a 12 or 15-year product (paying 5.85% fixed or up to 10.5% EIA), but must instead go with the 10-year product paying 4.5% fixed or up to 8.5% EIA. Now, which product is better? And why should the "plan administrator" mandate these things, limiting earnings for teachers. Are we not able to make these decisions?
  • The Truth
    Dave the annuity salesman makes some great points. The "client" of an annuity does typically get a bonus, up to 10% on their investment. They can also choose a lifetime annuitized payment option so they never run out of money for the rest of their lives. However, that same "client" can give the annuity salesman $100,000 and die the next month and leave nothing to his family. That same "client" can choose a beneficiary to continue to receive a payment but the payment is based on the beneficiaries age. You can bet the payment is not very significant. All insurance products use the law of averaging. They are not going to give out large payments and loose money because they are nice and care about YOU. Remember, "Everybody does what they do because the get paid or they would not do it."

    I did not say no one can be trusted. Just ask yourself this before you give someone your hard earned life savings. Is this person qualified and can he be trusted with my future? An annuity salesman has been tought to sell annuities and other insurance products. Why not talk with a Certified Financial Planner or Advisor with access to more options and training to make your money last through retirement?

    I did not advocate that all annuities were bad. I do think they should be considered as a PART of a person's retirement portfolio; not ALL of it.

    Also, please note I did not become an Annuity Salesman, did not sell any insurance products, and did not go on any trips to DisneyWorld. I recognized the training dilemma (lack of real financial planning strategies) and decided not to be any part of it.
  • truth
    they have access to 10% if the premium per year. The client has been credited huge bonuses up to 10% and some have double their nest egg and made it last years and years beyond what it would have while being taxed to death and not growing significantly in a bank C.D.
    They just cant reach and get it all at once without a penalty they knew about when they signed up. They can also opt for a life time payment by annuitizing the product. This way they will never run out of money the rest of their life no matter how old they live to be with no limit to the money they will recieve. No matter how much it cost the insurance company. Please dont believe everything the "know it All" says that is writting this junk on this web-site. He is only giving you a one sided percective. You need to Get the rest of the story. The variable guys a screaming because it cuts into thier territory. Why should an agent be sued for marketing what the state insurance commissions have approved as a viable financial product. Everybody does what they do because the get paid or they would not do it. That does not mean everyone compromises their honesty and integrity in making a living. someone who percieves evil in everyone is probably expecting them to be that way just because they are. They guys on here screaming foul are saying everybody is a crook. Ummm wonder why they think that way???? Wonder what they were selling to get to Disney World
    do you think it was stocks that are now worthless??? Ahh Ahhhh Ahhhhhhh bet their clients wish they had bought the fixed annuity so they would still have somehting instead of NOTHING
    Please all you Know it ALL experts
    Give me a Break
  • Licensed Insurance Agents
    All you insurance agents are up in arms stating Clark should not comment on insurance products because he is not a "LICENSED" agent. I am a "LICENSED" agent. I took the required 45 hours of classroom time and passed the test to obtain the license required to sell insurance products in my state. By no means does this license qualify me as an expert to give financial advise to anyone. Being an independant agent I signed on with a brokerage house to market and sell life/health insurance products. The only training was product specific and how to sell those products. The major emphasis was on the money to be made and all the great incentives to sell, sell, sell so you could win a trip to a sunny paradise. I never felt comfortable or qualified to take a retired persons life savings and "selling" them into an EIA so I could go to Disneyworld!

    I think there is a place for annuities in a persons retirement portfolio but not the ONLY choice. Make sure you are aware of all the fees ancd costs of owning that annuity. I would talk with a Certified Financial Planner to discuss all options before being sold into putting all your hard earned money into one investment vehicle.
  • Index Annuities
    Clark Howard makes a very valid set of points. Most insurance agents, who are not qualified or licensed in reality to give investment advice often pitch "index" annuities as a "safe" way to be in the stock market. Really, these products are fixed investment vehicles with a small component tied to stock market indexes. From what I have seen, most agents living on selling "index" annuities are in fact overselling the product (as a contrast, I have averaged one sale a year in my career and I'm a six figure producer year in and year out, so there is only a small real market for these products from what I have seen managing eight figures for people). Many agents are selling it to many people who are not suited to it. Flatly, they do it for the fat commissions. One a $100,000 investment, it is not atypical to make $9,000 or more selling these mediocre at best investments, which are in fact subject to the credit risk of the company issuing the policy. Many of these agents should get sued for making unsuitable investment advice and for giving investment advice they are not licensed to give. I find it funny a few posters here lambast Mr. Howard for not being licensed to speak about annuities. The law actually is that you have to be licensed to make a sales presentation. Anybody can talk about an annuity from a non-sales standpoint. That's covered under the First Amendment.

    Bottom line, unless you are comfortable with an investment with little liquidity, and are going to use it for an income stream within a decade, index annuities are extremely limited.

    http://kirkspano.com
  • Indexed Annuities Not a Scam
    Clark, You really should get your facts straignt about indexed annuities before throwing the baby out with the bath water. Many indexed annuities can produce 6-7% (and more) average in any given ten year period. The majorit of indexed annuities pay FULL value at death WITHOUT any penalties. Index annuities have contract periods as low as 5 years and it is inaccurate to say that most of them are over 15 years, but even if they were, remember what I said about Full Value on death. Perhaps you would suggest someone acquire bank CD's paying only 2.75% for 5 years. What do you tell the 75 year old who WAS living off of the interest in her CD's but now is eating into her principle. Perhaps you suggest that retirees throw their money into Wall Street so they can get robbed by the brokers WITHOUT enough life left for the market to recover thier losses. Are you aware that Stock Brokers also give Free Dinner Seminars. Do you actually know anything about how Wall Street works? Maybe you should read the book by Michael Lewis titled, "Liars Poker." You need to be enlightened. I used to listen to you, but I have lost all faith in you after your indexed annuity bit. Maybe you guessed it. I market indexed annuities as Free Dinner Seminars. I am not a scam artist, rather, make my clients go through a rigourous suitablity interview before putting them in any product. Are there those who place people in products that are not suitable for them? Of course, you will find this in any market, and most especially the stock market above all else. What do you suggest I tell the guy who I met that lost 1 million dollars in Enron stock who was 75 years old. Wouldn't he have been better of in an indexed annuity? At least he would have still had his million with a full death benefit. Which is better? Loose 1/2 or more of your life savings in a year of two to the market, or keep all that you have and earn 5,6 or 7%. You need to get your facts straight. Trusteddevelopment@gmail.com
  • Suitability is the bottom line
    If I invest a 75 year old retiree's life savings in heavily in stocks, does that mean all stocks are a bad thing? And if I take a young investor and have them buy CDs year after year which only slightly outpace inflation, does that make all CDs a bad thing? Financial Advisors have many tools and should always do what is best for the client. Blanket criticism of investments or the people who sell them just isn't fair. What if I judged all talk show hosts by the actions of the worst of them?
  • Previous Comment
    Vana 7/8/08. Please update us on the value of your "Vanguard" today! And, since you took advice from "brokers" selling risk, is your broker or Clark Howard going to reimburse you for your loss and their "investing" advice? Indexed Annuities are great for retirees and those about to retire. Get the facts from a licensed agent. We will "guarantee" you a return! Even in down markets.

    Previous post below
    -----
    Thanks for verifying my suspicions.
    I moved my mone to a financial counselor 6 months ago. Now he wants to put me in an annuity with Allianz. I have aways shyed away from annuities after getting sucked into one 20 years ago, when my bank talked me into putting my IRA in one. They gained and I lost. When my counselor said "annuity" the warning siren sounded. I checked them out on Wickapedia and found out they had once insured Nazie Consentration camps! I couldn't believe it when I read about the recent class action law suits!! I should have trusted my instincts when I met the guy. I'm taking my money and going back to Vangaurd. Thanks Clark!
    By Lana @ 07/08/08 01:27:56 PMreport abuse
  • Insurance Agents are upset...
    Insurance Agents are upset because Clark Howard is giving good advice and they are seeing their easy cash slip away. It's obvious that the people posting here are trying to use a technicality to keep Clark from giving consumers good advice. Thing is, Clark doesn't make us pay for his advice so it doesn't really matter if he wants to share his opinion on the air.
  • What Are You Licensed to Speak About Mr. Howard?
    I think the Agents writing before my comment have a valid question! If you are not liscensed as an Insurance Agent - you may not sell or Speak about Insurance Products. You could not possibly have the Current Continuing Education required State By State to give advise about products you are not liscensed to sell. And No STATE IN THE US SHOWS YOU AS LICENSED TO SELL INSURANCE PRODUCTS - I think you should be reported -
  • Allianz & Annuities
    First of all I checked too and you are not a liscensed to speak about Annuities other than Variable products - and only Variables if you have a Securities Liscense. Secondly, Allianz is based in Minnesota and like many other Large Corporations also has offices World Wide- They are like most other sound Corporations American Based - but becoming part of the Global community! Thirdly, Annuities products are in many cases very suitable for Seniors. If the product fits - and the term of the product fits it may be suitable. All products even CD's have early surrender charges - so it is important than Seniors and all other consumers pay close attention to the terms of any financial product they are considering. Equity Indexed Annuities are VERY GOOD Products offered by, Allianz - But just like unfit Variable Annuities sold only by, Brokers - if they are not sold in a suitable situation they could be an unsuitable product! Ninety Percent of the Retirement Seminars Out their are put on by, SECURITY BROKER DEALERS - Who are selling Variable At risk products! Some of them are in the last few years realizing the value of the Indexed Annuity and are selling it! The problem is that many Broker Dealers ARE not getting Enough Training in these Insurance Products so they have been sold to people who they are not right for! ALLIANZ Equity Indexed products have terms available from 5, 7, 10 years. Income Annuities are longer because they are set up to provide an income for life - LORD GET YOUR INFORMATION CORRECT OR STOP GIVING OUT YOUR LIABIALIST COMMENTS!
  • Clark Howard
    Re: Liscensing and Advice - I just ran a check on "Clark Howard" and found no Insurance Liscenses held in Georgia or anywhere in the U.S.A. - Therefore if your a broker/dealer only - your responses to INSURANCE QUESTIONS SHOULD BE ZERO - AS you are not PROPERLY EDUCATED IN INSURANCE PRODUCT SUITABILTIY! Only Variable Annuities are broker annuities - so limit your advice to what you are liscensed to speak about.
  • annuites
    If the school teacher purchased an Income annuity - then the 39 thousand was likely a payout the family decided to take rather than the lifetime benefit that could have transfered to her surviving spouse. An Income Annuity - allows an income earning spouse to provide income to herself at a certain age or to a surviving spouse if she dies. She was very likely smart enough to Select this product - to leave her husband or family members who could have received monthly checks for life or a minimum of 10 years. Her beneficiary made the decision to take less. EACH INSURANCE PRODUCT HAS A DETERMINED PURPOSE! Just like the Uniform commercial code "Fitness for a particular Purpose" - she was likely explained the benefits to her beneficiary - AND PERHAPS she thought they would toss the cash around carelessly - so she wanted a life time income to pass to them rather than a lump sum. Life Insurance is a different product - and many people feel imortal so they decide not to purchase it! I think some major slanting to the risky broker side is going on here! STOP BAD MOUTHING PRODUCTS that may have been suitable for what this woman wanted. In my 20 plus years of Insurance and Broker career - I HAVE NEVER SEEN SO MANY MISLEADING SENIORS! If you don't know what you are talking about - STOP GIVING THE WRONG ADVICE! Seniors are being driven to Brokers - and away from many Suitable Insurance products - WHERE RIGHT NOW THEY WOULD HAVE LIKELY NOT LOST A DIME IN THIS MARKET DOWNTURN!
  • Equity annuities and fixed annuities
    AARP calls Variable Annuities A scam on seniors and they are - but Brokers sell these most INSURANCE AGENTS DO NOT! Equity Indexed Annuities if Suitable for a Senior is one of the best products out there! NOT ONE OF MY CLIENTS HAS LOST A DIME IN THIS CRUNCH! And, the products can be set up to provide assets as needed. SUITABILITY IS EVERYTHING - THERE ARE FAR MORE BROKER RIP OFFS AT THESE SEMINARS THAN INSURANCE AGENTS - START TALKING ABOUT THEM NOT US! Those are the type of scams that only lawsuits can hope to recover anything if anything at all from! BROKER = SPELLS STOCK MARKET RISK! INSURANCE = SUITABLE PRODUCTS INSURED!
  • equity annuities and fixed annuities
    Clark please take a closer look at annuities. You are making a broad reference on few annuities you must have looked at. What you did not say is some annuities only have a 3,5 or 7 yr Would you have liked a your principle guaranteec the last 2yrs? Some companies will waive any surrender charges on terminal illness and nursing home. Take another look Clark you will be surprised!
  • Allianz Annuities
    Our office is pleased we used Allianz bonus annuities in our retirement plans. They protected against downside markets and provided guaranteed income after a 3% guaranteed income return during the past three years. These long term accumulation vehicles have 100% indexing to S&P 500 on the upside and do not go down when there is a negative year. We have not changed to index to the S&P 500 Yet. However, we can change our investment choices each year. We plan to stay in at least 10 years and since this is a retirement asset will probably annuitize at age 65 or 70 which it seems to us is good. Also the contributions were tax deductible going in and while we did not need to put them in a 401k plan getting the deduction for the contribution saved us 25% in taxes and we got a 10% bonus on the money put in immediately so we are currently 35% ahead of where we would have been if we had paid taxes on the same money and put it in a CD.
  • Annuities
    Clark:

    I listen to you when I am in the car and you definitely provide us with a lot of good information and you appear to be an astute, careful, and methodical investor but your blanket assessment of annuities is a quite a bit off. Some of the posts here apparently have to do with variable annuities whose values are directly proportional to the market. By the way annuities are tax deferred saving plans. If you cash them in you may have to pay taxes on the growth. These index funds, mutual funds and variable annuities are made up of all the things that went wrong in the last year (stocks). Individually they may even be worse than the overall market because of the underlying stocks they are invested in. The person who complained about his Allianz annuity though, is probably a real happy camper today if he still has it, compared to the other market based investments he may have. When he cashes it in he only has to pay tax on the gains or if he annuitizes it over 10 years he will have part of the income treated as his own money and part as new income, which is taxable. But I’ll bet the entire value is there and has actually grown while everything has gone down. Annuities aren't for everyone and they aren't for no one. Fixed Annuities have a specific niche and when used correctly perform better than CD's, have tax benefits and perform better than inflation on a consistent basis. In today's economy that is a real win. Almost anyone that bought a fixed or indexed annuity in the last 5 years has their principal and the growth verses everyone, including you, Clark, who has lost about 14% in the S&P 500 alone over that same time. Just do the math, $100K in this terrible 5-year 3% guaranteed annuity would be worth about $112K today. The person who bought the S&P 500 no-load index fund would have about $86K (About $26K difference). So, who got it right, the not so savvy, taken advantage of Fixed annuity buyer with the big sales charges and fees or the smart no-load index fund buyer? This is a snapshot in time and in this situation it's a no-brainer, but that's not to say that all no-load index funds are bad. Clark, the all or nothing approach is not a solution. There are times in one's life where you need to take a little less potential growth for some additional security with some of your assets. Its called asset allocation with 0 risk for some of the assets. By the way I am a Licensed Insurance Professional that only sells, safe money insurance products. None of my clients have ever lost a nickel from what they purchased through me.
  • lunch was good
    I atended one of these free lunches. I could hear my mom tell me that nothing is free. The agent made everything sound so good, my first impression was that it was too good to be true. I have cancelled all future meetings with him. Thanks for the input. I just about fell over when I looked at the companies he represents: ie Allianz out of Minnesota.
  • Avivia Insurance
    Hybrid index annuity ??? has anyone gone with Frank Passmore on these?

    Please help
  • Thanks for verifying my suspicions.
    I moved my mone to a financial counselor 6 months ago. Now he wants to put me in an annuity with Allianz. I have aways shyed away from annuities after getting sucked into one 20 years ago, when my bank talked me into putting my IRA in one. They gained and I lost. When my counselor said "annuity" the warning siren sounded. I checked them out on Wickapedia and found out they had once insured Nazie Consentration camps! I couldn't believe it when I read about the recent class action law suits!! I should have trusted my instincts when I met the guy. I'm taking my money and going back to Vangaurd. Thanks Clark!
  • Annuities
    My mother passed away this year. She was a school teacher for 30 years. We didn't find out until the reading of the will that she didn't have a life insurance policy but an annuity. Well after working all her life, and putting $64,000 into this annuity, my father received a check for to $39,000 after taxes!! So I'm with you Clark!
  • annuities
    If annuities are so bad why is that the mainstay of retirement plans for teachers, medical professionals & government employess?The backbone of society must all be misinformed.Clark-you have been brainwashed!
  • Ignorance
    Clark, I enjoy your show and believe you are dead on in most cases. However, you have completely blown in your knowledge (or lack thereof) of annuities. Until you are licensed and fully trained in insurance and a registered representative you are not qualified to give an assessment of these products. I guess I should start putting my client's funds at risk and never mention possibility of loss or phantom tax or no lifetime guarantees or a list of pros and cons of each type of money placement. Ignorance is not bad, merely a lack of information. Information and still no understanding becomes stupidity. It is evident from your comments that you don't know the different types of annuities, the safety aspect, suitability requirements, or the oversight given by companies to insure the suitability for clients. Sorry, Clark, you blew it.
  • FIA
    You're putting all FIA into the same category. That's like saying "all cars are bad". Your take on annuities is absolutely incorrect, but in some cases you are correct. Annuities positioned properly are an excellent tool, but used improperly, just like bad investing in the market, is wrong for seniors as well. I use annuities for my clients where income is the goal, and growth is second. There are few annuities that accomplish this and are libral in the features of accessing the money. Penalty-free withdraw for nursing homes, terminal illnesses, and full accumulation value at death, are no-cost riders with all policies I offer.
  • Allianze Surrender charges
    This annuity is absolutely gross. I retired in "05. In "06 I was eligible to take out some of my money to pay off outstanding debt and found that I had to give back 15% in surrender charges. Also if I wanted to swift my monies to another company I would have to surrender another $31K just to leave this Allianz. If I stay I have to set up an annuity payment based on 10 year plan of monthly, semi-annually or annually. Therefore, I don't have free control of my monies. Do you know who has a class action lawsuit against this company? Please let me know ASAP.
  • annuities
    what about TIAA & CREF ?
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