Whom can you trust?

By Bob Moeller
WEAC Member Benefits

October 2008

By Bob Moeller
Recently I met with a retired couple who liked to support local businesses. They trusted local people and local banks.

They had an investment product they purchased at their local bank. It was an index annuity product which I have previously warned against. This product was not sold by the bank, it was sold by a separate licensed person. Yet the member thought she was dealing with her trusted local bank.

The product sold here was one from North American Company for Life and Health. It had a withdrawal penalty schedule for more than 15 years, with a 20% withdrawal penalty for the first four years. One sign of a bad product, the member received a “bonus” payment for investing. These bonus payments are solely for the purpose of convincing the customer a bad deal is a good deal.

Was the product carefully explained to the customer? NO. Should you trust the sales efforts of insurance companies in your bank? NO. If you think you really want to buy an index annuity, or a variable annuity, bypass all insurance company sales people. Deal only with a no-load (no commission) insurance company such as Ameritas or Jefferson National.

I want to emphasize I do not recommend variable annuities for most members.
Please note that terms can be confusing. The annuities I am writing about here are after-tax directly purchased, not the Tax Sheltered Annuities or Roth Tax Sheltered Annuities available through your school payroll.

If you already have money in a product like this, or you inherit one, you are limited in what you can do. Bearing in mind withdrawal penalties (if still applicable), (1) You can withdraw the money and pay regular income taxes on all gains; (2) Leave the money where it is (don’t sign any new contracts or the penalty periods start all over again); or (3) Roll it to a similar product elsewhere, such as Ameritas, Jefferson National, Vanguard, or Fidelity, where fees will be lower, and withdrawal penalties will be smaller or non-existent.

How about the “trust” question? Should you trust “church affiliated” insurance companies such as Thrivent or Catholic Knights to have superior products or have more trustworthy agents? Not in my opinion. Many years ago I ran a contest for WEAC members with a first prize of $1,000. The requirement to win? You had to own and submit the WORST TSA. Thrivent won. (Back then it was AAL.)

I regularly meet with members who ask me to evaluate TSAs sold to them by former teaching colleagues. Are people more trustworthy and offering a better product because they taught in your school? Not when their livelihood depends on commissions.

I have often commented a little in jest that the big problem with members is that they trust everyone. Don’t. Always remember the most important fact when discussing investments…this is MY money. Make sure you understand what you are investing in.
Questions? Moellerb@WEAC.org.

Posted October 15, 2008