Annuities Part 4

Having demonstrated his complete ignorance of risk transference Jack Hough laterals the ball to Jack Otter who advances the scripted interview. Agreeing with this nonsense, Jack Otter doubles down with “Absolutely…it’s basically longevity insurance so you don’t run out of money when you get older. So, that said, it’s not for everybody. Who might be a good candidate for an annuity? (He means a SPIA but does not say so.) 

Jack Hough continues: “I think someone who is just looking for that kind of one stop answer on money lasting a lifetime. Somebody with a big, diversified portfolio who’s been doing it themselves should keep doing what they’re doing.” 

Mr. Hough. As I pointed out earlier, there are certain benefits SPIAs can provide that no other financial instrument can. It is not just a matter of one stop shopping. Also, most people with “big, diversified portfolio do not “do it themselves”. They hire Wall Street brokers who, in turn, hand their money over to large institutional money management firms like Blackrock to do it for them. Sometimes, they hire “family offices.” What Mr. Hough is really saying is that people should keep their money in the loving hands of the Wall Street community and not send it to the “other guys”, the insurance companies. It’s all about asset gathering, asset retention, and the generation of asset fees. It’s simply competition for control of your assets. 

Over the years I’ve heard stockbrokers routinely refer to annuity money (deferred annuities) as “dead money”. They mean that it is dead to them because they cannot control it, nor can they generate asset fees from the capital. 

Mr. Hough continues: “In the past my main objection with annuities was the fees on many of them were atrocious. There are much better options out there today. There are ones that are affordable on a fee perspective.”   

Once again, the vague reference to “atrocious” fees. Fees which are never specified or delineated or ever compared to fees of other investment instruments. In my experience any costs associated with annuities have not changed materially over the past 25 years. So, I don’t know what he’s talking about. I don’t think he knows either. 

Now we go back to Jack Otter for a paid advertisement (how can it be otherwise?), a shameless plug.  

Mr. Otter: “And there are certain ways—I know an advisor in Colorado Springs, Alan Roth, builds his own annuity for clients to avoid those fees, zero coupon bonds and all that.” 

Whoa! How much did that not-so-subtle pitch cost Mr. Roth? No, Mr. Otter, you cannot replicate a SPIA by building a bond ladder and “all that”. 

Quickly recovering from his dirty deed by reversing himself, Mr. Otter continues: “But I can see the attraction in this. That said, Carleton (Carleton English, our next participant) we put together a list of 100 annuities. Give us a high-level view of the Barron’s list. 

To be continued… 

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