Clark Howard Report on Annuities…Misleading…Again!

To begin, we love and respect most of Clark Howard’s work.  And you probably didn’t know this, but we actually have quite a bit in common: we both have been based in Atlanta; we both consider ourselves educators; and we are both very passionate about what we do.

However, one thing that sets us apart is that Clark is an expert in helping consumers in a large variety of subjects helping them to “save more, spend less, and avoid getting ripped off”.  And we admire him for that.

Retirement Think Tank, on the other hand, only specializes in annuities and retirement income.  We try to help consumers get an unbiased understanding of annuities and retirement income.  And that’s it.  We don’t meddle in many other topics, and certainly don’t try to give any education outside of our realm.

By doing his job of saving people from getting ripped off, Clark must discuss a very wide range of topics from appliances, airlines, and even insurance products and securities.

And although Clark is very diligent with his research and reporting, sometimes just leaving off a simple word or phrase can cause mass confusion, and even worse…leave the consumer misinformed.  We are 100% certain that Clark Howard did not mean to leave anything out of his recent article, “Annuities Get Even Worse”, and that is why we are here to clarify a very important detail that was left out.

Let us explain:

Clark Howard’s most recent annuity column, “Annuities Get Even Worse”, discusses an update from the Wall Street Journal about several annuity carriers changing the terms and conditions of their existing annuities in the middle of the game.  In particular, many of the insurers who were underwriting these specific annuities back in the 1990s actually put too rich of benefits for the annuity owner, and are now offering one time bonuses to accept new terms and conditions.  We have even heard of a few carriers that are offering cash buyouts just to walk away from the annuity, similar to a large corporation giving money to an employee if he or she will get off the payroll and do an early retirement.

The great news is that everything reported in the subject section of the article was correct…with one small (but incredibly important detail) missing…

The entire article was about a very specific type of annuity, but Clark’s article did not specify the type leaving the reader to assume all annuities fit his depiction.  The Wall Street Journal update, along with many other publications discussing this “Annuity Buyout Movement” are all referring to one type of annuity…a Variable Annuity.  There are numerous types of annuities out there containing an assortment of unique benefits, and it isn’t correct to lump all of them into one category when the other types are far separated from the mess going on in the variable annuity marketplace.

It would be like Chevrolet sending out letters to all Chevy Avalanche owners about 2004 Chevrolet Avalanche 4×4 vehicles having a potential brake issue (not true by the way) and then a reporter putting an article out there saying all Chevrolet cars were recalled, and that Chevy is sending out letters to anyone who owns a Chevy car to bring it back into the dealership to trade it in.  When in reality it was only a segment of Chevrolet vehicles that had any issues.

Another misleading aspect of this article is found in the recommendation section at the end.  Before going any further, we completely agree that seeking professional help is always best and are pleased to see Clark is on the same page.  However, his article seems to condemn insurance agents for no apparent reason.  Below is what he said after highlighting the need for seeking expert help if faced with a letter offering a bonus option for the aforementioned Variable Annuity:

“I recommend you start with the insurance agent who sold it to you originally.  If you have a sense they’re sending you down a bad path, hire a fee-only financial planner to evaluate your existing contract.”

That statement is then followed by a final close which is:

“Don’t be cheap on getting the right advice now.  This could affect your level of comfort in retirement.”

From the two closing passages above, many readers will be left with a belief that insurance agents are not only the cause for putting people into the “rip-off product” (variable annuity) in the first place (“start with the insurance agent who sold it to you originally”), but it also implies that insurance agents will likely lead them down a “bad path”.  Further, his recommendation is to not “be cheap on getting the right advice” by seeking a fee-only financial planner instead of the insurance agent who seems to be getting the blame for the entire issue his article describes.

The misleading issue in his implication is due to the fact that insurance agents are not licensed to sell Variable Annuities.  These types of annuities require a securities license to sell, so they are sold by fee-based financial advisors (not to be confused with fee-only advisors, who do not sell products).  Insurance agents should not have even been mentioned as being associated with the annuity buyouts.

We believe a better recommendation at the end would be to ask those in need to seek professional help from specialists in your area(s) of interest….CPA for tax help; car mechanic for auto work; fee-based advisor for investment and variable annuity advice; and insurance agents for fixed annuity or life insurance guidance.

So Clark, we of course still have a great respect for you.  Keep up the great work, but please be careful with the wording and implications next time you send out annuity advice to your loyal followers. If needed, we’ll be happy to edit your next annuity-based article prior to it being published.

P.S. – To read our first correction to one of Clark Howard’s points on Fixed Indexed Annuities, click here (Clark Howard View on Index Annuities).

P.P.S – To read the full “Annuities Get Ever Worse” article, click the following link to Clark’s page: http://www.clarkhoward.com/news/clark-howard/personal-finance-credit/annuities-become-even-worse-deal/nYTtw.

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11 comments

  • Hello, guest
  • I also have respect for Clark Howard and other so call financial advisors. The problem I have with them is that they don't know a darn thing about insurance products and how they work. This is a good example, Clark does not know the difference between Fixed Index Annuities and Variable Annuities.

  • Right on target! When a critic criticizes "annuities" by pointing to a characteristic of ONE TYPE of annuity and implying that it applies to ALL annuities, that critic says far more about his/her own judgment – and integrity – than about his subject.

  • Thanks for the comment, Thomas. You're absolutely right in saying the type of misleading messaging above is not an isolated event. The cure for this issue is to promote more informed educational content, and we really appreciate your help in the cause.

  • I think this is a great example of how the true facts about annuity products are often left out to mislead the public into believing it is alway the insurance agent fault. Quit b

  • Jim, thanks very much for submitting your comment and for pointing out our oversight. The article has been adjusted accordingly. Regarding abuses, it is very unfortunate that all industries have some bad apples… and the annuity industry is no exception. The key is that consumers have a full understanding of their retirement income options allowing them to make educated decisions based on their specific needs, and we appreciate your participation in the cause.

  • I agree that each annuity or investment or insurance product needs to be analyzed for its own merit. There is one correction needed in the Retirement Think Tank's response. Clark Howard specifically mentioned seeking out a "fee-only" advisor not a "fee-based" advisor as later described in the Retirement Think Tank's response. The difference is that a fee-only advisor does not sell products and is not associated with a broker-dealer in that capacity while a fee-based advisor is associated with a broker-dealer and can sell products such as annuities. It's an important distinction, and for those of us who are CFPs, the exact definition is currently under review between the CFP Board, FPA and NAPFA. So a fee-only advisor cannot and would not be the person who sold that annuity but a fee-based advisor could have indeed sold that annuity. As a retirement income advisor I do recognize the value in certain annuities but where I have a problem is when an "advisor" only uses annuities as their only tool in the toolbag. You need to admit that in some cases abuses have occurred in the past and still do with these products due to the relatively high commissions. In some cases specific types of annuities are the right tool to use, but not in all cases. Keep up the good work ATT.