One of the biggest mistakes that annuity buyers make is to fail to ask the right questions of the person selling the annuity. While you should expect an annuity agent to be knowledgeable about annuity products, they may not always present the information in way that addresses your specific concerns. It’s their responsibility to match your needs with the right annuity product and then explain how it addresses your needs. But, it is your responsibility to fully understand your needs and equip yourself with some basic knowledge of how annuity products work and how they differ, so you can confirm the choice of products.
Don’t be afraid to walk into a meeting with your annuity agent with a list of questions on a notepad and the expectation that you will have them all answered to your satisfaction. This is not only essential in order to get the information you need for your decision, it is an excellent test to determine how credible and forthcoming the agent is. Any hesitation in the answer, or attempt to deflect the question, should be considered as a red flag. Don’t hesitate to let the agent know that you don’t feel as though your question was answered.
There are dozens of possible questions you could ask, and you will want to compile your own list. Here are five questions that should always be asked of an annuity agent:
What is your background and experience with annuities?
Annuities are complex products, and there are many different types of annuities all designed to work differently to meet a variety of financial needs. It truly requires a person with an in depth knowledge of annuity products and a fair amount of experience in matching annuity products with peoples’ needs. Choosing annuity options such as investment accounts, guaranteed options, income options, etc., are crucially important decisions and most investors need professional guidance in making them.
Annuities are sold by many different types of financial professionals: bank reps, stockbrokers, life insurance agents, financial planners, all who might specialize in financial products other than annuities. It is important to work with someone who specializes in annuities, preferable someone who has obtained some professional designations such as a CFP or CLU.
How many annuity products do you offer?
Annuity reps who only offer one or two annuity brands aren’t in a position to find the very best match for your financial needs. It would be important to work with someone who isn’t limited to selling a proprietary product. Agents that offer a broad range of annuities from different providers can focus on finding the one that best meets your needs, and they are better positioned to find the most competitive product. Independent insurance brokers or financial advisors tend to contract with many annuity providers. It would be important to know that they work with the more highly rated providers.
How do you go about choosing the right annuity for me?
Annuity sales people will sell you a product that suits them – either because it’s the only one they have to sell, or it pays them the best. A true financial professional, will spend as much time as is needed to fully assess your needs, preferences, concerns, and risk tolerance. They will want to know how your assets are currently allocated, your qualified plan contribution level, and your tax situation. Any annuity agent who doesn’t want to uncover this information from you before recommending a product, is just an annuity sales person. Avoid them. If you find the right financial professional, you should be able to entrust him or her with your information and know that they can’t properly make a recommendation without it.
Will you provide me with a complete breakdown of my expenses, including your commissions?
There are two things you are looking for with this question: How much will your annuity cost you now and over time, and how your agent gets compensated. First, if an agent is not willing or able to do this, then walk away. Secondly, you want to see the depth in which your agent is willing to go to fully explain all of your costs and how it will impact your investment over time. Annuity sales people try to avoid the expense confrontation, and they are uncomfortable explaining how they get paid. A financial professional won’t hesitate, and will be able to provide you with a detailed explanation of the annuity costs and where the money comes from to compensate him.
If I have questions or concerns about my annuity, who will I contact?
Truth be told, if your annuity is issued by a top notch provider, with a solid customer service protocol, you’re probably better off talking directly with customer service reps of the provider. But, what you want to hear from your annuity agent is that he or she is ready, able and willing to ensure that your needs are met. It is especially important to have an engaged and proactive agent to work with during the annuity application and transaction process. Also, if you require changes or access to funds, it’s your annuity agent that should be able to light a fire under the provider to make sure you receive the most responsive service.
Don’t worry, your annuity agent was well compensated. You probably didn’t pay the commission out of your deposit or account value, as it is usually paid by the insurance company from other fees it receives from your annuity. Regardless, you can demand and expect that your annuity agent will be there to act on your behalf.