I’ve probably been too embarrassed to write this document but here goes. An article in Forbes Magazine dated 9/19/2005, is titled “You Bought a What”? Yes, I’m sorry to say I fell for a stockbroker’s pitch about how he had made his clients 20% a year thru their purchase from him of American Skandia variable annuities. Within 3-4 months I lost on paper over $30,000.00. My broker had led me to believe I would by now have added approximately $150,000.00 to my account. What a sucker I was. To date this investment has never recovered, yet I am paying a large amount in yearly fees. The article says “A reader told me that he had bought a variable annuity and wanted advice on what to do next. The damage, though, had already been done. Broker-sold annuities levy killer annual fees, in large part to compensate the brokers who sell them. You are required to keep your money in place for a while – seven years is typical. (Mine is 8 years) You can get out early by paying a huge exit fee to make up for the vendor’s lost chance to extract that annual fee”. The article continues “The only ones benefiting from annuities are the insurance companies selling them and the sales reps selling them. Sales reps never tell you the whole truth. That is, they may mention the annual fees and the exit penalty you are committing to, but they never mention how strongly motivated the broker is to push you into this particular product. The sales commission can easily be 8% to 16% of the amount you invest. And almost never does the salesman disclose the fundamental fact that you would be better off investing similarly outside the annuity-for example, in a plain old mutual fund”.
Even worse, while my total amount is covered by insurance, the (actual amount I invested only) that insurance disappears unless I renew the annuity for another 8 years and keep paying the huge annual fees. If I die before the policy expires in approximately four more years, my estate will get back my original investment only; minus withdrawals. If I outlive this annuity, I will have lost over $30,000.00 on my investment and will have also lost the insurance policy. I did withdraw up to !0% of my total investment yearly without penalty but each withdrawal meant paying income tax and each withdrawal lowered my death insurance coverage.
I have no doubt, a few people made money during the boom years of the 90’s in variable-annuities. Some “investors” even come away from the Paradice as winners.
An article in the WSJ on 12/24/05 says that the company I had purchased from, American Skandia (through a local broker) had been sold to Prudential Financial Services. It further says “American Skandia guaranteed annuity holders that their investments would double in 10 years. Few companies were as aggressive in enticing investors as Skandia’s U.S. unit”.
An article in the WSJ dated 9/17/05 titled “Variable-Annuity Charge Decline”. It says “As the variable-annuity industry comes under legal and regulatory pressure for allegedly coercive sales tactics, some big financial services companies are seeking to cut through the controversy by reducing fees”. Prudential Financial Services did not.
If anyone knows an attorney locally who would help me sue America-Skandia, now Prudential Financial, have that attorney give me a call. I would only work on percentages as I’ve also been stuck in the endless “so much an hour game” before. I cannot sue the salesman.
You can reach me thru my listing in the phone book or my email.
This is not intended as a sob story, just a reminder how gullible we can sometimes be when listening to a stock broker you are convinced has “only your best interest” at heart.
In my next blog called “Arbitration” I will tell you what a joke arbitration is to the individual stock holder and how you can seldom win and why not.