Why Ken Fisher Hates Annuities (and thinks you should too)

August 27, 2013 — 6 Comments

Maybe you’ve seen the advertisements from Fisher Investments that offer a free report on why Ken Fisher hates annuities? If not, here’s the ad that’s been popping up on various websites I visit often:

The ad as it appears on Google Finance

The ad as it appears on Google Finance

For those not familiar with Ken Fisher and why he’s a very note worthy figure in the investment world, here is the first paragraph on Mr. Fisher per Wikepedia.com:

Kenneth Lawrence Fisher (born November 29, 1950) is an American investment analyst, and the founder, chairman, and CEO of Fisher Investments, a money management firm with offices in WoodsideCaliforniaSan Mateo, California, and Camas, Washington. Fisher writes a monthly column in Forbes magazine, contributes to other financial and news magazines, has written seven books, and has written research papers in the field of behavioral finance. Fisher is on the 2011 Forbes 400 list of richest Americans[3] and Forbes list of world billionaires, and as of 2011 was worth $1.7 billion.[4] In 2010, he was named to Investment Advisor magazine’s “30 for 30″ list of the 30 most influential people on the investment advisory business over the last 30 years.[5] As of 2010, Fisher’s firm manages $41.3 billion in 38,521 customer accounts[6] and has been called the largest wealth manager in the United States.[7]

Mr. Fisher is clearly an accomplished business person and I think a very smart guy.

So why does he hate annuities so much?

I took a close look at the report offered (Annuity Insights) and found the information well written and laid out very nicely. It’s fairly generic in nature, initially explaining the basics of annuities and their terms. All good and accurate info, but nothing really revealing at first.

It then gives some examples that I think explain what he dislikes so much about annuities. The big gripe (best I can tell), is Mr. Fisher doesn’t like the fees associated with annuities.

Here’s some quick bullet points that I take away:

  • It gives an example on Variable Annuities and their additional costs relative to buying the same investments but not paying all the insurance related fees. This is a good comparison, as variable annuities are designed to compete with market investments; but obviously if the costs are a lot higher (which they are with variable annuities) then the returns will certainly be lower.
  • It does give an example of Index Annuities compared to the S&P 500, but that’s not really a good benchmark.  Fixed Index Annuities are not built to compete with the stock market as they are fixed investments. A better benchmark might be a conservative bond index.

Make no mistake – fees are not good for investors. If you pay an arm and a leg, well…you don’t have an arm and a leg anymore.

For some of us though, there are very good reasons to use annuities. Just not all of us, and certainly not all of the time. Below I’ll explain what the good reasons are.

Where the hatred falls short (in the Annuity Gator’s opinion)

I think Mr. Fisher is spot on in sharing the importance of keeping costs low. Annuities are not usually associated with the best way for that. One thing not discussed in the report though is the real reason to use annuities (for some investors): to get a guaranteed lifetime income they cannot outlive.

It’s important investors understand that annuities used correctly are transfer of risk investments. This means that if we try to use them as maximum growth investments, we’ll likely be disappointed (as Fisher shows well in his report). This is because the costs of variable annuities will make them incomparable to non annuity investments; and fixed index annuities should not be compared to growth securities in the first place.

Used correctly, annuities work really well at helping investors avoid the biggest danger to their investment results: Themselves.

What do I mean by that? Well, many investors have a propensity of letting their emotions drive their investment decisions. When times are good, they like to be in the market (after the biggest gains are in the rear view mirror). When times are bad, many panic and sell everything (essentially locking in losses).

annuity saleguyAnnuities aren’t the only antidote to this destructive behavior, but they can help.

The other thing that will help investors is having a truly good retirement income plan (financial plan designed for retirement). When that is done correctly investors can see in advance the true pros and cons of all their investment options. After a solid education on how the different approaches work, they then select a plan that fits their emotional fortitude and desired financial outcome. It mitigates the emotional behavior that drives (sometimes) very bad financial decisions.

A good retirement income plan should NOT be done by someone who makes a living selling annuities. Clearly, that would be biased toward selling you the annuity (doh!). Rather, it should be done looking at all options available, explaining how those different options work, and actually showing you what to reasonably expect from said options. Then you choose the option that both works, and you feel comfortable with. Sometimes you’ll find annuities are a great fit, other times you will not.

Nothing is perfect in investing. Nothing is worthy of pure praise at all times, or pure hatred. Every one of us is different, and for each one of our unique circumstances and emotional feelings about money there are appropriate investment plans.

Annuities done right will lower your returns. But they will also lower your risk. And for many, the tradeoff is well worth it (at least in moderation).

So Should you also Hate Annuities?

Only way to know is to see if they fit. If you have questions about this, feel free to reach out and we’ll help point you in the right direction. Just use our secure (and free) contact form here. You can ask anything you want and one of the Annuity Gator experts will get back to you within 24 hours. No bias toward love or hatred, only some free feedback to help you determine what really makes sense for your individual circumstances.

Best,

The Annuity Gator

 

Is an Annuity Right for You?
"Get our free Annuity eBook - Stop. Think. Plan."
We've written the definitive guide to annuities and it's totally free! In this 56-page guide the Annuity Gator shares the history of annuities, breaks down the 4 primary types, and shares the proper way to integrate an annuity into your financial plan.

Jason

Posts

Jason is the founder of AnnuityGator.com and a frequent contributor to the site. He has been breaking down the complexities of financial products for over 12 years with his extreme geekery...and translating them into simple explanations for the rest of us. Jason is a sought after speaker/educator by major financial services companies such as TD Ameritrade and Allianz for his unique expertise in quant finance (see, we told you he was a geek) and social media.

6 responses to Why Ken Fisher Hates Annuities (and thinks you should too)

  1. I have come across several of Kens clients and they were devastated in 08-09. Call me a SISSY but my clients didnt lose a penny in 08-09 nor did they pay a FEE in 08-09. So at the end of the day.. Lay down the statements for the last 5 years and lets see who has what! And the best part is when clients had to take funds to live on during those down years they had to lock in those horrific losses. A well structured Indexed annuity returned about 50% for the last 4 years with No RISK and the gains are locked in, Ken cant do that!

    • Well said Blair. Thanks for the comment and shared experience. As I wrote, Annuities will have lower long term results, but they’ll do so with no risk (at least fixed annuities). That tradeoff is worth it for some, but not others.

      Thanks again,

      -The Annuity Gator Team

  2. Jason,

    It’s amazing that you would characterize Ken Fisher’s “I Hate Annuities and You Should Too” as well written.

    Fisher purposefully blurs the lines between fixed (including fixed indexed) and variable annuities and shamelessly implies that ALL annuities are FEE INFESTED. His purpose is clear; to create fear and doubt about annuities for those people contemplating moving some (or all) of their money out of “managed money platforms” and mutual funds because they’ve finally waken up to the fact that those programs don’t fit THEIR risk tolerance.

    I agree with Fisher that variable annuities are a poor choice for most people when compared to equity mutual funds during the accumulation phase of life. The same cannot be said for fixed and indexed annuities for people approaching or already in retirement. For many, fixed and indexed annuities are the ONLY financial product that can protect them from the Sequence of Return risk that could turn their retirement into a nightmare.

    America’s broken retirement system is in the process of being rescued by the insurance companies who design and distribute innovative annuities that provide guaranteed streams of lifetime income that can supplement Social Security and the dwindling population that still benefit from and enjoy defined benefit pension plans.

    I’ll never forget the Fisher Investments client I came across in March of 2009. Then 60 years old, he and his wife had to postpone their planned retirement because their IRA was hammered from October of 2007 through March of 2009…to the tune of $ 811,000 in losses. What was once a $ 1,500,000 IRA had collapsed to $ 689,000 under the brilliant management of Ken and his cohorts…and not one phone call during that time to the client suggesting that some or all of their money be taken off the table…You just don’t forget sad stories like that!

    There’s a reason why Ken Fisher is so wealthy. He’s the king of “Buy and Hold”…he and his firm make obscene money whether their clients do or not.

  3. Jason,

    It’s amazing that you would characterize Ken Fisher’s “I Hate Annuities and You Should Too” as well written.

    Fisher purposefully blurs the lines between fixed (including fixed indexed) and variable annuities and shamelessly implies that ALL annuities are FEE INFESTED. His purpose is clear; to create fear and doubt about annuities for those people contemplating moving some (or all) of their money out of “managed money platforms” and mutual funds because they’ve finally waken up to the fact that those programs don’t fit THEIR risk tolerance.

    I agree with Fisher that variable annuities are a poor choice for most people when compared to equity mutual funds during the accumulation phase of life. The same cannot be said for fixed and indexed annuities for people approaching or already in retirement. For many, fixed and indexed annuities are the ONLY financial product that can protect them from the Sequence of Return risk that could turn their retirement into a nightmare.

    America’s broken retirement system is in the process of being rescued by the insurance companies who design and distribute innovative annuities that provide guaranteed streams of lifetime income that can supplement Social Security and the dwindling population that still benefit from and enjoy defined benefit pension plans.

    I’ll never forget the Fisher Investments client I came across in March of 2009. Then 60 years old, he and his wife had to postpone their planned retirement because their IRA was hammered from October of 2007 through March of 2009…to the tune of $ 811,000 in losses. What was once a $ 1,500,000 IRA had collapsed to $ 689,000 under the brilliant management of Ken and his cohorts…and not one phone call during that time to the client suggesting that some or all of their money be taken off the table…You just don’t forget sad stories like that!

    There’s a reason why Ken Fisher is so wealthy. He’s the king of “Buy and Hold”…he and his firm make obscene money whether their clients do or not.

    • Hi Frank,

      Thanks for adding your perspective and experience.

      I thought the Ken Fisher booklet on annuities was well written, from a grammar and readability perspective ;) . Some of the content was spot on in terms of Variable Annuities, but I did take issue with his benchmark for fixed index annuities.

      I could be wrong, but I think any Fisher clients who stayed the course (even though it might have been really tough) have more than made up any 2008 losses. That’s not to say I agree that people 60 years old should have 100% stock portfolios, just that those who had losses have likely more than recovered them.

      In the long run, what’s best for each investor is different. I’m sure there’s plenty of people who are great candidates for Fisher Investments, just like there are great candidates for certain annuities. No product or service, however, is a great candidate for everyone.

      Thanks again,

      -Annuity Gator

  4. charles vaughn March 1, 2014 at 12:41 pm

    Ken Fisher hates annuities because he doesn’t sell the. He complains about fees but what about his fees? Year after year of his fees will exceed the initial cost and ongoing cost of an annuity.

Leave a Reply

*

Text formatting is available via select HTML. <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>