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I believe that Equity Indexed Annuities and the sales practices used to sell them may well be the Next Big Investment Scandal you will hear about. You need to understand why and to think twice before you purchase one of these products.

We have

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

seen many scandals the last few years relating to mutual funds, variable annuities and more recently, to insurance companies. The common theme in all of these scandals has been the existence of hidden conflicts of interest.

There is an unspok

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

en trust when someone purchases a financial product. When someone is uncomfortable making a purchase on their own, they seek out the advice of a financial advisor. They expect that advisor to make a recommendation that is in the client’s best i

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

nterest, not the advisor’s.

Unfortunately, most financial advisors are compensated solely by the commission they receive from selling financial products. The more they sell, the more they make. If they don’t sell, they don’t eat. This alone cr

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

eates a tremendous conflict of interest between them and the client.

Consumers understand that conflict of interest in other purchases they make. You wouldn’t expect a car salesperson to recommend a vehicle that isn’t offered by their dealersh

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

ip. So consumers view the salesperson’s recommendation with a healthy dose of skepticism.

That same skepticism should be applied to the purchase of financial products as well. Those who purchase mutual funds or stocks are fully aware of the co

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

mmission they’re paying. However, few Equity Indexed Annuity consumers are aware of the commission their advisors are making off of their purchases. I’m not against an advisor making a living; what concerns me is when the client is not made awa

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

re of the powerful forces influencing what their advisor is recommending.

This is why I feel Equity Indexed Annuities may be the Next Big Investment Scandal. The hidden conflict of interest between an advisor and client is greatest when an Equ

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

ity Indexed Annuity is being recommended. There are huge incentives designed to motivate an advisor to recommend an Equity Indexed Annuity over any other financial investment they offer–incentives that aren’t disclosed to the client.

An adviso

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

r can make more commission from selling an Equity Indexed Annuity than they can from any other investment they offer. A lot more. In some cases, the amount of commission is three to four times greater than on an investment like a mutual fund.

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

Equity Indexed Annuities (EIAs) are not regulated at the federal level, but by each state’s Insurance Commissioner. Even though Equity Indexed Annuities are technically an insurance product, they are being marketed as an investment. But all an

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

agent has to do to be able to sell them is sit through a five-day course and pass a simple test on health and life insurance.

The structure and sales practices of almost every other commission-based investment product are regulated by the Secu

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

rities and Exchange Commission. Mutual funds, stocks, bonds and variable annuities are all regulated at the federal level. Equity Indexed Annuities are not.

If an advisor were to place 100% of a client’s investable assets into a variable annui

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ty or a single stock or mutual fund, they would likely face fines and possible revocation of their license. At the very least, they would be opening up themselves and their firm to potential lawsuits. Yet, I often hear of advisors telling a cli

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ent that they should put 100% of their money into Equity Indexed Annuities.

Under federal regulation, an advisor can’t recommend a client pay a 7% penalty to get out of one annuity and move then move that money into another high commission pro

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

duct. That’s just like a stockbroker getting you to constantly buy and sell stocks so they can earn a commission–it’s called churning. Yet, I see advisors using the ‘bonus’ offered by some Equity Indexed Annuities to do just that.

I am an advo

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

cate for the individual investor, and apparently one of the few in the financial services industry willing to speak out against this popular product. But Equity Indexed Annuities are beginning to attract attention. I was interviewed by CBS Mark

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

etWatch just last week about the dangers associated with Equity Indexed Annuities. Those in Congress are recognizing the need for federal regulation of insurance products.

So think twice before buying an Equity Indexed Annuity. The agent may n

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

ot have your best interests at heart.

To find out more about the dangers of Equity Indexed Annuities, give me a call, send me an email or read my other articles at www.guardingyourwealth.com. They will tell you what the agent isn’t.

Mr. Voudr

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

ie is a Certified Financial Planner and the President of Legacy Planning Group, Inc., a Private Wealth Management firm in Johnson City, TN. For more information email jeff@guardingyourwealth.com.

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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