Something smells fishy in annuity advice from money manager

Central Penn Business Journal, Sep 19, 2008 by Berko, Malcom

TAKING STOCK

Dear Mr. Berko: A lawyer in downtown Miami drew up my trust several years ago, and I think he did a good job. He is a wonder- ful, marvelous, lovely and car- ing gentleman. He is also my money manag- er, my account- ant and my life agen, I invest- ed most of my $987,000, with him in early 2005. I believe the account is doing well and that he is doing a super job and giving superb advice. Recently, I had two certificates of deposit come due, and he thinks I should put the $132,000 proceeds in an immedi- ate annuity that will pay me 5.4 percent for life, and only 30 per- cent of that income is taxable. That's good because U.S. Treasury bonds pay 4.4 percent, and 100 percent of that is taxable. I think the annuity sounds like a good idea. However, my son insists I keep the $132,000 in CDs and is very adamant about it, but he won't give me a good reason why. So I'm writing to seekyour opinion and advice. Please let me know as soon as you can because my adviser tells me that interest rates will go lower very soon.

E.P.,

Delray Beach, FIa.

Dear E.P.: Believing your stock account is doing well isn't worth a bucket of warm spit. Take your statements to Merrill Lynch, Morgan Stanley, or Oppenheimer, etc., and ask the manager to review the account. Do itnow. Don'ttarry dear lady, don't delay - do it now.

I suspect that your lawyer-insurance agent-financial adviser-accountant could be a bloody crook, and I believe that your son suspects so, too. I wonder how many other trusting senior clients he may have cozened.

I also urgently recommend that you ring one of the many reputable insurers, like Met Life, AXA Equitable, Lincoln National, etc., and have one of those agents review your life-insurance policies. Please do it now.

I also urge you to visit one of the well-known law firms in Delray Beach and ask to have your trust reviewed. I wouldn'tbesurprisedif that wonderful, marvelous gentleman attorney-insurance agent-financial adviser-account insinuated himself or one of his assigns in your trust.

Now I can tell you in no uncertain terms that an immediate annuity - life only - for a 70-year- old female paying a 5.4 percent guaranteed return for the rest of her life is ajoke.Yes, 1 know that 30-year U.S. Treasury bonds yield 4.4 percent, but comparing the yield on U.S. Treasury bonds to an Immediate Annuity is like comp aring tomato es to potatoes. They're both vegetables, and they both taste good, but the similarities stop there. 1 suspect that creep is disingenuous, and Tm certain the agents from Met, Northwestern or New York Life will agree.

Now pay attention. That rogue would take your $132,000 and promise you $7,128 in annual income, which is a 5 .4 percent return. And yes, that's much better than the $5,808, or 4.4 percent, you would get from U.S. Treasury bonds. And yes, while all of the income from the Treasury bonds is taxable, only 30 percent of the income from that skulk' s immediate annuity is taxable.

Now neither you nor I know what insurance company this fellow is using. However, when investing money for retirement income, I prefer to recommend the highest-rated, most well-known companies. So below are a few sample yields, and you can see that they are far superior to the crap this guy would have you buy. And as you can see from the following quotes, it also makes good sense to get various quotes, even among the best insurers.

So look here. A $132,000 immediate annuity with Ohio National will pay you $9,800 a year, which is a 7.4 percent return. The same investment in Lincoln National would produce $10,320, which is a 7.8 percent return. The same investment in AXA would produce $10,752, which is an 8.1 percent return; and the same investment in Met Life would provide $11,100, or 8.4 percent. Each annuity has 70percent tax exclusion.

Please be brutally honest and ask yourself why a 70-years-young lady who lives in Delray Beach would drive 50 miles to Miami to have a lawyer-insurance agent- financial adviser-accountant prepare her trust, her tax returns and manage her money? Miami, Florida has all the characteristics of a Third World country. 1 think you're getting Third World financial advice, and 1 suspect you may be getting Third World legal advice too.

Do you think it's remotely possible that your confidence in this wonderful, marvelous gentleman might be more a result of his charm than his capability? Please, please, E.P., take my advice : Have your trust and stock account reviewed by another attorney and another broker and have your tax returns checked by a certified public accountant. Free advice is often worth no more than what it costs, but my free advice to you could be worth hundreds of thousands of dollars.

Malcolm Berko answers readers' financial questions. E-mail queries to malber@comcast.net. Mail them to Berko, c/o Central Penn Business Journal, P.O. Box 1416, Boca Raton, FL 33429. He answers questions by e-mail, mail or in his column for free. If readers want in-depth analyses, they may be asked to become clients.