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DOA for EIA's?

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Dec 20, 2005 1:49 am

In catching up on my reading over the weekend, I noticed an article in the WSJ (<?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />12-14-05 edition, page D-1) about EIA’s. Here are some highlights of the article:

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Investments in EIA’s totaled $23 billion in 2004 and $21 billion in first nine months of 2005.

In Florida, 2 class action lawsuits and more than 40 individual lawsuits have been filed by just ONE law firm for abusive EIA sales practices, alone!

EIA’s are offered mostly by mid-sized insurers. The reason being that most of the large insurers believe that EIA’s are too complicated and that “the surrender periods are too long” and the “commissions are extreme”. In fact, out of the top 20 largest U.S. insurers, only one company “ING” offers EIA’s.

MassMutual Financial Group issued a detailed analysis of how an (EIA-type) annuity based on the S&P 500 would have performed over 30 years ending 12-30-03. MassMutual assumed the following:

-         annuity investors would have at least broken even in any given year

-         that investors didn’t get any benefit from S&P 500 dividends

-         and that the EIA had a 9.4% annual cap on returns.

The result? EIA annuity investors would have earned just 5.8% per year vs.:


S&P without dividends                     8.5%

S&P with dividends reinvested     12.2%

Treasury Bills                                     6.4%

The crap is rolling down the hill, people. If you slammed someone into one of these EIA’s and you think you’re sitting pretty, think again. Did you give your client a written investment policy statement explaining how their EIA fits in their overall financial plan or did you just spend 15 minutes explaining it to them, then slammed them into it? Why is that important? Client memories are short, very short if they think they’ve been sold a bill of goods. Unless the client has something in writing, to refer to, explaining how the EIA fits within their financial scheme, they won’t remember 10% of what you told them before you sold it to them. And that’s a lawsuit waiting to happen!

If you’ve sold EIA’s without a written investment policy statement, get on the phone to those clients and make sure they understand how it fits into their plan. And plan to follow-up with them every few months, just to cover your butt, in case they read a similar article.

If you haven’t sold EIA’s and don’t like them, get reprints of this article and send it to those prospects who were sold EIA’s. Might help get your foot in the door.

Personally, I don’t like them, in their present form. And if the broker, who sold my prospect an EIA, didn’t do their job, he/she won’t like me either.

Dec 20, 2005 4:50 am

I've only sold 3 EIA contracts in my life.  I checked on the first one which I  recommended back in October 2004.  The account was credited this year with 7.50% interest.  Not bad for a product that has no market risk.

Dec 21, 2005 12:22 am

I refer you back to my post concerning the 30-year study conducted by MassMutual, which showed that Treasury Bills would have performed better than "S&P 500-based" EIA's.  There's no market risk there, either.