And troubled insurers are not just a thing of the past. The Phoenix Companies of Hartford, Conn., which makes guarantees on variable and fixed indexed annuity contracts, including products with guaranteed minimum accumulation benefits and guaranteed minimum withdrawal benefits, has lost its Moody’s rating because there was insufficient financial information on the company. The Phoenix Companies filed its 10-K for 2012 on the last day of 2013. The SEC issued a cease-and-desist order on March 21 addressing the company’s late filings and issued new strict deadlines. Standard & Poor’s as of May 8 had a “B-” rating on Phoenix with a negative outlook. A.M. Best in August downgraded the Phoenix Companies’ subsidiaries, dropping their financial strength ratings to “B” (fair) from “B+” (good) and issuer credit ratings to “bb+” from “bbb-”. All of the company’s ratings are below investment grade. As of May 7, its share price was down 23.4% since the first of the year, according to InvestorPlace.com.

“It’s incredible—scary,” says Wagner, one of the only principals interviewed for this article who was aware of the company’s problems. “Wouldn’t that financial advisor advising someone to go into that company’s products have some fiduciary concerns? Maybe? There could be potential fiduciary liability certainly.” Wagner cautions about using third-party experts, too. “They’re only as good as their expertise. Check their qualifications, previous recommendations, years in the industry, costs-to-benefit. Do a prudent investigation.” Apparently there’s no getting rid of fiduciary liability. Says Wagner, “It can and will come back ... the fiduciary boomerang.”

There is still another type of annuity request advisors are getting—clients looking for valuations of existing annuities in light of their current situations. Here, Stephen Esposito, who works directly with fee-only fiduciary advisors and planners, assists clients as part of Parsippany, N.J.-based Macro Consulting’s year-old annuity review program. Nearly 90% of the benefits Esposito fields questions about involve guaranteed withdrawal benefits. Macro has gotten inquiries from more than 150 advisors to date asking about variable annuities, which he calls very complex products.

Some inside advice: Esposito says the insurers could afford to be much more generous before the financial crisis. So most of the older or legacy annuities are better than today’s. “After 2008, insurance companies started pulling back on the attractiveness of guarantees. So a lot of older contracts—2010 or earlier—are very difficult to replicate today.”

His fee is $399 for a consultation, which is good for up to two contracts. After that it’s $99 for each additional call. Advisors shouldn’t be embarrassed to ask, Esposito says. Even CFPs who have already bought annuities for their own use have called him after the fact for clarification on some of the finer points. And advice might even help advisors avoid a lawsuit for failure to exercise fiduciary due diligence.

 

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