What if the saver had been advised to consider a much simpler strategy for downside protection with stock market participation: the purchase of a U.S. Treasury, or even a federally insured certificate of deposit, in an amount sufficient to return the original investment even in the face of a stock market collapse greater than any in U.S. history, with the remaining money invested in a low-cost stock index fund?

That strategy, which of course pays no commission to the insurance agent, would have earned on average an additional 20% (using today’s historically low Treasury rates) to 30% (using the best current online CD rates) more than the annuity, or $20,000 to $30,000 more for every $100,000 invested over eight years. It also would have outperformed the annuity 80% of the time.

Repeat this exercise over a 25-year savings period, and the hit to the saver’s retirement nest egg is significant. Arguably, by this standard it’s not in any saver’s best interest to choose the annuity over the simpler strategy, as a layman would understand that term. It is, however, in the insurer’s best interest to sell it.

No wonder assets backing these types of annuities have more than doubled to well north of $400 billion since 2011,making them one of the fastest-growing forms of insurance-linked investments.

Sadly, under the insurance rule, investors might never hear about all their options. It’s valid to ask whether financial regulations should take a “buyer beware” approach or hold advisers to strict standards. The worst of all possible worlds, however, is one in which regulations purport to protect consumers’ best interests while giving peddlers of expensive products an easy out.            

Ethan Schwartz has worked as an investment manager and financial services executive for 21 years. He was a special assistant to the deputy secretary of the Treasury in the Clinton administration.

This column was provided by Bloomberg News.

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