In an economic world gone mad, a lot of people start soul-searching and revisiting their dearest held money convictions. Even financial advisors, many of whom are starting to second guess such sacrosanct concepts. If you had $100,000 in one of the big indexes in October 2007, chances are it was down to $60,000 or even $50,000 a year later. Almost everything lost money: stocks, bonds, commodities, real estate, international investments, etc. For many, there was nowhere to hide except Treasurys.

And so people are posed with this question: Would you have paid a little bit more for a safety net that would have protected all your money? Most people's answer to that would be an unabashed, "Yes." But then if you invoke the phrase "variable annuity," the enthusiasm of some people immediately starts to curdle.

Some are thinking 2009 could be a watershed year for variable annuities, because the new breed of them-those with the latest guaranteed withdrawal and principal benefits-have not been tested in a sour market. Maybe the product, if sold correctly, could offer investors the peace of mind they need to move back to the equities space after a year when many people want to simply put their heads in the sand.

"You can't put your money in the mattress or a coffee can in the backyard," says Catherine Weatherford, president and CEO of NAVA Inc., the Association for Insured Retirement Solutions. "People are looking for ways to get their toes back into the water."

Still, in some circles it's seen as dicey to promote these products, for an oft-read litany of reasons: They're too pricey, for one thing, and draw water from your growing asset garden with steep fees of 2% to 3% depending on what benefits you tack on, much of that for the cost of the insurance. For the privilege of paying these fees, you get to fatten the wallet of the advisor or agent who sold it to you. Meanwhile, some contracts are often written in such a way that you can't touch the fruit for many years without paying a hefty surrender charge. The product's enemies among regulators may also invite unwanted scrutiny, even if the products' features appeal to many clients.

These stigmas are enough that many advisors, especially in the fee-only space, still don't like them, and even those who do concede that they are usually oversold or sold to the people who don't need them.

The product's advocates, however, say that they are misunderstood, and that the new breed of variable annuities with the income and principal guarantees are tailor-made for years like 2008, when your nest egg can be wiped out in a matter of months. Sure, clients' return might not have been totally destroyed if they were in a conservatively managed balanced fund. But how much of that do you have to draw off of after September 2008?

After all, some people are willing to pay the fee because they want that insurance. They can't afford to lose the money because they are actually going to use it. Thinking about accumulation and thinking about distribution are two different things, and if your assets are wiped out at the wrong time, all that extra effort you spent chasing the best performance seems like a silly, Pyrrhic victory.

And sometimes you can't bet on the market performance to sustain you even for 10 years. After all, when the last few years of the tech boom-1998, 1999 and 2000-fall off the scale, the S&P 500's 10-year annualized return could remain negative for the next three to five years, say advisors. And meanwhile you're eating into principal if you're taking all of this out of your mutual fund.

"You know there's a difference between being prudent about fees and cheap, and I think some people tend to look at the fees and they run. I think they have to weigh that out in the big picture," says Chris Chiarella of Siamo Investment Advisors in Carlsbad, Calif.
"If someone bought a home and didn't have home owner's insurance and calculated the rate of return on that investment, it's going to be a more attractive return," says Mark Cortazzo of Macro Consulting Group in Parsippany, N.J., who runs a hybrid fee and commission practice. "But I don't think there is a financial advisor in the U.S. who would say, 'Don't have homeowner's insurance.'"

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