Don,
I don't see the article or link. I guess the important thing to remember is that the more complex the investment product, typically the worse it is for the investor. Watch your fees and invest in something you understand.
Before you buy and annuity, make sure you ask some tough questions (see FINRA investor alert in previous thread- Good public information). Typically, the longer the surrender period, the higher the upfront commission to the Sales Agent.
Annuity fee disclosure checklist
Before you buy any annuity, ask your advisor to fill in the blanks.
What you pay each year
Annual fee (as % of account value) for: Your Number(fill in blank) Typical fee
The insurance (a.k.a. mortality and expenses) _____% 1.35% typical
The investments within the annuity _____% 0.95% typical
Riders and options _____% 0.65% typical
Total annual fee: _____% 2.95% typical
What you pay to get out
Max. surrender charge (as % of withdrawal) ____% 7% typical
Number of years before surrender charge expires ____ % 8yrs typical
Source:Morningstar, National Association of Variable Annuities, Money research
Note: Max. surrender charge may not apply to all withdrawals.
According to Larry Swedroe at CBS MoneyWatch
The typical EIA provides far less than 100% of the index’s return…First…most EIAs have participation rates….between 70 and 90 percent, [second is] through the use of an annual cap–the maximum rate at which the annuity can be credited. For example, the S&P 500 rose almost 29 percent in 2003 [but] an EIA might have limited the gain to…perhaps 12 percent, less…expenses. [Third, dividends don't count toward payout, only the price change of the index. Fourth is] the use of a margin fee…For example, in the case of an annuity with a [margin fee] of 3 percent, if the S&P 500 gained 9 percent, the return credited to the annuity would be 6 percent. Fifth…[they use] simple interest instead of compound interest.
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