Why We Disagree with Ken Fisher on Annuities 

Someone on the internet is wrong. It’s Ken Fisher.

Fisher is a billionaire founder and executive chairman of Fisher Investments. He’s also an author, former financial columnist at Forbes, occasionally controversial tweeter, and adamantly against annuities.

While we respect Fisher’s investment success, we think he’s mostly wrong about annuities.

Here’s what exactly he says about them in his now-famous Forbes article and why we disagree with him, point-by-point.

To be clear, Ken Fisher admits he doesn’t hate all annuities

While “I Hate Annuities” (the title of his Forbes article) is a brilliant, click-worthy headline, it actually misrepresents Fisher’s stance on annuities.

As he makes clear, “Fixed annuities are okay.” Fixed annuities tend to be the most popular annuity type. So even Fisher accepts that a substantial portion of annuities can be helpful financial products.

But let's look closer at his reasons for disliking the other kinds of annuities and his reasons for stating, "why I hate annuities".

Why Ken Fisher Hates Most Annuities

So what are Fisher’s actual reasons for despising products meant to provide retirees a steady stream of lifetime income? He provides four for why "I hate annuities and you should too".

1. Annuity Contracts Are Long and Difficult To Understand

Ken Fisher gripes that “[Annuity contracts] are huge, obtuse, confusing and hence rarely read.”

Well, yes, they are long and a little complex. But so are Facebook’s privacy policy and the terms and conditions of the mutual funds that Fisher’s own investment firm sells.

Annuity contracts are legal documents, and just like any other legal document, they can be challenging to understand.

Remember that insurance companies sell annuities. Those companies are heavily regulated by state insurance departments and potentially the Securities and Exchange Commission and FINRA.

Every disclosure included in an annuity contract is there because regulatory bodies have deemed it helpful for consumers to be given that information.

So when you see a long contract, it tells you that the insurance company follows the rules. And it should help you to know exactly what you can expect from the annuity.

The solution: Avoid complicated annuity contracts in favor of simpler ones like fixed annuities. If you don’t understand your annuity contract, you can ask for clarification from an independent source, like a financial advisor.

2. Annuity Sales Representatives Sometimes Lie To Make a Sale

Another problem Fisher has with annuities is the insurance agents. Agents that sell annuities often receive a large commission for each sale.

This can lead them—intentionally or otherwise—to over-promote annuities without accurately representing fees or considering the consumer’s best interests.

We agree partially with Fisher here. Tens of thousands of sales agents receive commissions for selling annuities.

It goes without saying that there may be some who sell unethically or incompetently. The fact is that most agents act in the best interest of their customers. Whether they are simply ethical people or the company they sell through has a rigorous training and suitability process (almost all do), the bar is set high to make sure they sell the right product for the right reasons.

Having said that, you should be cautious of complicated products sold by commission-based annuity agents and make sure you are asking a lot of questions about fees, surrender fees, advisory fees, etc. before signing on the dotted line.

The solution: Choose an insurance company and an agent carefully. And if you decide that a fixed annuity is the right choice, choose a product that you can buy directly and bypass the agent.

For example, at Canvas Annuity, we don’t pay our agents commission, which means you can have peace of mind that our agents won't try to sell you products that don't fit your lifestyle.

And since we don’t pay commission to a salesperson, it also allows us to offer some of the highest crediting rates.

3. Variable Annuities Are Sometimes Misleadingly Sold as Safe Investments

Fisher argues that many annuity companies misleadingly call variable annuities “safe investments.” He says that this is false, and in reality, you can lose money in a variable annuity.

Fisher is right: Variable annuities can bring substantial risk with them. Just like investing in the stock market, variable annuities come with a lot of uncertainty.

This is mainly because many times, you are actually investing in the stock market through your variable annuity.

With a variable annuity, you must choose sub-accounts, which are made up of mutual funds or other assets. Sub-accounts can also be expensive to manage (a fee you—the policyholder—must bear), and because of the stock market’s volatility, you can actually lose money.

But this risk is only relevant to variable annuities. Fixed annuities are actually safe. As long as you do not take early withdrawals, you’ll receive back the initial deposit you put in plus interest. With fixed annuities, your money has nowhere to go but up.

The solution: If you’re purchasing variable annuities, make sure you completely understand the risks. And if you’re not prepared to lose money, consider fixed annuity contracts, where your crediting rate is guaranteed.

4. Large, Hidden Fees

Fisher touches briefly on the issue of fees by mentioning, “humongous surrender charges.”

He doesn’t dwell on the point in his article. Still, presumably, he sees this as one of the critical downsides of annuities. Many life insurance companies that offer annuities do charge several different fees that may not be entirely clear to you as a consumer.

Surrender charges, in particular, can be expensive. These are the fees you pay when you withdraw money from your annuity early.

The solution: Find fee-free annuity products that are flexible about early withdrawals. And when you purchase an annuity, aim to keep your money in the annuity for the length of the surrender charge period.

At Canvas, we work hard to ensure our policy on surrender charges is clear. We don’t have commissioned agents, and we don’t charge you management or account fees.

We also offer our Flex Fund annuity product, which allows you to surrender your annuity at any time and still receive back your initial principal, no questions asked.

Why Else Might Ken Fisher Hate Annuities?

There are a few other reasons that might contribute to Ken Fisher’s stance on annuities.

Here are a few to consider:

Ken Fisher Doesn’t Need an Annuity

To be fair, another reason Ken Fisher may not like annuities is that they’re not a good option for him. Annuities aren’t designed for billionaires.

They’re for people who are worried about how they’ll afford their lifestyle when they’re no longer working.

If you’re a billionaire like Ken Fisher, that’s probably not a worry you have. So you probably don’t need an annuity.

Perhaps Ken Fisher should hate annuities because they’re not right for his financial circumstances. But they often are the right choice for other people—for example, people who don’t have billions lying around to last them through retirement.

Ken Fisher’s Firm Buys Annuities

Finally, understanding Fisher’s own interests may help us understand his stance against annuities. For one thing, his firm buys people out of their annuities, as he freely admits in his article. Acquiring annuities and making these buyouts is part of his business.

Second, he’s an investment fund manager. He’d likely much rather see people put their money into investment products—especially the ones he sells through Fisher investments—than put them into annuities.

Indeed, much of his article insists you buy stocks that he has a stake in.

So it’s possible that his own business interests bias him against annuities.

We Love Annuities, and You Should Too

We admire Ken Fisher—not just for his success in business and investing but also for his bombastic character and colorful writing style. He writes a compelling headline, that’s for sure.

And he isn’t completely wrong about annuities. He’s right that annuities can be difficult to understand. They can have hefty fees, and sometimes, they’re overpromoted by agents receiving a commission. Those commissioned agents may also mislead their clients about the risk of variable annuities, in particular.

But his conclusion is wrong: Not all annuities are bad. In fact, most are legitimate financial products that really can provide you with guaranteed income in your golden years.

Your money grows tax-deferred, and you receive income when you need it the most. If you’re interested in buying an annuity, but you want to avoid the pitfalls that Fisher identifies, here are some considerations:

• Seek help if you don’t understand your annuity contract.
• Choose companies that don’t pay their agents a commission.
• Choose annuity products without large or hidden fees.
• Choose fixed annuities if you don’t want to risk losing your principal.
• If you're in doubt, get help with your financial planning from a financial professional or investment advisor.

At Canvas Annuity, our annuities avoid all of the criticisms that Fisher cites.

Our contracts are simple and easy to understand, with crediting rates guaranteed for the term you select. We don’t charge fees.

Our agents are available to answer any questions, but they aren’t paid commission and won’t pressure you into a product that’s not a good fit for you.

And because we don’t pay commission, we have some of the highest crediting rates around!

Take a look at our Canvas annuities products today to help you achieve guaranteed retirement income and secure your financial future.

Citations

1. Fisher, K. (2014). Ken Fisher: Why I Hate Annuities. Forbes. Retrieved March 10, 2021.