A 2010-2011 report by Prudential Research found that 95 percent of women are the primary financial decision-makers in their households. It's a statistic not lost on financial planners, whose job is to help people grow their retirement accounts, provide for loved ones and increase wealth. Financial planners work for banks, investment firms and private practices. They not only provide advice on how to invest money, but also sell securities, mutual funds and annuities. Depending on the type of licenses that they have, financial planners can make a commission on investments sold to clients. This often includes annuities which prove to be safe and sometimes lucrative investments for the savvy investor.
Generally speaking, an annuity is an insurance policy that pays an annual amount to its owner. Annuities are often thought to be a safe investment. A 2013 article by MarketWatch states that historically speaking, annuities are one of the safest investment strategies. Annuities provide tax-sheltered investments and yearly payments. Planners usually offer two types of annuities: immediate and deferred. Immediate annuities pay a fixed amount over the life of the investor. Deferred annuities accumulate until a payment is made at a future date. Annuities, as do other financial securities that are publicly traded, carry some investment risks. Still, the Prudential report found that annuities aren't well understood by women, and the lack of knowledge "may impact their ability to achieve (investment) goals."
How Financial Planners Get Paid
Payment and salary depend on the type of financial planner. Some planners make the majority of their money off of commissions. They receive a percentage of sales from products sold to customers. These planners sell mutual funds, annuities and other financial vehicles. Fee-only financial planners charge a flat fee for advising clients and make no commission on recommended products they Fee-based financial planners use a combination of fees and commission, depending on the services provided. Financial advisers working for larger companies may be paid on a salary basis.
Making Commission on Annuities
Commission-only financial advisors receive a commission for the investment products that they sell, including annuities. According to a 2011 article on MarketWatch by AnnaMaria Andriotis , financial planners can earn up to four times more in commissions by recommending and selling annuities than they can on other financial vehicles such as mutual funds. Some commissions can range as high as 110 percent on a whole life insurance policy. Many planners push annuities for the tax shelter properties which mirror those of an IRA. Since both IRAs and annuities are tax shelters, financial experts say sales of this sort are simply a way of earning a higher commission, with no real benefit to consumers.
While most planners work to improve the financial lives of clients, there are some less than scrupulous practitioners. Planners working solely on commission may be inclined to push annuities because of the high commission and not mention mutual funds that may net the client a higher yield at the end of the day. Other planners may also push annuities on clients who may not be in a good financial position to purchase them. When your commission is based on products that you sell, there is always the temptation to sell those that yield a higher commission even if they are not best for a client. The Financial Industry Regulatory Authority or FINRA, is a self- regulating agency, that oversees sellers of annuities and provides them with recommendations on the selling of these securities. FINRA's website provides a list of district offices that clients may call in cases of fraud or suspicious sales activities.
- MarketWatch: Are Financial Advisers On Your Side?
- Prudential Research: Financial Experience and Behaviors Among Women
- Chrome Asset Management: How Do Financial Planners Get Paid?
- Bankrate: Why Annuity Sales Have Skyrocketed
- Securities and Exchange Commission: Variable Annuities:What You Should Know
- MarketWatch: How Safe is Your Annuity Carrier?
- WISER Women: Annuities: Why You Need to Know How They Work
Adele Burney started her writing career in 2009 when she was a featured writer in "Membership Matters," the magazine for Junior League. She is a finance manager who brings more than 10 years of accounting and finance experience to her online articles. Burney has a degree in organizational communications and a Master of Business Administration from Rollins College.