Don't be April Fooled!

This Friday is April Fool’s Day and you can ask my associates, friends and family; I like a good joke or prank as much as anyone. Unfortunately, in the real world, it can be April Fool’s Day year round. The following are just a few examples:

  • Commercials advertising certain insurance/annuity products touting stock market like returns, with no downside at all.
  • Along this line, earlier this year, a client was approached by an insurance individual pushing an insurance policy that he labeled “A Rich Man’s Roth.”
  • A client invested in a private investment (outside of and not recommended by me or anyone affiliated with IAG) guaranteeing a 15% return per year by lending money to an online payday loan service.


Sadly, all of these examples are more closely resembled a “Financial Fool’s Day” prank than the truth. 

In the first example, the TV spokesman, who humbly named his company after himself, is selling all the sizzle of an equity-index annuity. While it is true that these type of annuities can go up in value, since their returns are tied to various stock indices, in the vast majority of the cases, the annual return to the investor is capped. Next, even though you cannot experience a loss in principal, a loss in future years can wipe any gains you’ve accumulated up to then. So technically, you did not go below your original investment, but you have no gains either. Also, what is not touched upon are all the fees and surrender charges associated with these type of annuities. Some of these annuities can have surrender charges in excess of 10% of your original investment and lasting for up to 17 years. As such, you’d better be committed, because once you’re in, it’s almost impossible to get out unscathed. 

That being said, for someone looking for very, very modest returns, and with a long-term horizon, then these type of investments could be appropriate. In my 28 ½ years in the financial advisory business, I’ve seen no more than maybe three or four cases where an equity-index annuity was a great fit for a client. That is out of thousands of interactions with couples and individuals. 

Regarding the second scenario about an insurance policy being represented as “A Rich Man’s Roth,” it was nothing more than a variable life insurance policy. Bottom line, it was a life insurance policy that you put excess money into, which is invested in a limited list of investment options, with the hope that your cash value (total premiums paid – the cost of life insurance) will grow over time. Not only is this type of insurance policy much more expensive than term life insurance, it is not permanent insurance. 

The cost of life insurance increases annually as you get older, and the policy is loaded with a mountain of extra fees that are not in simple terms life insurance policies. Thus, if the cash value/investment account within the policy does not grow adequately, then the increasing cost of life insurance eats up all the accumulated cash value/savings and you will be asked to make additional contributions to keep the policy from lapsing or expiring.   

This and other types of cash value life insurance policies (universal life, whole life, etc.) are very popular and profitable for insurance agents to sell. However, I have yet to meet or talk with someone who owns one of these policies and tell me that it’s lived up to their expectations. My experience has been that overwhelmingly, most policyholders dump their policies and cut their losses. Sadly, a few keep the policies because they are afraid of upsetting their agent whom is a friend, relative or fellow church member or they have hopes that ultimately the policy will become a winning lottery ticket and end up making them money. For them, life is like the movie Groundhog Day, and every day is “Financial Fool’s Day,” without any chance of reprieve. 

In the final example, 15% annual return and guaranteed should never have been in the same sentence. Even though the investor was a very successful and sophisticated CPA, he could not account for fraud. This “guaranteed” investment blew up in a matter of months, and he spent an enormous amount of time, anxiety and money on an attorney to recoup only a portion of his original investment.  

In life, the old saying of “if it sounds too good to be true, then it probably is,” is still alive and well. I listed just a few examples of what appeared to be financial home runs, but they end up with the investor being struck out and not even making it back to the dugout with their bat. Fortunately, becoming a victim to these “Financial Fool’s Day” pranks can be avoided. This is done by asking questions, and seeking guidance. I’ve had several instances where a client or client’s friend approached me with a scenario to what I listed in this commentary. In any cases, where I was not well versed on the subject matter or product, then I would reach out to other professionals in my professional network for guidance. Over the years, a combination of my experience along with that of competent and honest professionals in various industries has been able to save clients an incalculable amount of money. 

So this April Fool’s Day, I wish you a fun-filled day, with lots of laughs. In addition, I sincerely hope you continue to allow me and everyone at Integrity Advisory to assist you so that “Financial Fool’s Day” is never a date or event on your calendar! 


“Real friends are those who, when you feel you've made a fool of yourself, don't feel you've done a permanent job.”


"I sometimes wonder if the manufacturers of foolproof items keep a fool or two on their payroll to test things."

Alan Coren

Quotes selected by the IAG Staff 

“The trouble with practical jokes is that very often they get elected.”

                   Will Rogers

“Things could be worse.  Suppose your errors were counted and published every day, like those of a baseball player.

                   Author Unknown 

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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