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Who Is Suggesting Your Annuity?

Cody Lewis

I don’t think I have received more questions or have seen as much confusion as I have concerning annuities and life insurance. For today’s discussion, we are going to focus on annuities – how they’re sold, how they’re bought, and what is important when buying not just annuities, but any financial product or service.

The only product that may be more confusing to understand and explain than annuities is life insurance. They are similar in many ways, but most notably that they are both insurance products and therefore are actuarial-driven products. This is important to understand when dealing with insurance in general. Because they are both actuarial-driven products, insurance companies appear to have the upper hand when it comes to consumers buying their products. Insurance companies understand the rules, the numbers, and how to win at this business!

How do they know how to win? They have all the data and statistics at their disposal. They have information around when certain people, at certain ages, with certain health issues, will statistically leave this wonderful planet of ours. This is called “Mortality,” and insurance companies understand and know how to price these products so that they win most of the time. Now price may come in different forms, such as fees, lack of liquidity, or rules around how to access your money.

Just like going to Vegas, if you do not understand the house rules you will probably lose! That is why life insurance, annuities or any insurance product for that matter may have a bad stigma or negative connotation connected to it. Insurance companies know the rules, and even scarier, can in many instances change those rules whenever they want.

When you’re looking at any financial product, it is critical to understand the rules. Typically those rules are in the small print, so to speak, and will tell you everything you need to know; they have to by law.

When considering any type of insurance product, which an annuity happens to be, I believe the most critical component is that you are working with an independent advisor or “Guide.” In the independent world, your advisor should be able to shop the market and bring the best options and strategies to the table. These strategies or options should only be brought after significant due diligence on the advisors part in understanding the client’s goals and objectives. As an independent advisor will tell you, because of their independence, they are forced to bring the best products to the table.

If you happen to be working for a captive advisor or an advisor that represents a certain company, they may be incentivized to sell their specific company’s products through additional compensation, bonus trips, or any number of perks.

An ongoing concern I get is that certain financial products are bad, particularly annuities or life insurance. Many times, this can be true, but typically it’s because they don’t understand the product, nor do they really believe the advisor is working in their best interest.

You must understand the role of your guide or your advisor, there are many ways to climb a mountain, but trying to get to the top the fastest isn’t always the most intelligent. It is not only important that your advisor is independent, but that they are a recognized fiduciary, legally obligated to sit on the your side of the table and only make recommendations the are completely in your best interest. Being a fiduciary is a step beyond something we call in the industry a “broker.”

Many are unaware that there is a distinction between the duties owed to you by a broker and the duties owed to you by a fiduciary, or in other words an “investment advisor.” Although the standards are fiduciary in nature, brokers generally are not treated as “fiduciaries” under federal securities laws, and the applicable regulatory standards are not as strict as fiduciary standards.

In contrast, investment advisors are held by the SEC and Supreme Court to have the status of “fiduciaries” under the Investment Advisors Act of 1940. As fiduciaries, investment advisors are subject to a fiduciary duty to act in the best interests of their customers. An advisor’s fiduciary duty requires the advisor to evaluate his or her client’s interests against a wider universe of investment alternatives.

A key distinction is in the degree of disclosure that must be made regarding conflicts of interest by a broker or investment advisor. In general, a broker is not required to disclose incentives it may have to act in his own interest. For example, a broker is not required to disclose that he receives distribution fees from a mutual fund he recommends to clients. An investment advisor, on the other hand, is required to disclose such conflicts and to obtain the client’s consent to conflicted transactions.

A broker is required to make recommendations that are “suitable” for his clients under FINRA rules. This standard does not require that a recommendation be in the “best interest” of the customer. It does not require a broker to evaluate the client’s interests and determine which investment recommendations would be better or best for the client.

A broker may be found to owe a duty to act in the client’s best interest under common law if the broker acts in a position of trust and confidence when making investment recommendations to his client.

An investment advisor is required under the Investment Advisors Act of 1940 to act in the “best interest” of his client.

My intent here is to not get into detailed law regarding all the specifics of a broker’s duties compared to an investment advisor’s duties. Hopefully, whomever you’re working with passes the most important rule I have for my clients: the “Gut Check.” The gut check is the feeling and overall sense of what your inner gut is telling you concerning any recommendation you are receiving.

I believe all financial products can have a place in your portfolio. It is important that you take ownership over understanding what you own, both the advantages and disadvantages. Make sure you spend plenty of time in the education process with your advisor, don’t let them rush you. Take the time you need to be educated. Get more than one or two opinions if necessary.

The last caution I want to give is something called “Analysis Paralysis” and that is when you just are overly fearful or have too much information running through your head so you decide to not take any action. Successful people do not get ahead by a lack of decision-making. Educate yourself and then have the courage to make your decision.

I realize this article started about insurance products, specifically annuities. Whether it’s an annuity, life insurance, a brokerage account, or any other financial instrument, understand why that specific strategy is being recommended, educate yourself, get a second opinion, and then make a decision.

I wish all of you the very best as you seek to secure your financial well-being and security. Like the saying goes, “Nobody cares more about your money than you!”

About the Author:

The founder of Proactive Wealth Concepts, Cody Lewis has counseled thousands of seniors and has helped hundreds of professionals, business owners, and hardworking individuals develop functional strategies designed to help them achieve their financial goals. To contact him, call (801) 984-8051 or email

Visit to learn more about Cody and his practice.


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1 Comment

  • Sue Edwards says:

    Congratulations Coty, I’m not surprised you received this recognition, you have been such an inspiration in my life and helped me, and continue to help me with things I never knew anything about. I would recommend you to everyone.
    Sincerely, Sue Edwards

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