“Imagine an account that:
• ‘Lets you retire 100% tax-free’
• ‘Is NOT reportable to the IRS’
• ‘Obama’s auditors can’t see it’
• ‘Returns are 30-40 times greater than you get with C.D.s’
• ‘Is a secret type of bank account used by wealthy people including Presidents’
• ‘Unlike retirement accounts, allows you to withdraw anytime without penalty’
• ‘This is the safest investment I’ve ever found’”
The accounts are hyped as secrets that banks, the government, Wall Street and the wealthy are keeping from the rest of us and as “an investment the government can’t touch.”
As I am reading this, I can feel my antennae vibrating. The old adage comes to mind: “When something sounds too good to be true, it definitely is.” These “770 accounts” are exactly that: too good to be true. They may not be a scam but they are likely a very poor investment.
These “770 accounts” are actually whole life insurance products. We’re all familiar with term insurance where you pay a small premium to provide a death benefit for a fixed time- 10 or 20 years, for example. Whole life is permanent life insurance. You pay much larger premiums than term insurance and the policies build up cash value. You can borrow from these policies tax-free up to the amount of your premiums. There can be substantial commissions, surrender charges and fees on these types of policies.
We don’t sell life insurance. We do review life insurance needs and costs for our clients. We have seen some whole life insurance proposals that were and are appropriate for the needs and goals of specific families. And, we have seen some proposals that were not good at all- complete with large commissions, surrender charges and fees and little guarantee of investment returns. Whole life contracts are designed to be long-term and, if investors need/want their funds back in the first 15-20 years, they would likely have done better not to invest at all in the whole life contract.
We work with competent, experienced and professional insurance agents in both Chicagoland and Charleston who represent reputable carriers that provide fair contracts for whole life insurance. We don’t participate in any way in their fees or commissions. We simply look to them to provide contracts that fill a need for our clients at competitive costs. None of these insurance veterans had ever heard about 770 accounts.
My research didn’t actually determine what the “770” stands for. However, it seems it was an attempt to have people think of these as another retirement account, similar to a “401” account.
I’m not going to contact the sales folks that are pitching these 770 accounts. Frankly, I can’t believe that a company with this sleazy marketing campaign is capable of providing a whole life insurance policy or any other program that would add value to our clients. I’m confident their focus is on one thing only- transferring your money to their pockets.
The moral of the story is to ignore the hype. There are no “free lunches.” No “silver bullets.” Be suspicious of any sales pitch that promises unrealistic returns. And, if you aren’t sure, check it out, as my friend did with a fee-only adviser such as DWM. It’s always good to have someone on the same side of the table as you when you are making important decisions about your hard-earned money.