Dear Mr. Berko: What do you think of Primerica as an investment?
Our neighbor represents Primerica and tells us the stock is going to be “hot and smoking” and we should buy 200 shares.
He tells us it can easily double in two years. He said Fidelity and T. Rowe Price just bought millions of shares. He also wants us to invest $27,000 we received from a boat we sold (we inherited it last year) and put it in a variable index annuity that he says can grow at 12 percent annually and, at that rate, it is guaranteed to double in six years to $54,000. In four more six-year periods, it will grow to $108,000, then $216,000, $432,000 and then a guaranteed $834,000 when we will be 62.
And he says if we wait just one more six-year period, when we are 68 and ready to collect Social Security, the variable annuity is guaranteed to be worth $1.7 million.
What do you think of this? He is so serious and convincing, and it sounds so good. This is most of the money we have and seek your opinion. –C.R., Oklahoma City
Dear C.R.: Primerica (PRI, 52-week high of $26.20 as of March 3), formerly owned by Citigroup, is a pyramid-sales organization.
Citi, which unloaded most of its PRI in April 2010 at $15, will soon unload its remaining 23 percent via a secondary offering.
PRI peddles high-commission products such as life insurance, long-term care insurance, prepaid legal service insurance, debt-consideration loans, mortgages, mutual funds and annuities.
PRI owns three insurance companies, through which its agents place their business, and not one of which has a rating good enough to hold a candle within five miles of Met, New York Life or Hartford.
PRI has the largest insurance sales force in America. Last year, 232,000 people signed up to become agents, and since 2006 more than 900,000 have passed through the PRI license-training program. And I suspect that dissembling fathead neighbor of yours is one of them.
Please don’t go near PRI stock with a flamethrower. Revenues are tumbling and earnings are falling, while its sales force is allegedly one of the dumbest in the industry. There is not one brokerage recommending PRI, and, as of this writing, neither Fidelity nor T. Rowe Price owns a single share. I don’t think you should either.
That Primerica broker ought to be garroted, starved to death, executed by a firing squad then hung by his neck. This guy is hip boot-deep in that brown smelly stuff, which seems to fit the profile of many gung-ho PRI salespeople who suck up to the company’s pyramid-sales scheme.
However, this meathead’s math is accurate, and $27,000 invested at 12 percent will absolutely grow to $1.7 million in 36 years, when you guys are both 68. In fact, I guarantee it.
However, there isn’t an annuity in our galaxy that has earned 12 percent per year for 36 years or 10 years or just five consecutive years. And if in the future there is such an annuity, I doubt it will be a Primerica policy. The front-end commissions, plus annual maintenance costs, for a PRI annuity are too high to make those gains a plausible extension of reality.
If the benefits offered by a variable annuity sound attractive, then go for it. But before you sign on the infamous dotted line, insist that the salesperson list all the benefits and caveats on PRI’s letterhead stationery and that it’s signed by the boss. This saves you the aggravating hours of carefully reading a confusing, single-spaced, 200-plus-page prospectus designed by a bevy of $1,000-per-hour lawyers.
And if you get hit by a wayward meteor, your beneficiaries will have a clear understanding of that annuity without listening to the blather of a bloviating PRI salesperson.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at firstname.lastname@example.org