Annuity question and How do Amerprise agents sleep at night

[clifp]

The wife (Ann) of my best friend (Bill) passed away from cancer last week, and I flew out to see him. First thanks to suggestions many of you made on how to help in this situation. They came in handy.

There were only two bright spots in otherwise dismal situation. (The handmade get well cards from 50 of her 7th and 8th grade students were the low point). First instead of long painful death via brain and liver cancer, she had a pretty short illness and she was passed out the last week.

The other good news is I took the first step in disengaging him from his Amerprise vampire agent. After Ann's parents passed away several years ago, Bill got the reasonable idea of rather than let his compulsive spending wife loose with a 6 figure amount, he'd invest it and use earning to pay for their trips.

Into this financial knowledge vacuum (Bill told me this weekend that he hadn't paid a bill in 20+ years) marched a helpful Amerprise agent. I meet the lady over a weekend anniversary celebration a couple of years ago. A nice enough person, but she had no formal training other than what Amerprise gives them and her financial IQ was pretty dismal.

I protested a couple of years ago when Bill told me the Agent invested Ann's inheritance in an annuity. Still even I was shocked to see how badly the advice they got was.

First the annuity was not just a simple SPIA, no of course not it was the insurance agents friend a variable annuity complete with choices of scores of high ER funds and god knows what performance. Then there was a 10% tax penalty for early withdrawal. I am not sure why this was true... Can somebody explain? Now I know he has withdrawn money but the value dropped from $120K to $110K.. There were more important things to worry about than money so I didn't get a chance to dig very deeply.

Bill did tell me that when he talk to the agent, she said that because of Ann's death he could get access to the entire amount penalty free. I noticed that the annuity statement did include something called a death benefit which was equal to the annuity value but did NOT include the $4k in surrender charges. Is this fairly standard?

I also notice that they had another $150K in IRA rollover also in an annuity but in Bill's name.

Bill told me he wanted to use to the money from the annuity to pay off the credit card loans and the HELOC. The one good thing the Amerprise agent did do was set up a HELOC with a reasonable 5.5% interest rate.

Investigating a bit I found that Ann had run up an 18K AMEX bill (15 % interest) and seem to be paying the minimum on it. This was in addition to using $50K of the $100 credit limit on the HELCO. I quickly paid off the AMEX bill with HELCO checks.

Bill said the agent gave them good service, but did admit that the 10% tax penalty was a mistake. I told Bill that she made at least $10K in commission (4% of $250K+) and she better give them good service. This ended the discussion.

Now I have a built in bias against Amerprise but am I over reacting to think the agent screwed many ways? A. Knowing they wanted to use the earning for annual trips. Never put them in a Variable annuity instead invested in mutual funds? B. Should not have rolled over IRA money into an annuity
C. Should have strongly advise Ann to use the HELCO to carry debt rather than carrying a non-deductible credit card balance?

If I do meet and strangle the agent, I hope I can have board members on my jury.

[Leonidas]

You are certainly a great friend and a class act for the support you're giving to your friend. Very admirable.

Regarding the Ameriprise rep, it's hard to say if she was malicious or ignorant. I have found many a salesperson who was completely clueless about the product they were selling. Like the guy at a electronics store years ago who explained how a CD worked "There are microchips embedded in the disc."

Then again, there are plenty of salespeople who are good at telling the truth selectively, and if you don't ask the right questions you won't get all the information you need. You just get told whatever it is they perceive you need to hear to get you to commit to the sale. It's not a lie, just part of the truth told in a flattering way. It sounds as if your friend and his wife may have not done the self-education they needed to ask the right questions.

Some wiz at Ameriprise thought up products that make Ameriprise money. Then somebody in marketing thought up a way to sell it that guaranteed Ameriprise sold a lot of the products that make them money. Then somebody created a system and a training program that made sure the sales people did all the right things to sell the stuff that made Ameriprise money. The customer's money is the target of the whole system.

Like the man said, "Where are all the customers' yachts?"

[FinanceDude]

Originally Posted by clifp

First the annuity was not just a simple SPIA, no of course not it was the insurance agents friend a variable annuity complete with choices of scores of high ER funds and god knows what performance. Then there was a 10% tax penalty for early withdrawal. I am not sure why this was true... Can somebody explain?

How old is Bill?

Now I know he has withdrawn money but the value dropped from $120K to $110K.. There were more important things to worry about than money so I didn't get a chance to dig very deeply.

You said he withdrew money, but you don't know how much? His account value could have gone down to $110 from $120K if he owned stock or MF too........just pointing that out.........

Bill did tell me that when he talk to the agent, she said that because of Ann's death he could get access to the entire amount penalty free. I noticed that the annuity statement did include something called a death benefit which was equal to the annuity value but did NOT include the $4k in surrender charges. Is this fairly standard?

Generally ALL VAs allow PENALTY-FREE withdrawals to the benficiary.........

I also notice that they had another $150K in IRA rollover also in an annuity but in Bill's name.

Well, is it Bill's IRA??

A. Knowing they wanted to use the earning for annual trips.

Did Bill specifically TELL the agent he wanted this, or was this his "plan"? I am not defending the agent, but there's a big difference in how an arbitration panel would view that...........

Never put them in a Variable annuity instead invested in mutual funds?

I don't know how well you know Bill's line of thinking, but it could be he bought into the tax-deferral aspect of the annuity, and never thought his wife would die suddenly............just saying..........

B. Should not have rolled over IRA money into an annuity

There are reasons to do this, FEW though they may be...........

C. Should have strongly advise Ann to use the HELCO to carry debt rather than carrying a non-deductible credit card balance?

I don't know much about it, but based on your description, she pretty much spent what she wanted when she wanted, are you sure she would have listened, or did listen??

[clifp]

"Generally ALL VAs allow PENALTY-FREE withdrawals to the benficiary........"

Good that is what I thought.

Bill is 53, Ann was 54.

Based on the reasonable question you asked, I doubt he has much of case at arbitration panel. The guy is not litigious at all, so I wasn't even going there.

Trust me, I know the majority of fault lies in my Ann's spend thrift ways, and Bill's passive acceptance of this couple with his lack of interest in managing his own financial affairs.

I don't expect financial planners to tell everybody invest your money in Vanguard index funds or even DFA or American funds. But I do think they should avoid doing clearly bad things like their annuities for the clients just for the sake of bigger commission. Likewise a bit of financial education, I think should be part of the service that any financial advisor gives.

I know they met with her a couple of times a year (and they paid additional fee for the meeting) Looking at the Amex bill and tell Ann pay it off every month if need be with your HELCO check, was free advice that would have save them $1500+ a year.

I am surprised that you as what I think is an ethical FA (certainly a very knowledgeable guy) wouldn't be upset at the bad apples...

[chinaco]

Good work clifp.

Yes, many Life Insurance Agents are bottom feeders. They give the industry a bad name.

[FinanceDude]

Bill is 53, Ann was 54

Ok, on first thought the 10% would come in if they were both living, and took money out. If non-qualified monies go into an annuity, then they come under the 59 1/2 rule.......

Based on the reasonable question you asked, I doubt he has much of case at arbitration panel. The guy is not litigious at all, so I wasn't even going there.

Kind of what I thought. Plus, he just lost his spouse, litigation is the farthest thing from his mind.

Trust me, I know the majority of fault lies in my Ann's spend thrift ways, and Bill's passive acceptance of this couple with his lack of interest in managing his own financial affairs.

And you are a DARN GOOD friend for stepping in and helping, he is lucky to have a friend like you.....

I don't expect financial planners to tell everybody invest your money in Vanguard index funds or even DFA or American funds. But I do think they should avoid doing clearly bad things like their annuities for the clients just for the sake of bigger commission. Likewise a bit of financial education, I think should be part of the service that any financial advisor gives.

I respect your view on it. However, I have looked at literally hundreds if not thousands of portfolios from clients and prospects over the years, and after time has passed,it is hard to know the reasoning why folks did what they did. Maybe the advisor became "their friend" or something........

I know they met with her a couple of times a year (and they paid additional fee for the meeting) Looking at the Amex bill and tell Ann pay it off every month if need be with your HELCO check, was free advice that would have save them $1500+ a year.

I hate Ameriprise, along with their proprietary inferior products, they squeeze their clients for every drop of money. If they are a CFP, they charge "yearly retainer fees" of $1500-$5000, depending on the client. And that's just for TALKING with the rep...........

I am surprised that you as what I think is an ethical FA (certainly a very knowledgeable guy) wouldn't be upset at the bad apples...

if I came across that way, well, it was late, and I am sorry. I HATE Ameriprise! That being said, I was trying to be an objective voice. However, I do feel this Ameriprise "advisor" isn't really an advisor, but a "product person".

I am truly sorry for the mess you are involved in. Ameriprise basically is an insurance company that wants everyone to believe they are a full-service financial planning firm. The trouble with that premise is EVERY "financial plan" I have seen from them has a healthy dose of insurance products as a "solution." That to me is NOT financial planning.

If the client wanted to take money out of his account each year for trips, then the annuity is the worst possible option there is. If you can get the rep's name from your friend, or know it,go on FINRA Home Page, and look them up to see if she has any complaints against her. Also, PM if you have anything you want to discuss off the board. I will help anyway I can........

[Nords]

I'm sorry this all happened so quickly, Clif. It's good that you could be there-- coping with agents during a time like this, let alone with financial disarray and estate execution, is just too much to bear alone.

Helping someone of his financial "lack of proficiency" to put his files back together, let alone his life, is going to be a process that takes months rather than days. Hang in there.

Originally Posted by clifp

If I do meet and strangle the agent, I hope I can have board members on my jury.

We'll change the venue to Texas and have REWahoo proffer the defense "Yer honor, she needed killin'".

BTW when you get back you're gonna have to teach me how to judge a college business-plan competition. I almost got invited to learn via the experiential method...

[Midpack]

My wife worked at Ameriprise for almost 18 months while between jobs. She was appalled at what she saw there almost daily, and this was a very large successful office (Chicago burbs). The management acted in the best interest of the office with as little regard for the client as they could get away with (and the management was financially savvy enough to know where that line was). And in turn, the FA's acted in their own best interests vs the clients. A good FA wouldn't stay and wouldn't have survived there anyway. It was so bad she would never use Ameriprise for anything - ever.

Unfortunately there seem to be many more bad FA's than good ones. Therefore if you don't know much, your more likely to get a bad one. And the irony is, if you know enough to ask questions and recognize the difference between good and bad, you probably don't need an FA at all.

[2B]

When I lost my job in 2002, I "interviewed" Ameriprise. They wanted a list of my "friends" that I could make a "presentation" to about the benefits of refinancing their mortgage and investing in annuities. I almost started upchucking and decided being unemployed was not the worst fate.

[frayne]

I'd like to think there is a special place in hell for those kind of FA parasites.

[2B]

Originally Posted by frayne

I'd like to think there is a special place in hell for those kind of FA parasites.

Annuity salespeople deserve the same end. They are all very good at being selectively open and honest about their products. They feed on the emotions and seem to utter "money for life" like a religious chant. They are motivated by the one indisputable fact about annuities. They have the highest commissions and profit margins of any financial product.

My father and in-laws (and hence me and DW) were ripped off by crappy products so I have no sympathy or like for the whole industry.

There is a vocal crew on this forum that advocates annuities. I can't help but think they are shills for the industry because I've never seen an annuity offer that was any better than a poor to mediocre investment for normal people.

[clifp]

Originally Posted by frayne

I'd like to think there is a special place in hell for those kind of FA parasites.

Warren Buffett dumped his Amerprise stock (AMP) this quarter. I was mildly happy to see him dump his PetroChina stocks (mostly cause of the profits, a bit cause of the somewhat tenuous connection to Darfur). However, I am ecstatic to see him bail out of this company with its toxic financial products and army of drug-dealers annuity salesman.

[FinanceDude]

Originally Posted by 2B

There is a vocal crew on this forum that advocates annuities. I can't help but think they are shills for the industry because I've never seen an annuity offer that was any better than a poor to mediocre investment for normal people.

Vocal crew?? You mean the one or two that think they're awesome, and the "one post wonders" we mods ban when they rant on? Hardly a "vocal crew"...............

[mark500]

Investigating a bit I found that Ann had run up an 18K AMEX bill (15 % interest) and seem to be paying the minimum on it. This was in addition to using $50K of the $100 credit limit on the HELCO. I quickly paid off the AMEX bill with HELCO checks.

Hmmm. Some credit card companies waive any debt on a card when the cardholder dies. I had a friend who had ALS who did what Ann did. He maxed out the cards and only paid the minimum balance each month. Sure enough, he died and the rather large debt was not collected by the credit card company.
Was that what Ann was doing?

[FinanceDude]

Originally Posted by mark500

Investigating a bit I found that Ann had run up an 18K AMEX bill (15 % interest) and seem to be paying the minimum on it. This was in addition to using $50K of the $100 credit limit on the HELCO. I quickly paid off the AMEX bill with HELCO checks.

Hmmm. Some credit card companies waive any debt on a card when the cardholder dies. I had a friend who had ALS who did what Ann did. He maxed out the cards and only paid the minimum balance each month. Sure enough, he died and the rather large debt was not collected by the credit card company.
Was that what Ann was doing?

If both their names are on it, they have a right to collect. In community proprerty states, the CC companies also have a right to collect from the surviving spouse...........

[clifp]

Hmmm. Some credit card companies waive any debt on a card when the cardholder dies. I had a friend who had ALS who did what Ann did. He maxed out the cards and only paid the minimum balance each month. Sure enough, he died and the rather large debt was not collected by the credit card company.
Was that what Ann was doing?

Naw, this was run up over a year or two at least. I doubt the AMEX will help simply because the card is in Bill's name.

[RockOn]

Originally Posted by 2B

I can't help but think they are shills for the industry because I've never seen an annuity offer that was any better than a poor to mediocre investment for normal people.

I'm not a shill but I think they are a reasonable choice for conservative retirees. IMO the withdrawal rate rivals the 4% SWR from the balanced portfolio without the risks that come from volatility. IMO the rate of return (which I see as about 6%) also rivals the expected return of a 60/40 investment but many will disagree on that. I do not understand why people think they are so bad. I'd like to hear some real logical reasons for that. I agree that one has to sort out some really bad products with high fees though.

[REWahoo]

Originally Posted by RockOn

...I think they are a reasonable choice for conservative retirees.

If you add "who are unable and/or unwilling to manage their own portfolios" I might agree with you.

[RockOn]

Originally Posted by REWahoo

If you add "who are unable and/or unwilling to manage their own portfolios" I might agree with you.

Are you totally convinced you can beat a 6% rate of return by managing your own portfolio in the last 30 years or so of your life? If you are, I understand why you would not like annuities and that's fair.