My free dinner and sales pitch

[Dog]

I went to a CPA/PFS in April 2014 for the purpose of him vetting my financial plan to retire in the next year or two.
Provided him all the details and he provided a nice multi-page document that showed we could retire that day based on our desired spending goals (in fact we could increase the spending goals).
He spent about 10 minutes reviewing this with me and then launched into a suggestion to use DH's TSP to purchase an annuity for each of to allow more guaranteed income -Allianz 222 Annuity.
DH will a smallish FERS pension and we both will collect SS covering our core expenses, so I told him it wasn't necessary. He then went into a pitch about his Madrona Fund that he had recently launched and how it would beat index funds. I let him know that I was very comfortable with my Vanguard investments and that they matched my investment comfort level.
I never heard from him again although he now has a 30 minute slot on a local AM station to talk about planning for retirement


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[brewer12345]

Quote:

Originally Posted by ERD50 I've never done a deep dive into the details either, but the engineer in me says that if someone is going to offer me a product that offloads my risk onto them, I will need to pay for that risk reduction. TNSTAAFL. And from what I've read from so many sources, these are high fee products (which is why they are pushed by salespeople). The customer pays those fees. And they are complex, and I like transparency. It's a bit like someone offering to show me a perpetual motion machine. I know it can't work, do I want to spend any time listening to their explanation? Maybe for twisted 'entertainment', but I generally have better things to do. -ERD50

The base product is always some twist on a chunk of fixed income that is held to maturity with the coupons invested in a bull call spread of some sort (lots of different variations to confuse people). The they layer on various overpriced riders that are complicated, but always about the sizzle rather than the steak.

[aja8888]

A few of us at work (when I was full time) were pitched a VA from a FA (insurance salesman, of course) and got our hands on the 80+ page contract. Over a few hours in our conference room and a chalk board, we uncovered about 3.5% in annual fees scattered about. You have to be nuts to touch one of these.

Well, with 80 million seniors hitting the retirement ranks in the next ten years, there will be a golden opportunity for insurance companies to pounce on them and collect a LOT of immediate cash and hand it slowly back (some of it) over decades.

I'd love to see Ameriprise's internal business plan on these instruments.

[rayvt]

I got a copy of a contract for one of these from a Merrill Lynch dinner. The dinner was good -- and I won a set of golf balls.
Reading the contract the next day, I found about 5% in fees. As you said, scattered all over the document, most of them buried in a footnote somewhere. Might have been more, I stopped adding them up what I hit 5%.

For anybody who would like to seen the detailed workings of an IUL -- and especially if you'd like to see how it compares to a S&P500 index fund -- here is a spreadsheet: https://www.dropbox.com/s/cbzvg74iye...d-IUL-test.xls

I developed this a couple of years ago after some discussion & challenge by an IUL proponent. After a bunch of handwaving (by all parties, both pro and con) the engineer in me had to work up a spreadsheet to backtest with historical S&P500 data. The original scenario was a start in 1975 with $15K, then adding $150/mo until 2003, then withdrawing $1500/mo. Someone provided us with an actual Allianz policy proposal and that is also incorporated into the sheet.

It's really bad. Really really bad.
After 40 years, the S&P account value is $1,000,000 (and rising) and the IUL account value is $100,000 (and falling).

The two things that kill an IUL are the fees and the annual cap. Turns out that the annual "no loss" floor helps a bit, but the 12% ceiling cap hurts a lot.

[Lakewood90712]

We are all waiting for the final outcome...........

[Ready]

Quote:

Originally Posted by Lakewood90712 We are all waiting for the final outcome...........

Me too. But as I stated earlier, I suspect this guy is going to disappear on me rather than following up with the prospectus he promised me. It's been seven days since our meeting and I haven't heard a peep from him.

[Ready]

Well, I should have checked my mail before responding. I have the Allianz 360 brochure now. It looks like mostly a marketing piece, and I haven't fully digested it, but here are two things that immediately stand out so far:

"Allianz calculates and credits fixed interest daily, based on the rate we establish at the beginning of each contract year. We can raise or lower the rate annually, but it will never be less than .10% per year."

"Monthly Sum Crediting"

For this crediting method, on the last business day before your contract anniversary each month, we'll compare the index value to the prior month's value. We'll divide this monthly change by the prior month's value to get the monthly percent of change. Positive monthly changes are subject to a monthly cap or maximum; however, negative changes are not limited by the cap. We can raise or lower the cap each year, but it will never be less than .50%.

At the end of the contract year, we'll add up these monthly increases and decreases to calculate your indexed interest rate. If the sum is negative, you'll receive zero indexed interest for that year".

So, in return for locking up my money for ten years with heavy surrender charges, they guarantee me a minimum interest rate of .10%. And the stock market upside uses a convoluted formula that essentially only allows me to win if the market has twelve positive months in a row. Having even one or two bad months could easily wipe out all of the gains, even if the overall return for the year was very high.

I suppose my advisor has a few things to explain to me about all this.

[Tailgate]

Jesse James used a gun... Pretty much the only difference..


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[ETFs_Rule]

What are the expected returns of index annuities? 2 - 5%.
2 - 5% is NOT investing! That's hiding under the covers.
What are the Real Returns of Indexed Annuities?

[aja8888]

Quote:

Originally Posted by Ready Well, I should have checked my mail before responding. I have the Allianz 360 brochure now. It looks like mostly a marketing piece, and I haven't fully digested it, but here are two things that immediately stand out so far: "Allianz calculates and credits fixed interest daily, based on the rate we establish at the beginning of each contract year. We can raise or lower the rate annually, but it will never be less than .10% per year." "Monthly Sum Crediting" For this crediting method, on the last business day before your contract anniversary each month, we'll compare the index value to the prior month's value. We'll divide this monthly change by the prior month's value to get the monthly percent of change. Positive monthly changes are subject to a monthly cap or maximum; however, negative changes are not limited by the cap. We can raise or lower the cap each year, but it will never be less than .50%. At the end of the contract year, we'll add up these monthly increases and decreases to calculate your indexed interest rate. If the sum is negative, you'll receive zero indexed interest for that year". So, in return for locking up my money for ten years with heavy surrender charges, they guarantee me a minimum interest rate of .10%. And the stock market upside uses a convoluted formula that essentially only allows me to win if the market has twelve positive months in a row. Having even one or two bad months could easily wipe out all of the gains, even if the overall return for the year was very high. I suppose my advisor has a few things to explain to me about all this.

When you have time, see if you can capture all the different fees. That should be fun!

[Lakewood90712]

"Allianz 360" So you loan Allianz your money , the insurer does well, the salesman , I mean "adviser" ,does well, and you go around in a 360 degree turn every year.

Nice. Remember,you can't loose money on this plan.

[Happyras]

Quote:

Originally Posted by Dog I went to a CPA/PFS in April 2014 for the purpose of him vetting my financial plan to retire in the next year or two. Provided him all the details and he provided a nice multi-page document that showed we could retire that day based on our desired spending goals (in fact we could increase the spending goals). He spent about 10 minutes reviewing this with me and then launched into a suggestion to use DH's TSP to purchase an annuity for each of to allow more guaranteed income -Allianz 222 Annuity. DH will a smallish FERS pension and we both will collect SS covering our core expenses, so I told him it wasn't necessary. He then went into a pitch about his Madrona Fund that he had recently launched and how it would beat index funds. I let him know that I was very comfortable with my Vanguard investments and that they matched my investment comfort level. I never heard from him again although he now has a 30 minute slot on a local AM station to talk about planning for retirement

We had Brian for our CPA for about 10 years, wherein he was investing our funds quite well, to a point. I one day realized in 10 years we had a total return of just over 4%, but he had collected over 10% in that time. He invested all our money into his 3 Madrona funds and proceeded to loose 30% in one fund alone. What a nightmare, only worsened by our Jump to RBC who sold my poor DW a Jackson Annuity that would no longer be available if we waited, an me a Citigroup junk bond that thank god is still paying 9%.

We jumped again by a steak dinner con ARS who after several meetings decided we needed to buy their Annuities for over 1/3 of our invested IRA's. Only after convincing us to liquidate the Jackson Annuity for a 7% haircut on top of the loss in performance for that year. Everyone wants a piece of our money without earning it. We moved to Sherwood Investments, and Eric did very well and was very aggressive beating the typical markets with mutual fund picks, but again the fee was high. Getting close to FIRE this year, we decided to go to a low cost bank manager, who has us very diversified, not so aggressive, but mostly a mix of specific stock picks and blend of foreign funds and commodities with some long short funds.

Bottom line, steak dinners are generally insurance pitches to poorly informed easily mislead folks like us. The jury is out on using a bank wealth manager, but the lower fees and lower risk investment structure seems to be a good fit for the first few years of my retirement. BTW, I really am torn on using Creative Planning, they could not compete on fees but offered a better personal consulting package covering all aspects of estate planning. I am tracking their asset allocation model against our current one, and the bank is winning even without considering the lower fees.

[target2019]

I'm taking a guess here, but I'd think a bank wealth manager costs at least as much as a financial advisor, and maybe more. The difficult position for a consumer is that all of the costs and expenses are not well understood until you get to the end of the year, or beyond, and find that there trading costs. Or maybe you didn't realize you were going into mutual funds with very high fees. So, it is difficult to find all the fees ahead of time, and then do a reasonable comparison of two situations.

[robertf57]

The immunization against getting taken by these salesmen is knowledge. It helps to have knowledgeable "friends" at your beck and call through a few clicks on the keyboard. I wouldn't be too happy myself with a banker running my investments......Better to DIY in the long run. Can't guarantee that the returns will always be better, but you can guarantee that the costs will always be less.

[Happyras]

Quote:

Originally Posted by target2019 I'm taking a guess here, but I'd think a bank wealth manager costs at least as much as a financial advisor, and maybe more. The difficult position for a consumer is that all of the costs and expenses are not well understood until you get to the end of the year, or beyond, and find that there trading costs. Or maybe you didn't realize you were going into mutual funds with very high fees. So, it is difficult to find all the fees ahead of time, and then do a reasonable comparison of two situations.

I know the fees we were recently paying for our TD accounts included a >1% advisor fee as well as an average fund expense of .8%, however our returns were strong, above market 19% overall in 2014. When we made the decision to move to a bank, it was under a "family" relationship fee, which is much lower even than the robo advisors offer. We struggled with evaluating advisors charging .8 to 1%, plus trade costs. The bank manager fee includes all trading costs. 1/3 of our investments are in individual stocks, with the remaining in low cost MF, bond funds, etc. with institutional fee structures generally below .5% expense. No 12b-1, no known kick backs to the manager that we know of. We were asked not to share the actual fee, as it is so low based on a very high value in assets managed. Not normally a fan of banks, but giving this a few months to prove out. I expect our nominal returns will be much lower, but in the first few years, I am hoping the downside risk will be less.

[Happyras]

Also, as I mentioned, when "Brian" our CPA started the Madrona funds, he moved all our investments into 3 funds he started, which had not only a very high expense for an ETF, but very little liquidity (market was his). When we dumped him, the sell side spread on the fund value was horrible as well as the loss on market value. We have been burnt enough on fees from every angle to know more now, but it took nearly 40 years of mistakes to get there. The bank we went with is using SEI as the custodian brokerage, which has a 1980's vintage web interface with lots of bugs. This is definitely a low cost outfit, I only hope their user interface is not an indication of performance.

[REWahoo]

You seem very knowledgeable regarding fees and expenses, indicating you are well educated when it comes to investments. Why aren't you using that knowledge to manage your own investments and eliminate the unnecessary (and very costly) expense of a middleman/advisor?

[target2019]

Happyras,
Thanks for posting more details. You are fortunate to negotiate a reasonable deal like that. It's also meaningful that you have a "very high value in assets managed." Probably of great value to you to have a local person you can talk to.

In-laws pay about .67 of AUM, and this is to a well-known bank. AUM is low six figures. It is all index funds, so nothing exciting going on there. Just pick a strategy like "conservative" and they put the money in the house funds.

[ERD50]

Quote:

Originally Posted by REWahoo You seem very knowledgeable regarding fees and expenses, indicating you are well educated when it comes to investments. Why aren't you using that knowledge to manage your own investments and eliminate the unnecessary (and very costly) expense of a middleman/advisor?

+1

After all these years of admitted mistakes, why not just DIY? You appear to know more than enough at this point. Why pay any $ at all? What do you get for your money?

Even though you say the % is low, for a high $ portfolio it is still probably a high enough amount to buy some nice gifts for yourself each and every year.

-ERD50

[Meadbh]

I have some assets with a big bank wealth management outfit. Fees are on the low side. One reason I do this is fear of going gaga. I discovered another benefit this week when I decided to add to my investment property portfolio. Hassle free mortgage setup with a greatly discounted interest rate.