When to get rid of FA?

[Gworker]

I am going to ask this question to everyone, although I probably know the answer I just want some reassurance. First about myself.

I am a few years shy of 40 years old and work for the government. I max out my TSP every year and am in a law enforcement covered position so I can retire at age 50 if I want. I hope to retire at about age 52. I have a few other investments on the side and also have an inherited IRA because my parents died way too soon, thus the desire for me to retire early and enjoy life. The inherited IRA has a decent amount of money in it and I use the RMDs for a good vacation each year because every year in life is a year closer to death! I figure I max out the TSP and have the government pension.

Now on to the inherited IRA. My parents had a financial adviser and he's a nice guy. I thought I knew about money when I received the IRA but I really didn't. Now I've been read John Bogle's books and been hanging out here. Anyways, he sells me this "great" annuity that guarantees 7% if I leave it in there 7 years with a stepped up rider benefit. I'm thinking, "Wow this is great, 7% guaranteed. He knows what he's doing."

Now I'm thinking transfer it all to Vanguard and take care of it myself. Sure he's a great guy, calls me on my birthday, sends me chocolate, calls once a year, but then I think he really ripped me off putting that money into a variable annuity. There are two separate annuities and ones surrender value is the same as it's balance the other is about $10,000 below it's balance. Should I wait until it's surrender value is the same as it's balance? Also how do I go about letting him go. Just call Vanguard and have them handle the transfer and tell him thanks for the good times?

I'm considering waiting until the surrender value is the same as the balance. I also trasferred some old traditional IRAs to him from previous employer rollovers. I'll probably just put it all in Vanguard.

 

[growing_older]

He sold you an annuity INSIDE an IRA? That's so wrong.

 

[Freein05]

I would just let Vanguard do the transfer. You will get a call from him. I wonder if he has already spent the nice commission you made on the annuity?

 

[LOL!]

http://www.slcg.com/pdf/workingpapers/EIA Working Paper.pdf is an article about equity-indexed annuities. I first learned of this link at the diehards forum.

 

[saluki9]

http://www.slcg.com/pdf/workingpapers/EIA Working Paper.pdf is an article about equity-indexed annuities. I first learned of this link at the diehards forum.

What he's talking about is not an equity indexed annuity. It's a variable annuity with a guaranteed income benefit. For people at or near retirement who don't have enough in savings to live on a 4% withdrawl they can make a lot of sense.

 

[2B]

This is a classic case of annuity abuse. I recommend getting away from this thief ASAP. Your situation has no need of an annuity in any form and in an IRA is disgusting. Your FA has proven that their primary motivation is for maximizing their fees.

You didn't say what the surrender charges were. My FIL dumped all of his liquid money into a pair of pathetic variable annuities. One had a 3% surrender charge and the other had a 5% surrender. Fortunately, the 5% surrender charge was waived since he was in assisted living.

I cashed both of these out immediately. One was free as I said above. The other annuity was earning a "hefty" 3% after all the fees when Vanguard Gov't MM was earning over 4.5%. The time value of money said that it wouldn't take long to get the surrender charge back.

Unless you have very high surrender fees, I suspect you will also see the money back quickly with the better return outside the annuity. If the numbers don't look good, you can let the annuity run its term and consider that part of your "bond/cash" portfolio allocation.

You mentioned 7% return if you leave it in for 7 years. Make sure that the 7% is after the annuity fees.

 

[Buckeye]

I would write him a letter and ask him to respond in writing as to why he felt the choices he made for you were reasonable and were in your best interest when an annuity inside an IRA seems to be mostly in his interest to pile on the fees.

2B reccomends you get away from this thief (which I agree with) but shouldn't a complaint also be filed to make him think twice next time and get some sort of blemish on his record?

 

[ziggy29]

Just about the only thing worse than an annuity in an IRA is tax-exempt income securities such as muni bonds and tax-free money market funds.

 

[al_bundy]

the vanguard sp500 index fund is like 11.5% return since 1967 at .18% expenses. if the FA can find you a better return with less expenses than keep him. otherwise, what is the point of paying him?

my mom got me one of these whole life things years ago and i paid into it since last year. before that she paid into it. i read they are a scam on fatwallet, but never really looked until a month ago. turns out the surrender value was right about equal to all the payments that were made into it since the early 1990's when it was opened. and it was invested in stocks which should have had a cagr of at least 6%

 

[JustCurious]

the vanguard sp500 index fund is like 11.5% return since 1967

The Vanguard S&P 500 index fund was not opened until 1976.

 

[HFWR]

Before I got one...

 

[FinanceDude]

http://www.slcg.com/pdf/workingpapers/EIA Working Paper.pdf is an article about equity-indexed annuities. I first learned of this link at the diehards forum.

He didn't buy an equity-indexed annuity............

 

[FinanceDude]

I am a few years shy of 40 years old and work for the government. I max out my TSP every year and am in a law enforcement covered position so I can retire at age 50 if I want. I hope to retire at about age 52. I have a few other investments on the side and also have an inherited IRA because my parents died way too soon, thus the desire for me to retire early and enjoy life. The inherited IRA has a decent amount of money in it and I use the RMDs for a good vacation each year because every year in life is a year closer to death! I figure I max out the TSP and have the government pension.

Good plan so far..........

Now on to the inherited IRA. My parents had a financial adviser and he's a nice guy. I thought I knew about money when I received the IRA but I really didn't. Now I've been read John Bogle's books and been hanging out here. Anyways, he sells me this "great" annuity that guarantees 7% if I leave it in there 7 years with a stepped up rider benefit. I'm thinking, "Wow this is great, 7% guaranteed. He knows what he's doing."

How long ago did this happen? What is your surrender schedule? There's a lot of missing info for us to help you further.......

Now I'm thinking transfer it all to Vanguard and take care of it myself. Sure he's a great guy, calls me on my birthday, sends me chocolate, calls once a year, but then I think he really ripped me off putting that money into a variable annuity. There are two separate annuities and ones surrender value is the same as it's balance the other is about $10,000 below it's balance. Should I wait until it's surrender value is the same as it's balance? Also how do I go about letting him go. Just call Vanguard and have them handle the transfer and tell him thanks for the good times?

There may be signifcant surrender charges to "get out". You mentioned the FA said a 7-year holding period, where are you at in the 7 years?

I'm considering waiting until the surrender value is the same as the balance. I also trasferred some old traditional IRAs to him from previous employer rollovers. I'll probably just put it all in Vanguard.

That may not happen, it's a function of the market......... The first question for you to answer is: "Do I want to manage these monies myself"? The 2nd is: "How much will it cost me to get out of where I am".

 

[FinanceDude]

I would write him a letter and ask him to respond in writing as to why he felt the choices he made for you were reasonable and were in your best interest when an annuity inside an IRA seems to be mostly in his interest to pile on the fees.

We don't know if that is the case without more info.

2B reccomends you get away from this thief (which I agree with) but shouldn't a complaint also be filed to make him think twice next time and get some sort of blemish on his record?

If the FA has the proper documentation, a mediator is not going to let a complaint go very far.

With regards to having an annuity inside an IRA, there are specialized cases where it is not the horrific idea being bantered on here, and those reasons have nothing to do with the fact you don't get "double tax deferred growth"...........

 

[Gworker]

Here are the surrender charges. I have been in it since 2003, so 5 years so far.
​

​

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5 years 5%
6 years5%
7 years 4%​

8 or more 0%

Those seem kind of steep.

Your question: Do I want to manage these monies myself?
Yes. It's not that hard. Look at the governments TSP program. As Bogle said himself in one of his books. It's probably one of the best programs out there. Only 5 index funds to choose from and low expense fees. It's not that hard.

Looking at the surrender charges it looks like I might wait. I tried to find what other fees I pay but by looking through the prospectus they don't make it easy to figure out. I guess they don't really want you to know all the fees you pay.

 

[FinanceDude]

Here are the surrender charges. I have been in it since 2003, so 5 years so far.​

5 years 5%
6 years5%
7 years 4%​

8 or more 0%

Those seem kind of steep.

It is very common on annuities. The advisor makes the most commissions when he/she can get the client to commit for 7 years. Almost never do they tell the clients about the 4 year or no-surrender options, and that's too bad.

Your question: Do I want to manage these monies myself?

Yes. It's not that hard. Look at the governments TSP program. As Bogle said himself in one of his books. It's probably one of the best programs out there. Only 5 index funds to choose from and low expense fees. It's not that hard.

I didn't know you could invest into TSP with outside dollars, maybe govt workers can. If so, that's a no-brainer.

Looking at the surrender charges it looks like I might wait. I tried to find what other fees I pay but by looking through the prospectus they don't make it easy to figure out. I guess they don't really want you to know all the fees you pay.

I would wait, unless the funds inside are so bad you need to get out regardless of cost. Most likely, waiting is a better option at this point.

The prospectus will have a section on expenses. There is probably M&E of 1.25-1.75% a year, and the fund ER on top of that, plus any riders you buy. You're looking at around 3% a year in total expenses on the contract.

I didn't mean to be crass when I asked if you wanted to manage things yourself. Many people do, and there's nothing wrong with that. I thought of one other thing: Usually VAs like yours have a free withdrawal clause where you can take X amount of money out of it without a surrender charge. In your case, you could call the annuity company directly and ask what that amount is, and you should be able to have that amount sent to a Vanguard IRA to get things started. It certainly is worth the phone call to see if that's the case.

best of luck.........

 

[Gworker]

You can't invest outside money in TSP except rollovers. I was just using that as an example of simple is safe and easy.

I looked up some of the fees and found a performance chart:

YTD 1 Year 3 Year 5 Year 10 Year
(3.7) (4.13) 8.54 14.13 4.18

Of course the fine print says performance may be lower because of other rider fees that may be added. The more I look at it the more I think I can't wait to get out of it. I'll probably have to wait until 2010. I saw the free withdrawal clause in the prospectus I'll read over that again.

Thanks

 

[Art G]

He sold you an annuity INSIDE an IRA? That's so wrong.

There was a time when this was true, however, this product has a 7% guaranteed income stream for life, which is something not available from a regular IRA.
Considering you don't know the conversation Gworker had with the broker other than "Wow this is great, 7% guaranteed. He knows what he's doing."; it's not really fair to deem the product ill fitting. Perhaps Gworker mentioned he wanted return, but didn't like risk? Perhaps Gworker stated he'd like income, or concerned about a death benefit?
Anyway, considering FINRA has determined annuities are not necessarily inappropriate any longer in IRA's, it seems a bit unfair to prejudge.

 

[FinanceDude]

There was a time when this was true, however, this product has a 7% guaranteed income stream for life, which is something not available from a regular IRA.
Considering you don't know the conversation Gworker had with the broker other than "Wow this is great, 7% guaranteed. He knows what he's doing."; it's not really fair to deem the product ill fitting. Perhaps Gworker mentioned he wanted return, but didn't like risk? Perhaps Gworker stated he'd like income, or concerned about a death benefit?
Anyway, considering FINRA has determined annuities are not necessarily inappropriate any longer in IRA's, it seems a bit unfair to prejudge.

 

[Buckeye]

Something didn't get communicated correctly if GWorker is feeling ripped off after doing some research. Is the 7% guaranteed income really 4% after the 3% fees? If the 7% really is 7%, why is GWorker not a happy camper? 7% risk free seems like a heck of a deal.

 

[Gworker]

I think part of the problem with the annuity was I really didn't know what I was getting into and didn't understand the 7%. This was all handled a few days after my mother died.

Looking through the prospectus it looks like I got a one time bonus of 7% (it looks like 5% not 7% for some reason I remember 7) and get to keep that bonus as long as I don't do a full withdrawal with-in 7 years.

The whole prospectus is not easy to read and the different fees are spread out through the prospectus plus there are the individual mutual fund fees that are held within the annuity.

I'm sure annuities have their place but for an inherited IRA at my age it does not seem to make sense. I will wait a few years then terminate the annuity.

 

[FinanceDude]

Something didn't get communicated correctly if GWorker is feeling ripped off after doing some research. Is the 7% guaranteed income really 4% after the 3% fees? If the 7% really is 7%, why is GWorker not a happy camper? 7% risk free seems like a heck of a deal.

The "deal" comes at a price. I would need to know the name of the VA before I could comment on all the vagareties of it.............

 

[saluki9]

Something didn't get communicated correctly if GWorker is feeling ripped off after doing some research. Is the 7% guaranteed income really 4% after the 3% fees? If the 7% really is 7%, why is GWorker not a happy camper? 7% risk free seems like a heck of a deal.

I can only speak for the largest provider of this type of products (I have a good buddy who is a wholesaler for them) the 7% is AFTER expenses.


I guess it would also be fair to say that it isn't totally risk free. The 7% benefit is subject to the credit risk of the insurer. So if all went bad and the insurer went belly up you would be left with your actual investment performance without the guarantee.

 

[Art G]

I can only speak for the largest provider of this type of products (I have a good buddy who is a wholesaler for them) the 7% is AFTER expenses.


I guess it would also be fair to say that it isn't totally risk free. The 7% benefit is subject to the credit risk of the insurer. So if all went bad and the insurer went belly up you would be left with your actual investment performance without the guarantee.

Well the answer is much more complicated than that. As financedude pointed out, there are variables missing. If Gworker merely received a front end one time bonus of 7% than this was done immediately and the account is now totally influenced by the investments within with a 7% headstart.
However, if Gworker was offered a 7% for life income, than he would have to deal with the risk of the quality of the insurance company for as long as he lived, not to mention, the performance would dictate any raises he may get in the future.
And lastly, if the 7% guarantee was merely a death benefit option, than Gworker wouldn't gain any advantage from this feature, but his heirs will appreciate it.
Either way, it's quite unfair to say that the annuity is inappropriate without further info.

 

[2B]

I've pointed out one advantage to buying an annuity that I'll repeat.

I own stocks in my index funds that derive a lot of income from [-]swindling[/-] selling people annuities. Even if they make Gworker poorer, my stocks should do better.

Seriously, I looked over the paperwork of my FIL's and my father's variable annuities. They are complicated beyond description. I think the only way you could ever really figure out the fees is to sit down with the [-]jerk[/-] FA that sold you the annuity. Even then, it would assume that they understood the fee structure.

Annuities, especially variable annuities, are not appropriate for 99% of the North American population.