Advise from CFP's

[Cid79]

I am 61 and planning to semi retire soon. Been meeting with these planners and one is savy on SS the other just wants me to buy fixed indexed annuities. What are the pros and cons of these products?

 

[OldShooter]

I am 61 and planning to semi retire soon. Been meeting with these planners and one is savy on SS the other just wants me to buy fixed indexed annuities. What are the pros and cons of these products?

Zoom back a bit:

Despite what is frequently advertised, a CFP is NOT legally a fiduciary. The CFP is a designation that is purchased from a nonprofit company after the purchaser has met the company's requirements. The guy that runs the company pulls down over $1M/year, so he is motivated to keep selling CFPs.

"Financial Planner" is a title that anyone with $15 can have VistaPrint put on their business cards. It means nothing. Same-o for "Wealth Manager," "Financial Advisor," etc.

Clearly, the "FP" recommending indexed annuities is not a fiduciary. So get out of there ASAP.

You should verify that the other FA is a fiduciary by asking for a letter confirming that he/she is a fiduciary in all aspects of your relationship. Underlined words are critical.

If you still want a second opinion (wise, IMO) make sure you are dealing with two fiduciaries.

(NB, a change in the CFP rule due in the fall of 2019 will, as I understand it, require that they act as fiduciaries, but all they risk for misbehavior is loss of the CFP certificate. The requirement has no legal teeth.)

 

[davebarnes]

Run away from this annuity-pushing thief.
Go to the Bogleheads forum and spend about 20 hours reading.

 

[haha]

I feel sorry for these CFPs. All they want to do is a little good old American chiseling, and everybody wants to come down on their poor heads. Ruin their business and perhaps they'll be forced to be out there in the alleys on dark nights!

Tolerance amigos, tolerance!

Ha

 

[joeea]

I am 61 and planning to semi retire soon. Been meeting with these planners and one is savy on SS the other just wants me to buy fixed indexed annuities. What are the pros and cons of these products?

One sounds like a pro.
The other sounds like a con.

 

[OldShooter]

One sounds like a pro.
The other sounds like a con.

Hard to know for sure about the "pro." Hence my recommendation to ask for a letter.

@Cid79 I forgot to mention something that is critically important: Go to https://brokercheck.finra.org/ and run a check on any FA you're using or considering. Most importantly, look for customer disputes. Also look at employment history. A checkered employment is a warning sign, as is a very short time in the business.

Look at his/her licensing. A Series 65 or Series 66 is close to a guarantee that you are dealing with a fiduciary, but there is also a path where a Series 7 employed by a registered investment advisor is designated as an Investment Advisor Representative and inherits the fiduciary responsibility.

More than you ever expected to know is here: https://www.kitces.com/blog/the-4-different-types-of-financial-advisor-fiduciaries/ but note that the DOL rule that he discusses has been struck down by the courts so as investors we do not have that hoped-for legal protection.

 

[flintnational]

Just as there aren't many car salesman that will tell you, "you don't need a new car" there are very few annuity salesmen that will tell you, "you don't need an annuity".

Many on this forum believe you must be sufficiently knowledgeable about investing before you hire a FA. Otherwise, you run the risk of ending up with inappropriate or poor performing investments. And, once you know enough to determine if the advise is sound, you can easily manage your own finances.

If you still decide to hire a FA, it should be a fee only fiduciary. Ideally, they should recommend investments in low cost index funds (Vanguard, Fidelity or Schwab).

To answer your specific question, some annuities carry high fees. This is probably the reason the salesman (often disguised as a FA) is pushing them. Depending on the type of annuity, they can be very complicated. Generally, as an investor, you should stay away from high fee complicated investments or any investment you do not understand completely.

 

[Red Badger]

No one will take better care of your money that you. Most FA's are keenly interested in making your money their money. Annuities are a great product to help accomplish that goal.

Charlotte is a major center for banking, finance, insurance, etc. On Saturday, the radio has endless infomercials from FA's. They all bark the same barks.

Bark 1 - retirement is dangerous for you (without us to guide you/your money)
Bark 2 - investing is complicated (ergo - dangerous), but I (we) can make it safe
Bark 3 - claiming SS is also complicated - don't do it alone (you need us)
Bark 4 - we're a friend you can trust

Barks 1 through 4 are all lies. The rest are true

 

[JoeWras]

Bark 1 - retirement is dangerous for you (without us to guide you/your money)
Bark 2 - investing is complicated (ergo - dangerous), but I (we) can make it safe
Bark 3 - claiming SS is also complicated - don't do it alone (you need us)
Bark 4 - we're a friend you can trust

Barks 1 through 4 are all lies. The rest are true

I think we get the same ones in Raleigh, just just a different "local" contact.

The machinery of this industry is really becoming powerful.

 

[SumDay]

We found our fee only planner here: https://www.napfa.org/


She charges us ~$400 each time we visit her for a rebalance, or big life change (like my retirement next week).


I asked her about annuities once, and she won't even discuss them until one of us is close to 70, an then it would be an SPIA.


She gives us advice on which Vanguard funds to choose for DH's IRA, and options within my 401(k).


As someone already said, if you really want an FA (which we do) make it fee-only. I figure we get to take an extra vacation each year on what we save on fees from someone in it for only their gain.

 

[Red Badger]

We found our fee only planner here: https://www.napfa.org/


She charges us ~$400 each time we visit her for a rebalance, or big life change (like my retirement next week).


I asked her about annuities once, and she won't even discuss them until one of us is close to 70, an then it would be an SPIA.


She gives us advice on which Vanguard funds to choose for DH's IRA, and options within my 401(k).


As someone already said, if you really want an FA (which we do) make it fee-only. I figure we get to take an extra vacation each year on what we save on fees from someone in it for only their gain.

If one really desires an FA, this is a good route (but, like 97 stated, only with "fiduciary in all matters").

 

[racy]

Cid79,
Go over to bogleheads.org for some excellent, free advice. They'll not only answer your question but give you advice on your total portfolio if you pose your situation using this format: https://www.bogleheads.org/forum/viewtopic.php?t=6212

 

[MI-Roger]

To me, the refrain "Never hire anyone else to manage your money can no one else will care as much as you as you" can be twisted slightly to say "Never hire anyone else to repair your automobile because no one else will care as much as you".

How may posters here do 100% of their own automobile maintenance? How many do any of their own automobile maintenance, or home maintenance, or boat maintenance, etc.

Just like licensed Auto Mechanics and Licensed home Improvement contractors, you need to do your homework when hiring a licensed financial advisor to work for you. There are good ones and there are crooks.

Many of us today will be retiring without pensions but want something that acts like a pension. Guaranteed monthly check for life with no work or analysis required by us. Even those persons who enjoy and thrive on self-performing such tasks at age 55-60 may be fooling them selves if they assume they will be just as competent at ages 75-80 and beyond.

An Annuity can provide that guaranteed income steam for life with no added effort. However; you MUST do your research to know what you are really buying! There is commonly a 5 to 7 year waiting period after purchase during which you cannot cancel the policy without incurring a loss of your principal. Do not buy one if you think you can cancel it later when you change your mind!

Some have exorbitant fees. some may not have a guarantee. Some terminate with a life insurance policy. Some are single life, meaning your spouse will receive nothing after your death. Managing money yourself, rather than buying an Annuity, can yield higher returns - for the knowledgeable investors.

In my mind they are not horrible but need to be approached cautiously. I own an annuity because I desire the simple life-long income, but I also have considerable other savings that are managed for grown not life-long income.

 

[aja8888]

To me, the refrain "Never hire anyone else to manage your money can no one else will care as much as you as you" can be twisted slightly to say "Never hire anyone else to repair your automobile because no one else will care as much as you".

How may posters here do 100% of their own automobile maintenance? How many do any of their own automobile maintenance, or home maintenance, or boat maintenance, etc.

Not giving you an exact number, but some of us here do repair and maintain our vehicles on a regular basis. For me, it's been 50 years of it and I can count on one hand the number of times I brought a car into a shop for repair work. Never for regular maintenance though.

Actually, portfolio management and financial understanding is relatively easier to learn and do than auto work since the investing tools are free or only cost a few bucks for a book.

 

[Independent]

I am 61 and planning to semi retire soon. Been meeting with these planners and one is savy on SS the other just wants me to buy fixed indexed annuities. What are the pros and cons of these products?

Other people have made good comments on "planners". I'll try to answer the question you asked.

"fixed indexed annuity" doesn't completely describe the product. All I can do is give you a typical design.

You're probably talking "single premium, deferred". That means you pay a lump sum, and you're probably planning to eventually surrender the contract for a lump sum (hopefully, higher).

You won't pay any income taxes on the gains until you surrender. At that time, you'll pay ordinary FIT rates on the excess of the surrender value over the premium. Or, you can roll the value into another annuity and defer taxes again.

The eventual value is the greater of your premium
accumulated at a fixed (stated in the contract) rate
OR ... accumulated at a rate tied to some "index".

A typical design would use the S&P 500 as the index. It will give you some fraction of the S&P price growth. It will not give you any portion of the dividends. It will probably have a cap.

The accumulation rule will probably be for some periods, for example, each policy year. So the first year the guaranteed rate may be higher than the indexed rate, you'll get the guarantee. The second year the index may be higher, you'll get the index. etc.

For the first n years, you'll pay a surrender charge if you decide to cash out. It's probably quoted as a percent of the account value when you surrender. You buy the product assuming you'll hold it to the end of the surrender charge period.

There is some right to "annuitize" - tell the company you want a fixed, lifetime income instead of cash. There will be guaranteed annuitization factors in the contract. Some companies "pay" extra interest which is available only if you annuitize.

Some companies have riders that provide a different way to get a monthly income. Might be called "Guaranteed Lifetime Withdrawal Benefit", for example. Special rules apply there.

Different products have different surrender charge periods, surrender charges, guaranteed rates, indexes, participation rates, caps, reset periods, riders, partial withdrawal rules, etc.

If all this sounds confusing, don't buy one. Don't even think about it.

If this doesn't sound confusing, you're a sophisticated enough investor that you'll probably decide you can get a better deal by putting together your own mixed portfolio.

 

[foxfirev5]

Not giving you an exact number, but some of us here do repair and maintain our vehicles on a regular basis. For me, it's been 50 years of it and I can count on one hand the number of times I brought a car into a shop for repair work. Never for regular maintenance though.

Actually, portfolio management and financial understanding is relatively easier to learn and do than auto work since the investing tools are free or only cost a few bucks for a book.

On point. And to pile on to the poor analogy, working on my many cars, farm tractors and construction equipment has been the hardest work I've ever done. Broken studs, frozen bolts, rust, breaker bars, torches, and swearing like a sailor. I have had none of these problems managing my investments.

Do your homework and manage your investments like they are the most important duty in your life. Like others have stated nobody else cares more than you.

 

[Red Badger]

Other people have made good comments on "planners". I'll try to answer the question you asked.

"fixed indexed annuity" doesn't completely describe the product. All I can do is give you a typical design.

You're probably talking "single premium, deferred". That means you pay a lump sum, and you're probably planning to eventually surrender the contract for a lump sum (hopefully, higher).

You won't pay any income taxes on the gains until you surrender. At that time, you'll pay ordinary FIT rates on the excess of the surrender value over the premium. Or, you can roll the value into another annuity and defer taxes again.

The eventual value is the greater of your premium
accumulated at a fixed (stated in the contract) rate
OR ... accumulated at a rate tied to some "index".

A typical design would use the S&P 500 as the index. It will give you some fraction of the S&P price growth. It will not give you any portion of the dividends. It will probably have a cap.

The accumulation rule will probably be for some periods, for example, each policy year. So the first year the guaranteed rate may be higher than the indexed rate, you'll get the guarantee. The second year the index may be higher, you'll get the index. etc.

For the first n years, you'll pay a surrender charge if you decide to cash out. It's probably quoted as a percent of the account value when you surrender. You buy the product assuming you'll hold it to the end of the surrender charge period.

There is some right to "annuitize" - tell the company you want a fixed, lifetime income instead of cash. There will be guaranteed annuitization factors in the contract. Some companies "pay" extra interest which is available only if you annuitize.

Some companies have riders that provide a different way to get a monthly income. Might be called "Guaranteed Lifetime Withdrawal Benefit", for example. Special rules apply there.

Different products have different surrender charge periods, surrender charges, guaranteed rates, indexes, participation rates, caps, reset periods, riders, partial withdrawal rules, etc.

If all this sounds confusing, don't buy one. Don't even think about it.

If this doesn't sound confusing, you're a sophisticated enough investor that you'll probably decide you can get a better deal by putting together your own mixed portfolio.

+1. While I've had bad mechanics on rare occasion, I don't recall any of them trying to make my car their car. And, when I signed off on the repair, I knew exactly what I was signing (went to arbitration with Nissan once, and won).

 

[travelover]

To me, the refrain "Never hire anyone else to manage your money can no one else will care as much as you as you" can be twisted slightly to say "Never hire anyone else to repair your automobile because no one else will care as much as you"..........

Usually the scare tactic is, "you wouldn't do surgery on yourself would you?", but the implication is the same - financial planners are these wise people that will take the poor client by the hand and lead them through the financial wilderness.



I don't buy it and the OP shouldn't either.

 

[RobbieB]

I must have a really good team at Merrill Lynch. Both the old guy and my new guy after the old guy retired have told me that annuities are not a good idea.

Maybe later when interest rates are higher, but definitely not now.

 

[GKieffer]

Annuities have the highest commissions. That’s why a lot of advisors push them.

 

[target2019]

Comparing auto mechanics to financial advisers doesn't hold up very well, IMO.
Auto mechanics don't send birthday wishes.

 

[REWahoo]

Comparing auto mechanics to financial advisers doesn't hold up very well, IMO.
Auto mechanics don't send birthday wishes.

+1

And financial advisers don't give you back the parts they replace if you ask.

 

[JoeWras]

+1

And financial advisers don't give you back the parts they replace if you ask.

They both find a way to charge you without doing much, however.

 

[Scrapr]

Comparing auto mechanics to financial advisers doesn't hold up very well, IMO.
Auto mechanics don't send birthday wishes.

They may not have yachts like FAs but they do have boats. Tom & Ray would joke about the price of a job as a boat payment

and my truck mechanic is on his fishing boat every weekend in the summer

 

[Bryan Barnfellow]

A group of (unethical) FA's are having their usual afternoon cocktails together after a round of golf.

Pete: "Hey George, I was docking the yacht last week and who do you think I saw at the next slip? Your customer, John Doe, in HIS yacht.
George: Whaaaat? Are you sure?
Pete: Sorry, just kidding George. Just kidding!
George: Don't do that! You almost gave me a heart attack, making me think I was somehow leaving money on the table!
Group of FA's: Ha Ha Ha....

With apologies to the good FA's.

-BB