My parents are 58 and 52 and I'm very worried about where they currently stashed their retirement savings. A couple of years ago they received a recommendation from an accountant to speak with some guy from American Express. They did so and figured they had better get into the market since they wanted to retire somewhat soon. They know it may be late but some return is better than none.The guy sold them a variable annuity, cash value variable universal life insurance, and a SEP-IRA (dad has his own business). Most of everything I've read says, with the exception of the SEP-IRA, that this was a bad call. They're 2 years into the annuity which tells me the fees to get out will be very high. Here's their breakdown...Variable Annuity (dad)- $54kVariable Annuity, SEP IRA (dad)- $42kVariable Annuity, Rollover IRA (mom)- $19kVariable Annuity, SEP IRA (mom) - $26kYou may notice that I put "Variable Annuity" in front of anything which is how the statement looks. I'm not sure what this means but I think this guy rolled their IRA's into the annuity, which from what I've read is a major mistake.Then they have another account American Express calls, "Custodial Money Purchase Plan" in which they have:Variable Annuity (dad) - $20kVariable Annuity (mom) - $ 9kThen I looked at the investments...I'm sure it won't surprise anyone that every single investment is an American Express fund of which I'm sure this financial advisor is making a killing off of. A quick look showed that each fund primarily invests in the large cap financial sector which I think means that not only are they not truly diversified but very heavy into sector investing. At their age I think this is way to much risk.They told me they had a couple of 401k's that have stayed put (about $170k) I told them to do nothing with it until I do some research and to definitely not give it to this "financial advisor".My recommendation was going to be to stop investing anything with American Express and open up an account with Vanguard. My thought is to set them up with a 60/40 portfolio that should get them some return over the next 10 years with reasonable risk. I'm just not sure of the implications on the American Express account. Can they open another SEP-IRA and then not invest anymore in the original one?Not sure if I'm being too hard on this "financial advisor" (btw he's not registered at NAPFA, FPANET, or SEC) but this doesn't feel right to me.Am I directing them correctly? Any other suggestions would be hugely helpful. I'm really worried about them and want to help.
Any decision to avoid high-fee/high commission shops like American Express, Merrill Lynch, Solomon-Smith Barney, etc. is a good one in my opinion.intercst
Jesse,First thing to remember is to review carefully and not rush. What I mean is get every bit of info you can on these annuities and look at them. Find out what if any penalties there will be if you moved this, find out if your folks can direct the investments these annuities invest in, find out the fees charged by the fees these annuities are in.Then go see what other options are available for your parents at say Vanguard. After reviewing all the information, compare the costs of moving versus the projected savings long term - such as the investment fees on the underlying annuities vs what you will pay at Vanguard. After looking at everything it may, MAY pay to move them, or it may not.Would be interested to read what you discover.Andy
My parents had a similiar situation with Commerce Brokerage (a division of Commerce Bank). The broker had loaded them up with crap Commerce Mutual Funds (5% loads). I moved everything to Scottrade and got rid of all that crap with the exception of one annuity. It was in its second year. It is paying 5% interest and the surrender charge was pretty steep for the first couple of years. Gup
It's not smart to have annuities within IRAs or other retirement funds. That may or may not be the case in your situation, but that's what I assumed from reading your post. I recently talked to someone at Fidelity and asked them about this, because one of my old 401ks is a variable annuity. They told me Fidelity won't allow their customers do have an annuity within a retirement account, because you are putting a tax-deferred instrument (annuity) in a tax-deferred account (IRA or 401k, etc.). It doesn't make sense to double up on the tax-deferred status.Trust your gut. If it doesn't smell right, it probably isn't. Look into everything carefully regarding the annuities. Don't stay in an investment just because it costs money to get out. It's more important to do the right thing, generally speaking. It might make sense for them to have annuities that are NOT housed in an IRA, but then again maybe not, depending on their situation (maybe ask someone at Vanguard?). Opening an account at Vanguard sounds like a smart move.
They told me Fidelity won't allow their customers do have an annuity within a retirement account, because you are putting a tax-deferred instrument (annuity) in a tax-deferred account (IRA or 401k, etc.). It doesn't make sense to double up on the tax-deferred status.Ok, given that....but can someone explain it to me, simply? WHY do we not want to do this. Is it a bad thing or just a not convenient thing, and if bad, why bad? My 403b is with AIG Valic and it is actually in the form of an annuity. That is why I am asking. That is the only vehicle they have available within my 403b for investing too.
"They told me Fidelity won't allow their customers do have an annuity within a retirement account, because you are putting a tax-deferred instrument (annuity) in a tax-deferred account (IRA or 401k, etc.). It doesn't make sense to double up on the tax-deferred status.""Ok, given that....but can someone explain it to me, simply? WHY do we not want to do this. Is it a bad thing or just a not convenient thing, and if bad, why bad?" - bundoriyagyu In my opinion, it is not bad nor good, it is stupid! Why have a tax deferred account inside of a tax deferred account that does the same thing for you? You can only defer taxes once!An annuity is very much like an IRA in that the income is deferred until you withdraw the funds. However, the annuity also costs you more in that there are more costs associated with the annuity. The IRA will also normally have annual charges so you pay double on the administrtion of the account. When I first read your post, I thought that I might even consider taking your parent's story to the NASD through arbitration. I think their "advisor" gave them very poor advice and took advantage of them. He needs to be called on his egregious failure to provide the very service which he was being paid to give. It is one thing to make a mistake through ignorance, but it is just plain wrong to admit your ignorance and pay someone to help you just to find that he led you to a worse conclusion than you would have come to on your own. I have witnessed this type of thing over and over again. There are folks out here with the title of "Financial advisor" or "Investment consultant" who are nothing but flim-flam artists. I bet your folk's "consultant" made 5% to 6% up front in selling the annuity but he had to put it into the IRA/401-K because that was where the money was. Like Willie Sutton, he had an innate ability to spot the cash so he could make some of it his. Someone needs to call him on this.If your parents agree they were misled and they are not pleased with the way this has gone, the precedures are not that tough to bring this thing to the attention of the NASD. In fact, I would have a sit-down with the management of the firm where this happened and let them know that they are about the be nailed. They need to reverse their manipulation of this account at no charge to your parents. And, since it is within a deferred account already, there should be no tax consequences to reversing their flim-flam. The only question is, "Do you want to nail them or leave them free to pull the same trick again on other future retirees?" Obviously, your parents are not the first nor the last!
I think I've read that if it's an employer-sponsored plan, like your 403b, it's probably ok. You'll maybe want to do some research on this. The thing you don't want to do is open up an IRA and then purchase an annuity within that IRA. You're not gaining any advantage by putting a tax-deferred instrument within a tax-deferred account. And you'd likely be paying fees for the annuity that you would be better off avoiding. That's about all I know.
I think I've read that if it's an employer-sponsored plan, like your 403b, it's probably ok. You'll maybe want to do some research on this. The thing you don't want to do is open up an IRA and then purchase an annuity within that IRA. You're not gaining any advantage by putting a tax-deferred instrument within a tax-deferred account. And you'd likely be paying fees for the annuity that you would be better off avoiding. That's about all I know.Ok, thanks, that made sense. An annuity within say an IRA would essentially be doubling up on fees and so on. Likely making handling the thing even more complex as well than it needs to be.
Actually your annuity inside the Valic product is likely to be unsatisfactory.Valic usually charges a surrender charge on annuities that are used for 403bs. So if you are planning on changing employers you could face some penalities if you wanted to move your 403b.Prior to the EGTRRA '02 403bs were limited to annuities however now 403bs can use mutual funds. Valic is not real excited about this!Valic investment options often underperform due to their excessive fee structure. They are great products to sell, but lousy thing to invest in.Using an annuity inside an IRA is generally not indicated, however, TIAA-CREF offers annuities inside their retirement products. These annuities are no-load and they have no surrender charges. Furthermore the fixed rate option has no M&E expenses. Since you are a teacher you may want to examine TIAA-CREF's options.buzmanNot intended to be investment advice, consult with a professional before making any decisions.
"My recommendation was going to be to stop investing anything with American Express and open up an account with Vanguard. My thought is to set them up with a 60/40 portfolio that should get them some return over the next 10 years with reasonable risk. I'm just not sure of the implications on the American Express account. Can they open another SEP-IRA and then not invest anymore in the original one?" - jesserivera67Again, in my opinion, this is bad advice! The last thing your parents need to do is to move the account until they have this whole thing straighened out. Think about it. If you move the accont away from American Express you play right into the hands of the "bad guys". Since these are AMEX annuities, they most likely cannot be transferred to another account. That is one reason they were sold to your parents in the first place. The money is "locked-in" to AMEX for 7 years. Also, if you just tell AMEX to transfer the account, they sell the funds destroying all of your evidence! That is just what they want. They have your parents trapped unless your folks decide to make things right by sorting this out in reverse.First, you need to make sure your folks are convinced that they were, in your word, "burned". If they can be convinced that the annuity was a bad recommendation, then they must take AMEX to task for their bum advice. The threat of an NASD arbitration should get their attention. Or, if you want a hardball approach, tell them that you, as your parent's advisor, prefer to take this to the State courts directly and that you plan to refuse arbitration even though your parents agreed to it in their original contract. You can tell AMEX that this is so egregious that you believe the court needs to see what is going on. I bet you can get their attention that way. However, I would keep that in my back pocket until you see what AMEX will do for your parents without any legal action arbitration or otherwise. You have lots of tricks to use to get this straightened out.The good news is you are working with a good organization in AMEX. The advice of their "consultant" was bad, but that "salesman" needed to make a sale and he found lots of cash in the retirement accounts. You cannot blame him for offering the best deal for himself. If the fish takes the bait...whose fault is that? His job was to present an opportunity...the fact that it was a crappy opportunity is beside the point. Your parents trusted his advice...that is a fact. The account proves it.Anyway, look at his calling card. What does he call himself on that card? If the word "advisor" or "consultant" or something else that indicates he was "working for your parents in their best interest" shows up on the card, you have him in a real trap. He obviously worked this deal in his own best interest. That can be used against him very effectively.You can actually do more good here than your parents can. By inserting yourself in the middle, you can become the arbitrator between your parents and AMEX. Your parents may have to give you Power of Attorney if this gets far enough along, but I bet you can get pretty far without anything but your wits. Call AMEX and ask to talk to the manager who the broker who sold the annuities works for. Go see him and lay out the whole thing and let him know you are serious about taking this whole thing as far as it needs to be taken. He will not get into the account details without the POA, but if you have their statements and let him know your parents have approved your appearance there, he will talk in general about what they can do for your parents. I bet he will be doing some fast back-peddling in a matter of minutes. I also bet this will not be the first time he has been confronted with this subject.Tell him you want a different "consultant" assigned and you want a well balanced portfolio of solid stocks but at least 50% in the SPY and the QQQ. No funds...period! They can offer recommendations for the other 50%. Each year, tell him you will get with your parents and compare the results of the their portfolio to the SPY and QQQ in their account with respect to total performance. You and your parents fully expect his "consultant" to beat the "averages" most of the time. If he cannot do that, what is AMEX good for?I wish you the best here. I ran into the same thing with my mother about 10 years ago. I did exactly what I told you here and it was amazing how well the broker came about and turned out great performance for her. He knew I was watching every move he made. Plus, he had a measuring stick that I defined for him. Either he performed or he was gone! Plus, everything in the account could be transferred in a New York Minute to another account if he stumbled. The reason the bad guys win is that no one ever calls them on their greed. Someone has to confront them with the treat of retaliation. It looks as if that "someone" is "you" in the case of your parents. The question is, "Will they agree that they have been had?" That, unfortunately, is hard for many people to admit to themselves. You have to tell them the story in a way that leaves them innocent victims. And, that is precisely what they are!
TIAA-CREF offers annuities inside their retirement products. These annuities are no-load and they have no surrender charges.This is not true. I am in the process of rolling over my TIAA-CREF into an IRA, and they do have a 2.5% surrender charge on the Traditional investment. But if you have less than $2000 in there, the fee is waived. So I guess it depends, but there are surrender charges applied in some circumstances.
I wrote: TIAA-CREF offers annuities inside their retirement products. These annuities are no-load and they have no surrender charges.Andy's replyThis is not true. I am in the process of rolling over my TIAA-CREF into an IRA, and they do have a 2.5% surrender charge on the Traditional investment. But if you have less than $2000 in there, the fee is waived. So I guess it depends, but there are surrender charges applied in some circumstances. Don't want to get into a pi$$ing contest but see this link:http://www.tiaa-cref.org/pas/tc_difference.htmlPlease cite a specific example-TIAA-CREF doesn't have surrender charges.
Thanks BuildMWell...That's the route I'm taking. I can't tell you how pissed off I am with this guy. From all the posts I've read (thanks everyone.) this seems like an unbelievably poor recommendation by this advisor. I've also read more and more articles on variable annuities and how people get screwed by them again and again. How do I communicate to NASD if it comes to that?I certainly don't blame the guy but the question comes down to..."Are you in it to help people or help yourself?" This guy went for the cash and my folks got suckered into it.My goal will be to make this guy regret his advice. What makes matters worse is he's invested it all in Amex funds which are amongst the worst performing funds in the industry...UGH!One quick follow up question...after going through all of this (which I fully intend on doing), assuming the worst scenario can I not tell them to open up another SEP-IRA with another firm and stop investing anything with Amex?
Don't want to get into a pi$$ing contest but see this link:http://www.tiaa-cref.org/pas/tc_difference.htmlPlease cite a specific example-TIAA-CREF doesn't have surrender charges.I can only cite the paperwork that TIAA-CREF sent me about my specific employer-sponsored account. It's there in black and white.
How do I communicate to NASD if it comes to that?You may wish to start here:https://www.nasdr.com/secure/complaints/ComplaintCenter.aspHaGD, L2J (wish you the best)
Again, Tiaa-Cref does not charge surrender charges.I would suggest that you go to their website and follow up there.www.tiaa-cref.orgbuzman
Again, Tiaa-Cref does not charge surrender charges.I don't doubt that what you are reading on their web site may be true for some accounts. But really, do you want to come to my house and read my paperwork? Why would I lie?
FYI:http://www.tiaa-cref.org/ras/incopt/tpa.html"Group Retirement Annuities GRA participants can withdraw TIAA Traditional funds using the ten-year TPA method. They can also take their accumulations over a fixed period ranging from five to thirty years, or as a single-sum withdrawal subject to a 2.5 percent fee (provided the withdrawal is within 120 days of termination of employment). "This 2.5% fee is called a "surrender charge" in my paperwork. (Okay, now do you believe me?)
"How do I communicate to NASD if it comes to that?"Go to the website first: http://www.nasdr.com/2150.htm You will find plenty of information and they will send you a package of forms and instructions or you may file a complain on-line. However, the very first question is, "Have you contacted the firm yet?"Like I said, it is best to let the firm know that the complaint is likely to be filed unless they get off dead-center and get things right with your parents!
I'm not trying to argue semantics with you but surrender charges generally are unavoidable.This fee is avoidable by taking distributions other than a single-sum.So a participant can avoid this surrender charge. 1-800-842-2776 EXT 1 for further clairification.Tiaa-Cref is a bright shining light in rather putrid field. They are kinda like Al Franken, not perfect, but far superior to the competition.buzman
buzman, you wrote:<< I'm not trying to argue semantics with you but surrender charges generally are unavoidable.This fee is avoidable by taking distributions other than a single-sum.So a participant can avoid this surrender charge. >>It seems to me that if that's the line of reasoning one is to take, then ALL surrender charges are avoidable. If one waits until after the surrender period to take any kind of distribution, there are no surrender charges for any annuity. Or, as you've suggested above, if one takes the certain allowed distribution amount in any particular year . . .there is no surrender charge (many annuities are now set up that way).I would say you're generally correct in what you stated with regard to TIAA's regular annuities. But obviously there IS a "surrender charge" for TIAA's Group Retirement Annuities. After all, that's what they're actually calling it on the statement. . . . and so, I really don't feel it's a matter of semantics. ;-)
I thought you all might enjoy this...the guy knows I'm asking questions regarding specifics of the contract and about fees...his comment, "...only 1 in 100 people understand annuities..." at the end particularly entertaining...he won't even divulge the damn fees!>>>Start of email>>>Dear XXXXX,Greetings. Unfortunately, I am not able to provide you by e-mail with all the materials you have requested. They should either be faxed to you or sent to you by mail. At the same time, most of the information you have requested are available in details in your annuity contracts. However, I will do my best to provide you with answers to some of your questions. 1 - There is a $30 contract fee for accounts with balances less than $50,000. For accounts with balances over $50,000, there is no annual fees.This is a normal practice in the industry and American Express fees are much lower than our competitors. 2 - Charges, including management fees, etc. differ among sub-accounts. Charges in our annuities are among the lowest in the industry (according to Fortune Magazine) and the total charges do not exceed similar charges on mutual funds. I have already given you a brochure on cost comparisons and if you can not place it I will send you another one. 3 - For surrender charges, you should consult your contracts. Normally, if you do not surrender your contracts for eight years, these charges will disappear. 4 - I have to fax or mail you the Morning Star reports on sub-accounts. 5 - I will e-mail you the ticker symbols of the underlying mutual funds in my next e-mail. 6 - For investment options, you should consult your contracts. I will also try to mail you a complete list of all investment options along with the analysis of the accounts. 7 - You are right. I get paid to manage your accounts by commission. The latest balances of your accounts are approximately $200,000. I receive annual commissions on these balances in accordance with the following formula: Balances % 1000 x 2.5 x.85 = annual commission. or,$200,000 % 1000 x 2.5 x .85 = $425As you see, I receive a commission of $425 to service and manage your accounts for one year.I spend at least one hour per month and 12 hours per year to service and manage your accounts. On the average, I charge $500 an hour for financial consultation. On that basis, I have to charge you at least $6,000 annually to compensate for my time. Lat year, we agreed for an annual fees of $1,200. Unfortunately, so far no payments have been made. You might claim that your accounts have not done well. I fully agree with you. But if you compare the performance of your accounts with the performance of the market in general, you will see that your accounts have done far better than the overall market which is still 50% below its peak in March 2000. Your accounts are long term investments. Give us some more time and then compare the results. I hope I have been able to answer some of your questions. I will also fax and mail you the materials you have requested. Thank you and best personal regards. Further, I would like to bring the following points to your attention in order to clarify my answers to your questions: 1 - The $425 commission I receive annually for servicing and managing your accounts is paid by American Express and is not taken fron your accounts. 2 - For any payment you make to your non-qualified annuity, American Express adds 1% purchase bonus. This means that when you pay $1,000 into your account, $1,010 is credited to your account. 3 - As instructed in your e-mail, I will not make any changes in your investment options unless authorized by you. Finally, in order to clarify every unclear points in your mind, it is absolutely necessary to have a meeting as soon as possible. Annuities are complex products. Without exaggeration, only one in one hundred financial advisors understand them, let alone ordinary investors. Their advantages are not known to everybody. If we have this meeting, we will be able to resolve the problems better and easier. If you wish, you can bring anybody with you. Thank you and best regards.
jesserivera67: "I thought you all might enjoy this...the guy knows I'm asking questions regarding specifics of the contract and about fees...his comment, "...only 1 in 100 people understand annuities..." at the end particularly entertaining...he won't even divulge the damn fees!"While I agree that he did not answer all your questions, you received a better response that I antipcated upon hearing that it was an IDS?American Express representative. The handful I have met would not have close to as much informatin as you received.By my calcuation $425/$200,000 = .002125 or .2125% which is far less than the typical 1% management fee that seems common or even the .5% fee for who have realized customer sensitivity to fees.When is the meeting? And will you discuss the results?Regards, JAFO
I'll start another thread to discuss the results. Probably within the next couple of weeks. He did give some decent information but I don't think he's divulging everything. Once I read through the prospectus of the annuity I'll have more info.
jesserivera67 writes,I thought you all might enjoy this...the guy knows I'm asking questions regarding specifics of the contract and about fees...his comment, "...only 1 in 100 people understand annuities..." at the end particularly entertaining...he won't even divulge the damn fees!Ask the American Express guy if he's taking more of your money than the IRS, see link:http://www.retireearlyhomepage.com/irsadvisor.htmlintercst
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