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Author: jesserivera67 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: parents burned saga- advisor writes back Date: 9/15/2003 8:14 PM
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Here's the update folks. fyi...it's long. I'd be curious to get your feedback. The advisor's response discusses the advantages of annuities and then a very interesting response regarding his fees. I've added my own perceptions (See Note: under each respective area) and look forward to yours...

From advisor:
Dear Mr. and Mrs. XXX,

Today, I mailed you a lot of materials under two separate envelops. I need to clarify one point. As already mentioned, I work on fees and commissions. At the same time, I have to pay for all my expenses including rent, employee salaries, materials, etc. American Express does not contribute one penny even to the cost of my healthcare. My annual office expenses are in excess of $100,000. Have a wonderful weekend.

Note: Why the hell is he telling me his yearly office expenses??? If anyone can help me with that I would appreciate it.

From advisor:
Dear Mr and Mrs XXX,

The following is a brief summary of the advantages and disadvantages ofvariable annuities. As you can judge by the following, there are almost no disadvantages on annuities compared to other modes of investments.

Annuities are not well-understood and as such are subject to adverse publicity. They are complex and sophisticated products and only 1% of financial advisors are fully familiar with their features and characteristics.

Note: Can this be true???

An annuity is a contract issued by an insurance company to guarantee payment of a lump

sum or series of immediate or future payments against a single or series of regular or non- regulars premium. An annuity is not an investment by itself, but it is an investment instrument in which one can invest almost in any investable asset.

Following are some of the features of the American Express RAV A or variable annuity:

1 -It is tax-deferred. You do not pay any taxes on the earnings until you start withdrawing. Then the tax you pay will depend on your tax bracket. Being tax-deferred, the return on an investment in an annuity will be far greater than the return on similar investment that is not tax-deferred. If you invest retirement assets in annuities you will create a double tax-deferred investment. It represents no disadvantages.

Note: What is a "double tax-deferred investment"? It sounds like baloney to me...

2 -It has some elements of insurance. If you die and the value of the investment in your annuity declines, the beneficiaries will receive the highest value of the investment during the life of the annuity.

Note: I think this is the guarantee interest on principal which is 3%. 3% hardly keeps up with inflation and there are extra fees associated with this.

3- It is not subject to probate and the underlying assets are transferred to the beneficiary without requiring the procedure of the probate.

Note: Not sure about this? any input?

4 -It has some degree of protection in case of litigation. B y annuitizing the annuity contract the underlying assets can not be claimed by the creditors or claimants.

Note: Also need some input?

5 -The total charges and expenses on an annuity do not normally exceed the charges and fees on a mutual fund.

Note: This may be true when you compare it to load funds but completely untrue when compared against no load funds. (Expense ratio for annuity is currently 1.95% plus his $1200 per year fee)

6 -In an annuity you can switch from one investment to another without any charge or penalty, whereas in the case of mutual funds each time you switch fr6m a family of funds to another you have to pay a fee and a penalty.

Note: My understanding is that one is limited to only those investments that are supported by the annuity of which there are very few. In this specific annuity all bond funds are through amex so you have no option for fixed income investments....

7 -Losses on an annuity are 100% tax deductible while losses on other financial investments are only deductible up to $3000 per year.

Note: Not sure how huge this is. Perhaps would have been great in early 2000 I suppose. The limits on deductions may be true but the $3000 can be deducted whether you lose or not I believe so I don't count this as a major advantage at all.



8 -Gains on an annuity are treated as ordinary income, while gains on individual stocks and some mutual funds are treated as capital gains.

Note: This one blows my mind. I may not be a pro but I'd WAY rather pay long term capital gains (currently at 15%) than income taxes (range from 15% to 35% depending on income)

9- Earnings on an annuity if withdrawn prior to age 59 and 1/2 are subject to 10% penalty. To avoid this one can annuitize the annuity at any age.

Note: Never heard of the avoiding...

I am enclosing some other materials to provide you with a comprehensive understanding of annuities. Thank you and best regards.

Note: More to come. I'll post when I receive his document but I'm guessing that they'll be no more than the propaganda out on the web.

Hope this is helpful...

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