Author Topic: Variable Annuity purchased by parent...is she stuck?  (Read 779 times)

emiloots

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Variable Annuity purchased by parent...is she stuck?
« on: January 12, 2018, 02:46:18 PM »
My mom is 70, has a healthy pension of 4200/mo + 1600/mo in SS benefits and a gold plated healthcare plan that costs her per year less than I pay in a month.  She has a financial adviser from NYS (she lives in PA with me now) that she met over the holiday break.  He's 'never steered her wrong", but I digress...

He convinced her to transfer the monies from one annuity product to another.  She purchased a Defined Income Variable Annuity with a Death Benefit from Prudential with a 167k investment.  I'm reading over the documents and she'll be paying 3.8% in fees, that's almost 6500/yr before any growth occurs on this account.  Plus there's a benefit fee of .81-1.5% for the income and/or death benefit payments!

The guaranteed annual income is 9970 that apparently she's elected to start taking this year.  I tried to talk to her about this before she went to see him but good god the woman is gullible!  The account does have a surrender value that's within 15k of the original value if she pulls the money within the first year of payments.  It's not anywhere in the paperwork - but I can't imagine what the commission was on this, I've read as much as 10-20% of the invested value (which is compensated by the high fees of course).

Any advice?  She has another policy that he manages worth ~125k that I'm sure sometime soon another 'product' will come along for him to make a nice commission off of.  How do I convince her to abandon ship with this guy?  What products would you recommend for a 70 year old with literally no financial worries for the rest of her life?

Mighty-Dollar

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Re: Variable Annuity purchased by parent...is she stuck?
« Reply #1 on: January 12, 2018, 03:09:04 PM »
Most annuities have a "free look" period. 30 days maybe? You need to get on it ASAP! She needs to email, FAX AND call the company this weekend to document that she wants out. Also email, FAX and call the salesman too for good measure. She should notify everyone that she wants out because she was lied to by the salesman. Retail variable annuities are so obscenely expensive that they should be outlawed. The salesman who sold her that is ABSOLUTELY not on her side. He would have sold her a Vanguard variable annuity if for some odd reason a variable annuity made sense. At 70 it cannot make sense unless in the rare event she's trying to protect against lawsuits in a state like Florida that protects retirement accounts, but only a lawyer can make that call. It's against the law for an insurance agen to give legal advice.

Even if they say it's past the free look period I would continue to demand to get out. Again, she was certainly lied to (by omission, presenting shell games, useless anecdotes, statements of opinion, etc).

Look at the surrender period. That tells you about how much the commission was. For example a 10 year surrender period indicates about an 8 to 10% commission.

https://www.youtube.com/watch?v=ZulYOxPaoA8

Quote
What products would you recommend for a 70 year old with literally no financial worries for the rest of her life?
A total bond market index fund like BND and a total stock market index fund like ITOT. You protect against stock market volatility with bonds. http://investingadvicewatchdog.com/diversification.html
« Last Edit: January 12, 2018, 03:24:55 PM by Mighty-Dollar »

emiloots

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Re: Variable Annuity purchased by parent...is she stuck?
« Reply #2 on: January 12, 2018, 03:57:07 PM »
I just talked to my brother and he's talking to his advisor (not broker!) at the end of this month.  He's going to look it over, maybe she'll listen to a professional and/or my brother.  It does have a 60 day back out period - so hopefully we can get this mess sorted out.  Ugh, guess I'm going to have to start monitoring her finances, not because she has any mental deficiencies she just doesn't get finance at all.

MDM

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Mighty-Dollar

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Re: Variable Annuity purchased by parent...is she stuck?
« Reply #4 on: January 12, 2018, 05:42:40 PM »
I just talked to my brother and he's talking to his advisor (not broker!) at the end of this month.  He's going to look it over, maybe she'll listen to a professional and/or my brother.  It does have a 60 day back out period - so hopefully we can get this mess sorted out.
The only advisors who can be trusted are fee-only fiduciaries. Fee-only means they cannot earn back door commissions. Otherwise you're going to get some form of a sales presentation. The "free" advisors are all in the business of either drumming up transactions (to earn fat commissions) or they want to be your asset manager (charging you quarter after quarter). You don't need an asset manager to percentage rebalance index funds once in a while.
I would read the actual prospectus to be sure that there's indeed a 60 day free look period. Don't put it past Mr. Advisor to lie and when there's perhaps only a 2 week period to get out. These guys will say / do anything to make the sale. We already know that this advisor is a crook because he sold her that thing.
With 3.8% in annual fees she will lose 32.11% in just 10 years. She will lose 53.9% in 20 years. These are just mathematical facts.
By comparison, index funds have expense ratios of 0.05% to 0.07% per year. There is NO comparison. Retail variable annuities are absolute garbage.
And with annuities, future gains are taxed at the higher ordinary income tax rate. And heirs get NO stepped up cost basis with index annuity gains.
Wealth Manager did a study called "Photo Finish". The so-called "advantage" of annuity tax deferral is actually a tax disadvantage. It's not what you make, but what you get to keep. So you lose even MORE money with annuities.
BTW some of the people on Bogleheads are biased. Definitely some annuity salesmen on there pretending to be consumers. Still others on BH praise immediate annuities. I can debunk these products all day as consistently inferior to a low risk mix of bonds and stocks.
« Last Edit: January 13, 2018, 04:26:32 PM by Mighty-Dollar »

Finances_With_Purpose

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Re: Variable Annuity purchased by parent...is she stuck?
« Reply #5 on: January 12, 2018, 08:33:42 PM »
I just talked to my brother and he's talking to his advisor (not broker!) at the end of this month.  He's going to look it over, maybe she'll listen to a professional and/or my brother.  It does have a 60 day back out period - so hopefully we can get this mess sorted out.
The only advisors who can be trusted are fee-only fiduciaries. Fee-only means they cannot earn back door commissions. Otherwise you're going to get some form of a sales presentation. The "free" advisors are all in the business of either drumming up transactions (to earn fat commissions) or they want to be your asset manager (charging you quarter after quarter). You don't need an asset manager to percentage rebalance index funds once in a while.
I would read the actual prospectus to be sure that there's indeed a 60 day free look period. Don't put it past Mr. Advisor to lie and when there's perhaps only a 2 week period to get out. These guys will say / do anything to make the sale. We already know that this advisor is a crook because he sold her that thing.
With 3.8% in annual fees she will lose 32.11% in just 10 years. She will lose 53.9% in 20 years. These are just mathematical facts.
By comparison, index funds have expense ratios of 0.05% to 0.07% per year. There is NO comparison. Retail index annuities are absolute garbage.
And with annuities, future gains are taxed at the higher ordinary income tax rate. And heirs get NO stepped up cost basis with index annuity gains.
Wealth Manager did a study called "Photo Finish". The so-called "advantage" of annuity tax deferral is actually a tax disadvantage. It's not what you make, but what you get to keep. So you lose even MORE money with annuities.
BTW some of the people on Bogleheads are biased. Definitely some annuity salesmen on there pretending to be consumers. Still others on BH praise immediate annuities. I can debunk these products all day as consistently inferior to a low risk mix of bonds and stocks.

Agree with this.  Guy is a thief.  Back out immediately.  Treat this guy like the crook he is.  Cut him off. 

Don't ruin your relationship with your mom to do so, though - not worth it.  So all depends on where she's at, how much she trusts you guys, etc.  But yes: these guys lie, and they can without much recourse.  Get her out of there now. 

secondcor521

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Re: Variable Annuity purchased by parent...is she stuck?
« Reply #6 on: January 12, 2018, 10:55:05 PM »
You might also call the Attorney General's office in the state your Mom lives in (PA, I guess) and discuss the situation with them.  They can give you and your Mom unbiased advice on what the law says about rescinding a new contract.  I would encourage you to get on it as soon as possible, since the salespeople might slow the process down to try to get you past the rescision date and then say, "Well drats, it looks like you're stuck!"

Also, as a general rule if I get nervous or lots of money is involved, I start making a paper trail with dates and times and names and badge numbers and the key points of conversation, as well as make copies and send certified mail return receipt requested anything I send to them.  When all is well you can just toss the paperwork, but until then it prevents things from getting lost or deadlines getting missed by accident.