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Advising A Friend With Axa Annuity

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I was talking to some people at school about investments and one of them asked me to look at his portfolio. He has one instrument that confuses me (even after wading through the documentation. It is an annuity from AXA called Accumulator Elite. His broker/financial advisor had him move a fair chunk of money from mutual funds in his 403(b) account to the AXA annuity. The selling point was that it would pay out 6% of his original money beginning 10 years after the annuity started, with larger payouts if he waited until later. He is in his early fifties.

 

So, what does this buy him?

1) If he dies, his beneficiary gets his original investment back. (But wouldn't term insuracnce be cheaper?)

2) He gets the 6% payout guaranteed, so no worry about market crashes, etc. (But 6%/yr - 2.5% fees could be beat by an index fund).

 

What I don't understand is that this instrument invested his original money in a series of propriety mutual funds (one of them an AXA fund). I'm calling them proprietary, since I can't find them on Morningstar. For instance "AXA/Premier High Yield" or EQ/Capital Guardian Research."

 

Will the 6% he is guaranteed by increased if these proprietary funds do well? I would guess so, but I'm having trouble finding it in the documentation.

 

Doesn't it stand to reason that the management fees of the proprietary funds are higher, since he is a captive owner?

 

My personal opinion is that he got into an expensive investment and would do better bailing out and going the indexing route, even with the associated fees. This guy is intelligent, but has zero understanding of investing.

 

Thanks,

John

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John:

 

I would want to check on Pt 2: it sounds as if the annuity is annuitized when it pays out a guaranteed 6% per year. If it is being annuitized, you may want to make sure if the fees (which sound like the M&E charges) are still going to be assessed against his account when that payout occurs. As annuity contracts can be different, it would essential to make sure on that point. Asking the agent or company is a good avenue, as they are required to explain the contract provisions.

 

Further, there are other pluses and minuses on annuitization, but you mentioned the fees. You may wish to be certain on that issue.

 

Best Wishes,

 

Herbert Hussey

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Hi John,

Welcome to this site. I wish I had a friend like you when I started out. Like your friend, I was sold not one but two horrible annuities in my 403b. When you said: "His broker/financial advisor had him move a fair chunk of money from mutual funds in his 403(b) account to the AXA annuity." I shutter to think what your friend's agent got as a commission when he transferred that money.

Variable annuities will not be listed on Morningstar. I looked around at the AXA home site and could not find your friend's product. It might be under a different name. Here is the link.

Good luck,

Steve

 

 

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