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txishome

Had A Meeting With Aig Valic

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After much discussion, here is what I found out. The hospital is signed up with AIG Valic for a "non-annuity", mutual fund based plan. My fees are .32% for Valic + the mutual fund fee that I choose. That's it for the fees. There are no 12b-1 fees and 90-24 transfers are allowed. The plan offers 21 mutual fund options (mostly Dreyfus and American funds).

 

The rep. was very accommodating in regards to his involvement in asset allocation. Any advice that he gives me is covered under the .32%. I am comfortable managing the 403(b), but they also offer portfolio management (for a fee).

 

Overall it was not nearly as bad as I have read from other posts. I gather that the hospitals exit from an annuity based plan is what has made this a much better experience.

 

Txishome

 

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Aside from the 0.32 for Valic, do the mutual funds companies that Valic handles have loads?, surender charges, 12b-1 fee ,etc . What are the expense ratios of these funds. Do these funds convert part of their cost to Valic on an annual basis fpr administration. Did you get a prospectus, and have you read the fine print

 

 

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"The rep. was very accommodating in regards to his involvement in asset allocation. Any advice that he gives me is covered under the .32%. I am comfortable managing the 403(b), but they also offer portfolio management (for a fee)."

 

I'm a little unclear about this, tx. On the one hand, the agent will help you with asset allocation, but on the other hand, he charges extra for portfolio management. Isn't asset allocation part of portfolio management? How can one manage a portfolio without addressing asset allocation? This would be a red flag for me.

 

On the other hand, American Funds (at least the stock funds) run expenses of ~.60-.70. That is pretty darned low for actively managed funds. Some classes of shares charge loads of 5.75%; however, your plan may waive those. Be sure to check with the agent.

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Txisome..It looks like a potential double whammy..First of all that ongoing sales charge of .32 is on top of what fees: the usual 12b (advertising/marketing fee), administrative fees for trading costs, entry and exit costs (front end load/back end load)? By the time these fees are added you might wish you had a cost-effective alternativee..There is no need to pay more than .8 total fees.

 

The second whammy is that the .32 charge is for filling out forms, apparently. Any additional service will cost more money...Is that also on an ongoing basis?...for as many years as you have the plan...

 

You can get allocation advice from a fee based planner who does not have his hand in your pociketbook. Allocation plans are available in many books and discussion sites: such as this one, and Vanguard Diehards (found on Morningstar's web site under "discussion")..I have found that the advice of my peers on these sites collectively have learned so much, and have helped me ask the right questions, that this is an invaluable place to become positioned for a great retirement. Best of furtunes, Dan

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There were 3 basic fees explained to me.

 

1. Valic's fee, which is the .32% of each mutual fund held. There are no 12-b fees and no front or back loads.

2. The mutual funds fee. They run as high as 1.16% for a REIT fund and as low as .40% for a bond index fund.

3. Valic will manage the portfolio for a bigger fee. The percentages are based on the account balance. The higher the balance the lower the fee.

 

The Valic rep is available to hospital employees (even the ones he doesn't manage) to "bounce ideas off of". There is no fee for this service.

 

This situation that the hospital has set up works well for our family. There are only 21 mutual funds offered (disappointing) but I plan to stick with index funds. The highest cost is .50%. I will "manage" my own account which leaves me with a total fee cost of around .82% (.32% + .50%) for my account.

 

The hospital went from an annuity based plan to this "simplified" plan about 10 months ago after several complaints. The Valic rep. admitted that his pay went down considerably with the change, but his work load diminished too. I got a sense that the previous plan was much like what is discussed here.

 

Txishome

 

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Tx,

 

It sounds like, in reality, you are going to pay .82%, and you will receive little, if any, advice from the agent. (Bouncing ideas off the agent does not sound like ongoing advice).

 

On the one hand, .82% is not too bad compared to some fee-laden plans. On the other hand, it is almost four times what you would be paying for Vanguard index funds, and eight times what you would be paying for Fidelity Spartan index funds. And this is for being able to bounce ideas off the agent.

 

Again, this is far from the worst plan I've heard of, but it is far from the best, as well.

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I'm going to land on the side of TR1982 on the whole Valic issue. I think it is great that apteacher knows the expense ratios for Vanguard and Fidelity index from off the cuff. And to have all of you respond to literally my first post has been invaluable. BUT... I have taken all of your warnings and questions, then presented them to a Valic rep, and returned with what he said. I went from expecting 2 to 5 percent, do dealing with .82% total. To have to pay what amounts to $68.33 (based on a $100,000 portfolio) a month and in return I get to reduce my taxable income by $15,000 a year, seems like a pretty good deal. Come on... gotta admit this is not that bad!!! Again, thank you to all who have been so helpful!!

 

Txishome

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txishome......we tried to help you..........of course, the final decision is up to you.........best of luck.................Ira

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Guest TR1982

"To have to pay what amounts to $68.33 (based on a $100,000 portfolio) a month and in return I get to reduce my taxable income by $15,000 a year, seems like a pretty good deal."

 

TX,

You are right! Paying .82% is a good deal even if some people don't agree. What you will find here is that some people think paying ANYTHING to some firms (i.e. Valic) is a bad deal. Fortunately, you sought out the facts and the made the best choice for you. That's being a smart consumer and investor.

Good luck.

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TR,

Just curious, would you pay .82% for your own personal portfolio? If you say that .82% is a "good deal" at what point would the fees become a "bad deal." 1% or 1.5%, tell us please.

 

By the same token, if .82 is a good deal, .18% for the VG S & P 500 must be a great deal. We can all agree with that.

Steve

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""To have to pay what amounts to $68.33 (based on a $100,000 portfolio) a month and in return I get to reduce my taxable income by $15,000 a year, seems like a pretty good deal."

 

TX,

You are right! Paying .82% is a good deal even if some people don't agree. What you will find here is that some people think paying ANYTHING to some firms (i.e. Valic) is a bad deal. Fortunately, you sought out the facts and the made the best choice for you. That's being a smart consumer and investor.

Good luck."

 

That's fine TR, you can have the last word now, but when novice txishome finds out that he made his decision based on misrepresentation of facts by the agent , I'm sure that you will give him other great advise.

Edited by ira

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TX believes that he made the best decision he could. Good for him. If he is comfortable with that, I wish him the best. He could do far worse. I do believe that he could also do far better, but I'm not sure that he has those alternatives available to him. So he did the best that he could.

 

TR, on the other hand, believes that paying .82% for merely bouncing ideas off of an agent is a "good deal." In comparison to what? Paying front loads, back loads, 12b-1 fees, M&E fees? Yes, in comparison to doing this, TX does, indeed, have a good deal. But that strikes me as being a poor comparison. In comparison to Vanguard and Fidelity Spartan, VALIC is mediocre at best. But again, if TX does not have these available, he may have done the best that he could. I hope that his agent provides advice that is commensurate with the cost that TX is paying.

 

 

 

 

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Guest TR1982

I love the fact that TX did the research, found out the facts and made the decision he was comfortable with. The truth is that if a firm like AIG Valic offered only Vanguard and Fidelity funds at 0 basis points you would complain about that. That's obvious from the responses here. Why don't you all just come and out and say it: YOU HATE ANY INSURANCE COMPANY OR FIRM THAT USES ADVISORS. It doesn't matter what funds they use or what price they charge.

 

The average 401k charges more than 82 basis points. So his plan pricing is less than the average 401k. Hmmm.

I guess you can always find something cheaper. Is Fidelity Spartan a good deal if I can get investment management for free? By your logic, no. That is ridiculous.

 

Some of you say he should pay a fee only advisor outside the plan. Do you really think any advisor is going to offer somebody advice and funds for 82 basis points? I'll do what Sierra does: If there are any advisors out there who will manage a 100k portfolio (including fund cost) for 82 basis points, please post here. I can't wait for all the reponses from fee only advisors!

 

"That's fine TR, you can have the last word now, but when novice txishome finds out that he made his decision based on misrepresentation of facts by the agent"

I love this! You were there and so you know the advisor misrepresented the facts.

 

 

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"The truth is that if a firm like AIG Valic offered only Vanguard and Fidelity funds at 0 basis points you would complain about that. "

 

Ridiculous. Mere hyperbole.

 

"Some of you say he should pay a fee only advisor outside the plan. Do you really think any advisor is going to offer somebody advice and funds for 82 basis points? I'll do what Sierra does: If there are any advisors out there who will manage a 100k portfolio (including fund cost) for 82 basis points, please post here."

 

With a fee-only advisor, an investor can simply pay a single fee instead of paying commissions or having money taken out on an ongoing basis. This eliminates the conflict of interest that exists with agents.

 

Again, 82bp is not bad per se. TX is to be commended for doing his homework. He is ahead of the game because he is educating himself. However, from his description, it doesn't sound like the 32 bp that he is paying is getting him much advice.

 

Assume TX is diligent and runs his account up to $100,000. Here is how the annual expenses would break down:

 

AIG: $820

Vanguard Target Retirement: $200

Fidelity Spartan Index: $100

 

Here is how I would view this: If the AIG agent provided proper guidance and advice, I could see how the extra expenses would be justified. A good agent could earn his fee through help with goal setting, asset allocation, fund selection, rebalancing, annual evaluation, etc. But from TX's description, it is not clear that these services will be rendered.

 

 

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