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tomkoz

Annuities In A 403b

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Jim,

 

Your results are faulty because you are not measuring like investment strategies but different ones. (an actively managed account vs. a buy and hold equity index fund).

 

I'll try again. You must compare like investment strategies. Actively managed account with an annuity wrapper Vs. Actively managed account without the annuity wrapper OR buy/hold equity index fund with an annuity wrapper Vs. buy and hold equity index fund without the annuity wrapper.

 

Your return was the result of an actively managed account inside of an annuity wrapper. Now, unwrap the annuity and use the TIAA-CREF funds to actively manage your account in a similar fashion as you did over the last five years and see what the returns would have been. Only after doing the comparision can you boast that it paid to pay the commission and ME fee associated with the variable annuity. Please get back to us with your results.

 

Joel

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Jim,

 

Your results are faulty because you are not measuring like investment strategies but different ones. (an actively managed account vs. a buy and hold equity index fund).

 

I'll try again. You must compare like investment strategies.

Joel,

 

You silly man. I'm not discussing hypotheticals. When was the last time you took a hypothetical to the grocery store and exchanged for a bag of groceries. I'm discusiing reality. Over the last 5 years my "managed account" earned in excess of 7%. Your much beloved TIAA lost money. That's a reality I can take to the grocery store.

 

Jim

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Jim:

 

These licensees choose to work either for a no-load outfit for a salary, or a loaded outfit for a commission. They are both paid to sell product. Nothing more and nothing less. So if you refer to the no-load rep as a "clerk", make sure that you know you are also talking to a "clerk" when the 403b annuity rep takes your order.

 

Joel

Joel,

 

My God are you naive. What reality do you dwell in Joel? It certainly isn't this one.

 

Jim

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The truth is that neither a series 6 or a series 7 license tests for portfolio management skills. They are very basic exams.

 

First and foremost, the skill necessary to be successful as a commission rep is sales ability. I have met many successful reps who know little or nothing about portfolio management. They memorize sales pitches and ask for orders. There are also reps who are well versed in portfolio management.

 

An investor needs to make sure he is dealing with a rep who is technically qualified to give good advice. Never rely solely on an NASD license.

 

Mark Fiuscher, CFA

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Mark,

 

Your point lends credence to the fact that the rep who is in the lunch room or the rep that is on the no-load telephone is not being paid to give investment advice but to move/sell product. That is all the Series 6-7 is designed to do. So if investment advice is what you want, you will not get it from a rep (no-load or load). In fact the rep is not allowed to give investment advice...you are on your own. So if you are on your own why pay a commission to ACQUIRE THE INVESTMENT? IT IS SIMPLY AN EMOTIONAL SECURITY BLANKET. Again, use no-load funds and hire a RIA for advice and portfolio management. IS THIS NOT WHAT THE PERS DO. YOU CAN DO THE SAME THING JUST ON MUCH SMALLER SCALE.

 

Peace,

Joel

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With apologies for repeating the same post, it's a question that goes to the heart of the matter:

 

Jim has said that he is paying 1.25% in M&E charges, and an additional 0.85% as a "management fee." Others are suggesting hiring an RIA to manage a portfolio of no-load funds for him. Clearly the RIA doesn't work for free, but the implication here is that (s)he would be substantially cheaper than 2.1% per year.

 

Can anyone throw out a ballpark figure as to what an RIA actually charges? Is it a percentage of assets under management, or a flat dollar fee? Either way, what are some common charges?

 

I checked the website of a CFP whose name has been mentioned on this site several times. An excerpt: "Generally, the retainer program is best for people who want ongoing financial planning and investment management and have investable assets in excess of $250,000." Presumably, his fee schedule would be onerous for a smaller investor. Is this more or less normal for RIAs? If so, where do teachers with smaller account balances (that's about 99.3% of us, by the way) turn for ongoing financial planning and investment management?

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Your return was the result of an actively managed account inside of an annuity wrapper. Now, unwrap the annuity and use the TIAA-CREF funds to actively manage your account in a similar fashion as you did over the last five years and see what the returns would have been. Only after doing the comparision can you boast that it paid to pay the commission and ME fee associated with the variable annuity. Please get back to us with your results.

 

Joel

Joel,

 

Since you seem so sure that TIAA would do better why don't YOU get back to US wqith the results.

 

Jim

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Joel said: Your return was the result of an actively managed account inside of an annuity wrapper. Now, unwrap the annuity and use the TIAA-CREF funds to actively manage your account in a similar fashion as you did over the last five years and see what the returns would have been. Only after doing the comparision can you boast that it paid to pay the commission and ME fee associated with the variable annuity. Please get back to us with your results.

 

Joel

 

Joel,

 

Since you seem so sure that TIAA would do better why don't YOU get back to US wqith the results.

 

Jim

==============================================

Jim: Please let us know where I asserted that TIAA- CREF would have done better. I made no such assertion. Please stop winging it! Additionally, HOW COULD I POSSIBLY DO THE ANALYSIS ABSENT YOUR CONFIRMATION SLIPS. I WOULD HAVE NO IDEA WHEN TO HYPOTHETICALLY BUY AND SELL THE APPROPRIATE CREF FUND. PLEASE GET WITH THE PROGRAM.

 

It is you and only you that has erroneously used CREF funds on a buy and hold basis to show that it paid to pay a 403(b) shark an extra 150 basis points for personal investment management. But when we try to educate you by telling you that you are not comparing like things you tell me to do the research. You got some nerve! But it is you and no one else that is attempting to show us that the annuity wrapper inside an actively managed account is superior to plain no-load funds. But you can only get it to fit if you compare your actively managed returns with a buy and hold.

 

It behooves you, not I, to do some independent research and use the CREF family in the same way your RIA used the funds available in your actively managed account. Afterall, it is your money, are you not curious to see how it compares?

 

Peace,

Joel

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Joel,

 

Since you seem so sure that TIAA would do better why don't YOU get back to US wqith the results.

 

Jim

==============================================

Jim: Please let us know where I asserted that TIAA- CREF would have done better. I made no such assertion. Please stop winging it! Additionally, HOW COULD I POSSIBLY DO THE ANALYSIS ABSENT YOUR CONFIRMATION SLIPS. I WOULD HAVE NO IDEA WHEN TO HYPOTHETICALLY BUY AND SELL THE APPROPRIATE CREF FUND. PLEASE GET WITH THE PROGRAM.

 

It is you and only you that has erroneously used CREF funds on a buy and hold basis to show that it paid to pay a 403(b) shark an extra 150 basis points for personal investment management. But when we try to educate you by telling you that you are not comparing like things you tell me to do the research. You got some nerve! But it is you and no one else that is attempting to show us that the annuity wrapper inside an actively managed account is superior to plain no-load funds. But you can only get it to fit if you compare your actively managed returns with a buy and hold.

 

It behooves you, not I, to do some independent research and use the CREF family in the same way your RIA used the funds available in your actively managed account. Afterall, it is your money, are you not curious to see how it compares?

 

Peace,

Joel

Joel,

 

You are truly the master of the bob and weave. Almost every single day you post on the glories of TIAA or Vanguard. Why even today you suggested that I 90-24 my VA that is earning me money into a lesser yielding account with TIAA/Vanguard. Now you attempt to disavow your allegiance. Shame on you Joel. You should have the strength to stand firm in support of your sinking ship.

 

"HOW COULD I POSSIBLY DO THE ANALYSIS ABSENT YOUR CONFIRMATION SLIPS."

 

What confirmation slips? I put $100,000 into what is called a Managed Asset Director account. I don't get any confirmation slips. I assume all the trading is done internally by the VA company.

 

"I WOULD HAVE NO IDEA WHEN TO HYPOTHETICALLY BUY AND SELL THE APPROPRIATE CREF FUND."

 

Joel, pick what ever TIAA funds you would like for the last 5 years and trade them as you see fit. Create your own hypothetical. I assume that TIAA makes software of some sort available to you so it should be easy for you to create a model portfolio. You are very quick to shout that someone or something is wrong, but very slow to back up your assertion.

 

Someone wrote me privately, (they are too intimidated by you to post to the board) and asked if you get a fee based on people from this site opening TIAA-Cref accounts. Do you?

 

"Afterall, it is your money, are you not curious to see how it compares?"

 

Joel, havn't you been paying attention. I know how it compares. I earned 7.55% during the last 5 years. TIAA/CREF earned less. You need to prove otherwise.

 

 

 

 

 

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Joel,

 

Here are 2 hypothetical conversations:

 

"Honey I have good news and bad news. The bad news is that over the last 5 years our retirement portfolio decreased by 2%. The good news is we only paid 0.40% in fees and because our account value was decreasing our actual costs were less each year."

 

OR

 

"Honey I good news and bad news. The bad news is that over the last 5 years we paid the insurance company that we have our retirement money with 2.1% in fees each year. The good news is that despite the fees we still averaged a return of 7.55%."

 

I don't know about you Joel but I'd much rather have conversation #2. How about you?

 

Jim

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If one had invested in Vanguard Energy Fund Investor Shares (VGENX) for the last 5 years, they would have seen an average annual return exceeding 13%. That fund has an ER of only 0.37%.

As to TIAA, doesn't really matter whether or not their funds do better than others. The big advantage to having them as a 403(b) provider is that you can do a 90-24 transfer with them and not worry about draconian surrender fees. In other words, if you only had TIAA at your school or hospital, you could freely take your money and move it into a custodial account like Vanguard's which could potentially give you a much greater return. Most other 403(b) providers would charge you 5 to 7 percent surrender fees.

 

Does this mean that investors should not be given the choice to invest their money into a 403(b) VA? Of course not. Some people want that security they think they are getting by having a 'professional' manage their money. Some, also, are just simply incapable of understanding basic principles of investing and need all the extra help they can get. And some just don't want to spend any of their precious time trying to understand investing.

 

Seems to me that most of the people who come to this site don't fit into those categories listed in the above paragraph. They do want to participate actively in investing. They want to learn more about it and find ways that will increase their investment returns. They don't believe that investing is such an arcane field of knowledge that only 'professionals' can understand it

 

I consider myself a neophyte in the field of investing. But I do believe strongly that no one knows for sure how well their future investments will do. But one does know ( or can find out) what a particular investment can cost. Given the choice of investing in two similar plans, it would be foolish to go for the one that is known to cost more.

 

Hal

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jphillips,

 

Both of your conversations are misleading and meaningless, not to mention downright ridiculous.

 

Of course people would rather have higher returns - but your conversation insinuates that the higher return was achieved solely because the money was in an annuity. Your premise is false and misleading and doesn't make an accurate comparison. Your conversation assumes only two choices are available, that is not the case. For every arguement you make for a high cost product I could make it for a low cost product. The problem with your logic is that it assumes that high fees lead to higher returns, it simply isn't true. Imagine how much more money the person could have had if they didn't pay the 2.1% in fees, but instead paid 1.1% in fees - every dollar goes in there pocket and they make a lot more money over time, about 30% more.

 

I am not saying advisors don't add value, some do, most don't. But your conversations have absolutely no bearing in reality and ignore every principle of investing. You are going to have to do a lot better job than that. Your converation also forces the wife (honey) to assume that you will always outperform, in reality your chances of outperformance are very small and particularly unlikely over the long term.

 

The real value an advisor adds is not in ridiculous attempts to beat the market (while failing most of the time), but in ensuring the client is properly diversified and in a portfolio that fits his or her goals. The value is in ensuring the client doesn't panic when the market drops and ensuring that they continue contributing even when they don't want to. The value is in ensuring they have proper insurance and wills/trusts.

 

Your value proposition is simply...."duh, I did better than TIAA last year." Good luck with that one, you won't last long and I feel very sorry for your clients.

 

You can ridicule Joel all you want, he may not be 100% correct, but he does make some very good points that you would do well to heed. Of course, that is if you have the time to get your head out of your .......

 

If I sound like a jerk, it is because I am trying very hard to be one - your responses have no place in the advisory world......of course, they do have a place in the product sales world.......the world most people should avoid.

 

Anyway, my two cents.....may be all its worth.

 

ScottyD

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Scottyd,

 

If you had read the entire thread you would have seen that it started out as the usual 403(b)wise refrain, "low fees good, high fees bad, real world returns don't matter because if you had done the same with no load funds you would have done better." And if my Aunt had balls she'd be my Uncle.

 

"Imagine how much more money the person could have had if they didn't pay the 2.1% in fees, but instead paid 1.1% in fees - every dollar goes in there pocket and they make a lot more money over time, about 30% more." Is that what you charge 1.1%? And you can give me 100% no loads with no expense fees. My total cost is 1.1%? And replicate the same returns as the managed account?

 

"I am not saying advisors don't add value, some do, most don't."

 

Do you? You are an RIA. If I had given you $100,000 to manage 5 years ago what would my returns be today? Or don't you worry about returns since I have to pay you a fee regardless? Would you be willing to take a client on based on your fee being reduced in direct proportion to any losses I may have?

 

"Your value proposition is simply...."duh, I did better than TIAA last year."

 

This was in response to the slavish devotion Joel shows to TIAA.

 

"Good luck with that one, you won't last long and I feel very sorry for your clients."

 

Seeing as I don't have clients you really have noone to feel sorry for. But if I did have clients I would not be shy about letting others know if I was making them money. Why so shy Scotty?

 

You guys all love to talk theories. Guess what Scotty, I care about cold hard cash not theory. My point which you and Joel so artfully continue to dodge is that the investor who shops based on fees may actually be losing real money.

 

I see on your website that you charge $125 per hr. to teachers for financial planning. For your average teacher what does that translate into? How many hours can I expect you to spend? 10, 15, 20? And are these hours that you yourself are putting in or am I being billed $125 an hour to have your assistant plug numbers into a computer? Give me a ball park. If I hire you how much should I expect it to cost me? Do you charge a management fee on top of the $125 per hr. as a % of my total assets under management with you? What is that fee?

 

BTW, I don't really expect you to answer these questions. You and Joel are extremely evasive when it comes to the nuts & bolts questions.

 

Jim

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Jphilips,

 

Here goes....

 

The 1.1% was an example, the extra 1% in fees didn't help performance - it didn't add to performance. And yes, in many cases my total fee including the costs of the underlying funds is under at or below 1%, on smaller accounts a bit over. If the account isn't bigger enough then I work strictly on an hourly basis - thus the clients fees are usually less than .40% (plus the time they spend with me). By the way - this is not an advertisement as that is not what this board serves - but since you have accused me of not being forthright.....

 

By the way - when have I ever been elusive on anything that I have done? Put up or shut up - I have a full website that discloses everything about me, plus you can look me up through the SEC - how much more of an open book can I get.............

 

Your premise, again is ridiuculos, but yes I do add value, in all the ways suggested and my clients have done more than allright during the past five years - that is the value of diversification. A well diverisifed portfolio held up great and has had great returns over the past five years. Of course a diversified portfolio is more than just holding the S & P 500 (which still hasn't fully recovered).

 

No I would not take on a client based on my fee being reduced based on performace, partly because I believe that that scheme is not legal as an RIA, except under certain circumstances and secondly because I do not consider my value based solely on my money management skills (superiour as they may be), if all you got is "money management" than you are a commodity - I provide much more for my clients.

 

Actually I charge $150 per hour to teachers, must have missed a spot on my site, thanks for the heads up. There is no average teacher - some need more help than others. Once the initial work is done their isn't a whole lot of additional time needed. Many of my teacher clients check in with me twice a year and when a major event happens - typical meetings are an hour. If they have a lot of money or a lot of other needs than they are usually on a retainer.

 

You accuse me of being evasive - you have no right to do so. What proof do you have of me ever being evasive...I have always been upfront and honest about everything. If anything I play down my role as an advisor because this site is not about me, it is about helping other people. Your words are false and inaccurate and you cannot back them up with proof. When have I been evasive Jim? Look me up, ask for my Form ADV, post it if you must - my life is an open book, so much so that I get harassed every so often by idiots in the insurance industry - they call my house, call my office, send viruses, and lie about me - who knows you may even be one of them, but I will give you the benefit of the doubt. The insurance industry doesn't like being exposed, they don't like the truth - that is why they don't like me or the 403bwise site. Evasive......I think not. Get your facts straight.

 

ScottyD

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Jphilips,

 

but since you have accused me of not being forthright.....

 

By the way - when have I ever been elusive on anything that I have done?

 

Your premise, again is ridiuculos, but yes I do add value, in all the ways suggested and my clients have done more than allright during the past five years - that is the value of diversification.

Scottyd,

 

Thanks for the reply. Yes you are more forthright than most. You at least post yourv fees on your website. I have gone through 50 of the list of 335 RIA's I've found on Google and none of them actually list their fees. Very disappointing.

 

However writing that my "clients have done allright" is not exactly being upfront. What is allright? I asked what the average returns were that your clients earned and your response is that your clients did allright.

 

My premise is not ridiculous. If I am paying an expert for expert advice shouldn't I expect to get value for my money?

 

Jim

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