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Guest Sierra
Sierra,

I know this situation that DRDaddy is talking about and you know nothing about what any of the vendors bid. I know what one firm bid and you should not talk about something you no nothing about. This is typical of the the idle chatter on this board. Act like an expert when you know nothing.

TR: I only know what was posted by drdaddy. If he did not furnish all the information then how could I be faulted for giving the replies that I gave?

 

Joel

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Guest TR1982

That's the whole problem with your approach. You shoot first and ask questions later. You assume the worst about every situation without first finding out the facts and circumstances. I don't assume every educator is a bum and a crook and trying to screw my kids. I find out what's going on on all sides and then make a judgement. This is what reasonable adults do.

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Guest TR1982

One of the interesting things often discussed here is the difference in fees in these programs. A lot of the regulars here point out that if you want to invest yourself you reduce your costs. No argument there. What I think is not discussed is that the indexing approach does not always result in better performance. While it does result in lower investment management costs, there is plenty of empirical data to suggest that indexing has severe limitations in building a diversified portfolio that results in better performance with less risk.

 

For example:

 

If you look at CREF's Stock and Growth funds over the last decade, they clearly have had very low expense ratios. These funds have consistently taken an "indexing" type approach. Yet in spite of this, their equity funds have consistently trailed other fund complexes. Other annuity firms that are so roundly criticized here, have often had better results even with higher expenses. I raise this point only because many people on this site seem to blindly believe that indexing at a low cost is the "best" way to invest. That debate has raged in the investment community for 30 years and there is plenty of evidence and statistics to support both points of view.

 

I raise the issue because most investors do not understand the need for strategic and tactical allocations that will result in better performance with less risk. The simple truth that study after study confirms is that professionally managed portfolios consistently outperform non professionally managed portfolios over time.

 

 

 

 

 

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Guest Sierra
Posted on May 2 2005, 07:43 AM

--------------------------------------------------------------------------------

QUOTE (TR1982 @ May 1 2005, 04:45 PM)

Sierra,

I know this situation that DRDaddy is talking about and you know nothing about what any of the vendors bid. I know what one firm bid and you should not talk about something you no nothing about. This is typical of the the idle chatter on this board. Act like an expert when you know nothing.

 

TR: I only know what was posted by drdaddy. If he did not furnish all the information then how could I be faulted for giving the replies that I gave?

 

 

TR: Are you going to share the particulars with us?

 

 

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Guest TR1982

I am not aware that the decision has been made in this case, therefore I don't think it would be appropriate to comment on the specifics of a particular bid. Suffice it to say, I think it will probably be a single vendor and it will be a better product than what was available before.

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Guest Sierra

Thank you TR,

 

Your civility is refreshing.

 

Peace and hope,

Joel L. Frank

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Guest Sierra
Sierra,

Hate to break it to you, you're wrong again! There is no such thing as M&E on a fixed account. Why don't you go out and sit for your Series 6 or 7 exam as well as the life and health exam in your state? Then maybe you might be able to speak with some amount of authority on these subjects.

TR,

 

Fixed account holders just like sub-account holders pay a Mortality and Expenes fee. Having said that, it might be a little less in the case of the fixed account because there is no need in a fixed account to offer a guaranteed return of premium death benefit. But the fee is being charged because the insurer guarantees future annuity payout rates that were in effect at the time the contribution (premium) payment was made.

 

The Mortality and Expense fee for the fixed account is factored into the declared interest rate and as such is implicit rather than explicit as it is with the sub- accounts in a VA.

 

Peace and Hope,

Joel

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Guest TR1982

Sierra,

Now you venture where you ain't prepared. M&E is a unique feature of variable annuities. It is a fee structure that the insurance company uses to pay for certain expenses and insure against certain types of risks in the separate accounts. (If you don't believe me go look at a prospectus for a VA. It will be plain as day)

 

Insurance companies make money on fixed accounts the same way that all financial institutions make money on fixed instruments: yield spread. They are able to invest billions of dollars into different kinds of fixed income debt instruments and use the difference between what they pay and what they earn as a profit margin. Banks, money management firms, etc. all do it. It's a very sophisticated market and useful for consumers since they are not able to bring economies of scale to their own savings.

 

Now, don't you feel better educated?

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This whole discussion is all theory and hypothetical. In the real 403(b) world there are agents and reps worth the difference in cost of their products and what the educator can do on their own. What have you ever bought that you paid the lowest price for and enjoyed the best product? Steak cost more than hamburger. Do you really want a hamburger that can be sold at a profit for 59 cents?

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Guest Sierra

<!--QuoteBegin--TR1982+May 3 2005, 04:00 PM-->

QUOTE (TR1982 @ May 3 2005, 04:00 PM)
<!--QuoteEBegin--> Sierra,

Now you venture where you ain't prepared. M&E is a unique feature of variable annuities. It is a fee structure that the insurance company uses to pay for certain expenses and insure against certain types of risks in the separate accounts. (If you don't believe me go look at a prospectus for a VA. It will be plain as day)

 

Insurance companies make money on fixed accounts the same way that all financial institutions make money on fixed instruments: yield spread. They are able to invest billions of dollars into different kinds of fixed income debt instruments and use the difference between what they pay and what they earn as a profit margin. Banks, money management firms, etc. all do it. It's a very sophisticated market and useful for consumers since they are not able to bring economies of scale to their own savings.

 

Now, don't you feel better educated? <!--QuoteEnd-->

<!--QuoteEEnd-->

TR:

 

Please re read my post.

 

"Fixed account holders just like sub-account holders pay a Mortality and Expenes fee. Having said that, it might be a little less in the case of the fixed account because there is no need in a fixed account to offer a guaranteed return of premium death benefit. But the fee is being charged because the insurer guarantees future annuity payout rates that were in effect at the time the contribution (premium) payment was made."

 

"The Mortality and Expense fee for the fixed account is factored into the declared interest rate and as such is implicit rather than explicit as it is with the sub- accounts in a VA."

 

You continue to erroneously assert that the ME fee is only paid by the sub account holders of a VA and not the fixed account holder. I implore you to check this out with an actuary of your own choosing.

 

Peace and hope,

Joel

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Guest TR1982

Sierra,

Please show it to me in any prospectus or contract of a fixed or variable annuity (including TIAA-CREF) and I'll believe you. Until then, you continue to assert things that have no basis in fact.

Maybe this M&E you refer to is concocted in area 51.

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All,

 

Fixed accounts do not usually have M & E charges, though that doesn't mean that some fixed accounts in the past didn't charge M & E, but it would be very difficult to find one now. The fixed account is simply the current return being offered for some stated time period (or some variation depending on the firm). Occasionally a fixed account can be a good place to hide if the variable portion is expensive and the fixed has a decent rate of return (rare, but worth a look).

 

As for the comment about index funds made earlier - that you can't get diversified or that there performance hasn't been good compared to tactical or investment managers - I challenge you to back that up with facts. I use index funds almost exclusively and the returns have been great these last five years and I am able to build a diversified portfolio, in fact a diversified portfolio of index funds most likely beat most of the great majority of tactical asset allocation strategies over the past five years and has the best possibility to do so in the future. The real problem is that a diversified portfolio of index funds is difficult to find in the 403b world, many 403b's offer an S & P 500 fund - this is not a diversified portfolio. In the 403(b) world I will many times use active managers because they are the only way to get truly diversified.

 

This may sound shocking to some who know me, but I would rather have a diversified portfolio of active managers (caveat: low fees, low turnover) than a single S & P 500 index fund. Even though it is entirely possible the active managers will only meet the S & P 500 return, they will do so with less fluctuation if I can enough asset classes represented.......less fluctutation means a lot to people. I am a passive guy, but I also believe in the value of diversification......so whats available to people makes a big difference.

 

Another comment: Somebody told Joel to go get his series 6, 7 and life license so that he would be qualified to talk on the subject - I wanted to thank that person for making me laugh, it truly made my day to know that somebody out there believes that getting a series 6 or 7 license makes one competent or knowledgeable about the subject at hand....it was hilarious. I've taken all the exams and they are a waste, they don't qualify you for anything, they don't teach anything about expenses and their effects, modern portfolio theory, diversification, how to choose a money manager (if you must), or anything about personal financial planning. They teach you the rules and regs about how the products you sell, nothing more. I got an 89% on the Series 7 and ended up knowing a lot of stock and bond stuff - big deal. I now have my CFP and as good as that is it still isn't good enough. I almost have my Masters in Financial Planning and that is good knowledge as well........but the fact is I learned a lot more by reading Bernstein, Siegel, Swedroe, Bogle, Arnott, Ellis, & the other Bernstein (Peter) than any of the other stuff.

 

Thanks to whomever made me laugh, I really needed it!

 

 

ScottyD

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Guest TR1982
All,

 

Fixed accounts do not usually have M & E charges, though that doesn't mean that some fixed accounts in the past didn't charge M & E, but it would be very difficult to find one now. The fixed account is simply the current return being offered for some stated time period (or some variation depending on the firm). Occasionally a fixed account can be a good place to hide if the variable portion is expensive and the fixed has a decent rate of return (rare, but worth a look).

 

 

ScottyD

This is my point about Sierra. You essentially make my point that fixed accounts don't have M&E. He speaks authoritatively on this subject and yet he is WRONG. He is wrong because he is not trained and educated in these products. He is free to say whatever he wants but that doesn't make it accurate.

 

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