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Equitable EQUI-VEST® Series 201 Variable Annuity Review

 

 

How will this annuity product review help you?

If you are an employee of a K-12 school district and you contribute to a 403 (b) retirement account, there is a good chance you may be invested in this annuity product or a similar annuity product (link)

You may have been told that contributing to a 403(b)-plan it is a good way to fill the gap between your current salary and your future pension income.

Many of you probably signed up with a sales rep or agent that came to visit your school. Maybe they bought you lunch in the teacher’s lounge and gave a short presentation about the basics of the 403(b) plan. You listened and absorbed as much as you could, but there is a chance that some of the facts were not fully understood during the sales process.

Equitable Life pays its agents to sell the Equi-Vest variable annuity to school district employees participating in 403(b) retirement accounts. The agents are incentivized to promote this annuity as a way to invest in the stock and bond markets while also receiving a guaranteed death benefit and the option for a personal income benefit through an additional rider. However, it is important to note that these benefits come at a cost and may negatively impact the potential returns on the investment.

This review will help shine a light on some of the details that you might not have been told about.

Equitable Life Insurance Company

The EQUI-VEST® 201 series for 403(b) plans are deferred annuity contracts that are designed for school district employees.

Equitable Life Insurance Company is the #1 provider of 403(b) retirement plans for public school employees, serving more than 1.4 million participants according to a recent SEC settlement.

Equitable is a New York company with its principal place of business in New York, New York. It is an insurance company that enters into variable annuity contracts with investors. Prior to June 2020, Equitable was named AXA Equitable Life Insurance Company

Investment Type:   Variable Annuity

Investment Options:  Equitable EQUI-VEST variable annuity offers a wide range of investment options inside this contract. Investors have access to over 80  investment fund options including numerous equity and fixed-income portfolios as well as various asset allocation and target date portfolios.

Summary of Fees

If you are not familiar with variable annuity products and how they work, fees can be confusing to decipher. With a variable annuity, in order to get the investment selection combined with the income options, you pay two types of fees:

  • Fees for the insurance benefits.
  • Fees associated with the investment funds used in the contract

This is something you want to look very closely at if you are still working and making contributions to your retirement plan. For someone trying to save for retirement, fees are an important consideration.  Let’s examine a detailed list of all fees and the benefits they provide

Administration Charge:

This fee is used to cover the cost of administering the annuity. This fee will be the lower of either 2% or $30 of your account value.  They will not charge you the $30 fee if your account value is $25,000 or more. This fee is standard for annuity contracts of this nature.

Mortality & Expense charge: 

The Mortality & Expense charge also referred to as the M&E expense fee, is a fee associated with the Equitable Variable Annuity. You are charged an annual fee of 0.95%, with an additional 0.25% added to the total, bringing it to 1.20%. This fee is deducted from your account each year for the duration of the investment regardless of the performance of your investments. It is important to keep in mind that this fee can have a significant impact on your overall returns and should be taken into consideration when evaluating the costs and potential returns of the investment. Although 1.20% may not seem like a significant amount, it can have a substantial effect on the value of your portfolio when you retire.

Investment Fund Fees:

The underlying portfolio operating expenses of the investment funds in the Equitable EQUI-VEST variable annuity are ongoing costs associated with the investments in the annuity. The internal expenses of the sub-accounts range from 0.56% to 1.47%, with an average of 1.03%. These fees can affect the value of your portfolio over time and should be carefully reviewed in the prospectus before making an investment decision.

Personal Income Benefit Charge: 

The Equitable EQUI-VEST® Series 201 variable annuity includes an optional fee called the Personal Income Benefit charge. This charge is used to cover the cost of providing an income guarantee, known as the “Personal Income Benefit.” This fee is assessed at a rate of 1% annually, based on the value of the Personal Income Benefit account. In my opinion, for younger investors in their 40s or 50s, paying the additional 1% for an income guarantee may not be a cost-effective decision, especially since the fee will be charged for the duration of the policy.

Withdrawal Charges: 

The Equitable Equi-Vest variable annuity also has a withdrawal charge, also known as a surrender fee, which is applied to withdrawals made before a certain date. This fee is typically a penalty of 5% on the amount withdrawn beyond the free withdrawal amount. It is important to note that this fee restarts every time a contribution is made. According to the annuity prospectus, the fee is calculated as 5% of any contribution withdrawn within the current and previous five contract years, as of the date of the withdrawal.

FEATURES & BENEFITS

The Guaranteed Death Benefit Feature

The EQUITABLE Equi-Vest variable annuity offers a Guaranteed Death Benefit Feature. This means that even if the market goes down and your contract loses money, your beneficiaries will receive your total contributions as a death benefit. However, it’s important to keep in mind that this benefit only applies if you pass away, and it comes at a cost through the Mortality and Expense (M&E) fee.

The death benefit is often presented as a way to guarantee that even if the market goes down and your contract loses money, a death benefit would still be paid to your beneficiaries upon your death. In this case, the EQUITABLE annuity contract’s death benefit would pay out your total contributions to your beneficiary even if your account takes a terrible market hit.

Here are 3 things to keep in mind:

  • First, the death benefit is only pays out if you die. It does not guarantee that your account will not lose money while you are alive.
  • Second, this benefit does not come for free. You are paying for it with the M&E fee we talked about earlier. Death Benefit article.

Income Rider Benefits: Personal Income Benefit

The Personal Income BenefitSM is a “pension-like” plan benefit, available through the Retirement Gateway® group annuity, which the company says provides guaranteed withdrawal payments and helps employees be more confident about retirement. The Personal Income Benefit investment option is available to plan participants between the ages of 45 and 85.

Annual fee: 1% of the participant’s Personal Income Benefit account value.

Features: The amount of your income withdrawals under this feature will never decrease—unless of course, you make early or excessive withdrawals as specified by the contract. 

Benefits: Once your Personal Income Benefit withdrawals start, they continue for as long as you (or you and your spouse) live, even if your Personal Income Benefit account value drops to zero

These are pretty standard features that typically come with most income riders sold on annuities, and you can get them for less cost. What’s different about this annuity is that you remain invested in the stock market even while you are taking income withdrawals, which is why you have those additional fees. Does that mean you get to earn higher returns?

The one rider I analyzed had a 1% fee and it locked in returns at the high-water mark. Some annuities that offer this fee add a guaranteed income base growth rate that typically range from 4.5-5.5% on top of the locked-in watermark. This annuity does not offer that. It locks in your account value at the high-water mark, which is a crediting method based on the highest level attained by the reference index over a given period of time. Says EQUITABLE:

“The percentage varies depending on the type of contribution (e.g., payroll, rollover, or direct transfer) and the date of the contribution or transfer. The percentage can be as high as 7% and never less than 2.5%.”

For the investor who is age 65 and near the time of retirement, this might give you a layer of protection, but keep in mind that with this type of annuity, you’ll be paying over 1.0% annually just to get this benefit, and these fees negatively impact your return potential.

And speaking of return potential, selecting the income benefit rider will restrict your investment options. Once a contract owner selects a Personal Income BenefitSM, they will be limited to one of five allocation models

HOW IS EQUIVEST PAYING THE AGENT?

Equitable pays its agents to sell this variable annuity. The compensation structure is an important consideration when deciding to invest in a variable annuity offered by Equitable. Most agents are not paid an annual salary. Agents typically receive an upfront commission when selling this annuity, and ongoing commissions based on the contributions made by the investor. This provides a steady source of income for the broker.

Conclusions on the Equitable Equi-Vest Variable Annuity

In summary, when considering an investment in the Equitable Equi-Vest Variable Annuity, it’s important to keep in mind that as a participant in a 403(b) account, you already have access to tax-deferred growth. Therefore, purchasing this annuity specifically for the purpose of tax deferral would not provide additional benefits. Additionally, it’s important to carefully evaluate the costs associated with the annuity, including the M&E fee and any additional fees for investment options or income riders, as they can negatively impact your potential returns over time. Ultimately, it’s crucial to consider the annuity’s role in your overall retirement plan and whether it aligns with your goals.

Variable annuities were designed to offer “Tax-Deferred Growth” to investors. However, purchasing a variable annuity within a 403(b) plan does not provide any additional tax benefits as the plan already has tax-deferred growth. Equitable’s website states :

“An annuity contract that is purchased to fund an employer-sponsored retirement savings plan should be done so for the annuity’s features and benefits other than tax deferral. For such cases, tax deferral is not an additional benefit for the annuity.”

It is important to thoroughly understand the costs associated with the features and benefits of the annuity contract before making a decision. If you believe a variable annuity is the right investment choice for your retirement, reach out to Equitable via their website. The company will be happy to connect you with a representative agent.

As an individual Investor, I would be incredibly careful dealing with a company that has settled a lawsuit for misleading their investors in this product.

You may want to read this recent SEC Press Release in its entirety before investing in the annuity.

Equitable Financial To Pay $50 Million Penalty To Settle SEC Charges That It Provided Misleading Account Statements to Investors.

Thank you.

Thanks for reading this review. If you have any questions or would like to have your retirement portfolio reviewed, don’t hesitate to reach out and schedule your no-obligation consultation.

Securities are offered through LPL Financial, Member FINRA/SIPC.  Investment advice is offered through Private Advisor Group, a registered investment advisor.  Private Advisor Group and Warwick Valley Financial Advisors are separate entities from LPL Financial.

Investors should consider the investment objectives, risks, charges, and expenses of the variable annuity contract and sub-accounts carefully before investing. The prospectus and, if available, the summary prospectus contain this and other important information about the variable annuity contract and sub-accounts. You can obtain contract and sub-account prospectuses and summary prospectuses from your financial representative or by clicking on the prospectus link within this article. Read prospectuses carefully before investing.

 

 

Minisink Valley CSD 403(b) Plan Review

Before You Sign On The Dotted Line, Do Your Homework

A 403(b) plan can be an excellent way to save money for retirement. It can serve as a supplement to your NYSTRS pension plan. But choosing the right 403(b) retirement plan can be overwhelming especially if you work in a school district.

In this article, we aim to provide a comprehensive overview of Minisink Valley CSD’s 403(b) Plan & Provider options. If necessary, please read our 403b Basics article.

Let’s get started!

Minisink Valley 403b Plan Review

Minisink Valley is part of OMNI’s Preferred Provider Program (P3) which allows you to choose your 403(b) provider from a list of pre-selected Providers / Investment Companies.

Minisink Valley currently has 12 403b Providers listed at OMNI, each with their own account options, pricing structures, fees and investment products for you to sift through.

Generally, Providers offer access to their investment products in three different ways:

  1. Via In-House Professionals:

    The investment products offered by these Providers are accessed through a financial professional. Typically to access an annuity or mutual fund from these Providers you would work with a financial professional that is an employee of the Provider. Most of these companies only offer their proprietary investment products.

  2. Via Independent financial professionals:

    The investment products offered by these Providers are accessed through a financial professional like K-12 Financial Advisors. These Providers typically do not sell through in-house employees but rely on independent financial professionals to market their annuities and/or mutual fund products. Independent financial professionals often have relationships and experience with multiple, but not all, Providers.

  3. Direct to Plan Participants (DIY):

    The investment products offered by these Providers generally are accessed directly by plan participants. Typically, participants work directly with these Providers and do not work through a financial professional.

Below, are 12 Minisink Valley 403b Providers with links to provider details. We have tried to provide more informative links about each Provider than are currently available on OMNI’s 403(b) Plan Detail page.

Grandfathered Funds

The following Investment Providers are no longer authorized to establish new accounts for this plan. Employees currently contributing to one of these Investment Providers may continue their contributions without interruption.

AIG/American General **

Fidelity Management Trust **

Putnam Investments **

So how do you choose a 403(b) Provider that’s right for you?

Comparing 12 Minisink Valley 403b Providers, analyzing the pricing structures, and finding any hidden fees is no small task. But it is essential to make an informed decision because your selection WILL affect your retirement account in the future.

Our 5-step Teachers Shopping Guide is a user-friendly guide that covers many of these topics.

We can help.

K-12 Financial Advisors aims to help teachers make the most of their money and utilize their finances to live exceptional lives. We’d love to hear from you and provide more information on how we can help with your financial planning whether it be retirement, insurance, student loans, or other important financial matters.

If you’re suffering from the paradox of too much choice, or if you have questions about your plan and the fees you might be paying, please drop us a note.

If you have recently retired or are terminating employment with the Minisink Valley Central School District, then you have some important decisions to make about your investment allocations. Contact us today to get started on your complimentary portfolio review.

I am an independent advisor committed to the fiduciary standard, and I don’t earn commissions from the recommendations that I make to clients.

Our firm has agreements with Orion Portfolio Services & Aspire Financial who are available on the Minisink Valley 403b Omni Provider list and I offer prospective clients a complimentary portfolio review. This is where we look over your plan, discuss your needs, and identify the investments that are the right fit for you.

Get in Touch Today!

Investing in mutual funds and variable annuities involves risk, including possible loss of principal.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Warwick Valley Financial Advisors and LPL Financial are not affiliated with or endorsed by the Minisink Valley CSD.

An Independent Review of the Investment Provider Xchange (IPX) 403(b) Platform

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Dear Reader,

If you are like many school district employees, there is a good chance you are using a 403(b) plan as a supplement to your pension to build a healthier retirement.  Many of you probably signed up with a sales rep or agent that came to visit your school offering you their proprietary investment products. Perhaps they bought you lunch in the teacher’s lounge and gave a short presentation about the 403(b) basics. You listened and absorbed as much as you could, but there is a chance that all your other provider options were not fully presented to you.

Many teachers and school district employees are making uninformed investment decisions when it comes to selecting a 403b provider. One of the main reasons most are making poor choices is because they are confused by all the available provider choices. If you work in a school district there is a good chance you have what is called “a multiple provider menu” of companies that offer you different types of product choices for you to choose from. The choices of investments and the fees you will have to pay to vary greatly from provider to provider.

This is a detailed review of the Investment Provider Xchange (IPX) platform, a lesser-known 403(b) retirement plan provider.  IPX does not employ or compensate a sales staff to go into school districts and solicit participants. IPX mainly derives new business by either a participant contacting them directly or through independent investment advisors, so many school district employees probably have never had a chance to learn about the benefits of using the IPX 403b platform.

About this Review

My goal is to make my review of this company platform as impartial and objective as possible. The review will cover the following information on IPX 403(b) Platform:

  1. Platform Overview

  2. Features & Benefits

  3. Investment Options

  4. Fees & Charges

  5. Conclusions/Opinion

IPX 403(b) Plan Review

1. Platform Overview

The Investment Provider Xchange (IPX) is a custodial platform providing recordkeeping and administration services for 403(b) plans and other types of qualified retirement plans. The IPX platform provides employers and their participant’s access to multiple investment products on a unified platform.

According to Plan Sponsor Magazine’s 2019 403(b) Buyer’s Guide, IPX is now ranked as one of the top 10 403(b) providers in the K-12 market by plan count. The 403bcompare.com website ranks the IPX -Vanguard fund platform as one of the lowest-cost products that you will find anywhere in the 403(b) market.

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2. Benefits & Features of using IPX 403(b) Platform

IPX allows individuals as well as advisors the ability to access mutual funds, ETFs, and annuity products on one unified platform. IPX platform is one of few that allow participants to manage their own account without the help of a financial advisor. They have easy to use tools that allow clients to self-manage the direction of their retirement investments, change contributions, make exchanges between investment options, and rebalance accounts are all readily available in the IPX portal.  They have a robust web portal with easy online account opening and a call center support line for participants and advisors. IPX provides the tools for Complete online management of retirement accounts.

 Some of the other benefits of the IPX 403 (b) investment platform:

Self-Directed option

IPX provides clients the option to set up and manage their own accounts. They provide an online educational library and resources that will help guide individual clients through the process.

Advisor Directed option

IPX can also facilitate clients working with a Financial Advisor, whether it be an advisor the client is already working with or if they could provide you with a list of advisors that work with clients in your area.

Contribution Source Types:
The IPX platform supports all allowable contribution sources (Pretax, Roth, Rollover, Employer)

Roth 403(b) option is also available on this platform.

Investment Elections/Realignments:
Within your online account IPX provides you with tools so you can manage the direction of your investments including elections for ongoing contributions, exchanges between investment options, realignment of current investment allocations and rebalance of the account.

Automatic Rebalancing:
Your account has an Automatic Rebalancing program that allows you to periodically realign (or “rebalance”) your portfolio to bring your allocations in line with your current asset allocation strategy. This program is offered at no additional cost.

Performance Reporting

I cannot tell you the number of times I have sat down with a school district employee that didn’t know how their investments were performing. They stated that did not receive performance statements or have access to any performance reporting tools from their current 403b provider.

On IPX’s portal provides performance reporting software at no additional charge. You can calculate your investment performance on multiple timeframes and compare rate of return of your portfolio vs. multiple benchmarks. Clients can choose a custom start and end date to see their account performance over time.

Statements & Activity:
Clients have access to online account statements on demand for reviewing account balances and activity. In addition, IPX clients will automatically receive a quarterly statement by mail.

Loans & Distributions:
You may request loans and distributions online from your account based  if these are allowable in your plan provisions. The system can generate customized, e-signature ready PDF documents for processing.

3. Investment Options

What is unique to the IPX platform, is that they provide multiple investment product options on a single platform. The IPX platform is what is referred to in the industry as an Open Architecture Plan.  IPX provides Individual participants as well as their advisors access to multi investment products including:

  • Mutual funds

  • Exchange traded funds (ETF)

  • Stable value funds

  • Fixed guaranteed annuity

  • Variable annuities

  • Professionally Managed Portfolios

IPX is now a member of Omni’s Preferred Provider program (https://www.omni403b.com/P3/Employers) and provides school district employees access to Vanguard and Fidelity investment options again at an extremely competitive fee structure.

IPX’s Mutual Fund Platform

Two of the most popular IPX product platforms are the Vanguard & Fidelity product offerings. These IPX mutual fund platforms provide clients with access to an expansive list of mutual funds from these investment companies.

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IPX –Vanguard:

Vanguard is widely recognized as a leader in low-cost mutual fund investing. The IPX Vanguard platform provides school district employees access to a full spectrum of low-cost Vanguard mutual fund investments. The 403bcompare.com website ranks the IPX -Vanguard fund platform as one of the lowest-cost products that you will find anywhere in the 403(b) market. Having access to an expansive list of Vanguard’s Admiral share class funds is what truly sets IPX apart from the competition.

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  • Account Maintenance Fee: $86 annually

  • Custodial fee: None. IPX waives its custodial fee on this product.

  • Surrender fees: None

  • Mutual Fund Expenses: range from 0.04% to 0.45%

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IPX –Fidelity Investments:

Fidelity is also widely known as a leader in low-cost mutual fund investing.  IPX provides over 140 Fidelity Mutual Funds. These funds span the investment spectrum from international equities to domestic money market funds. The mutual fund expenses are higher on average on this platform than the Vanguard offering, mainly because there are more actively managed mutual fund available on Fidelity’s list of funds. Vanguard is known more for their passive indexed funds which come at a lower cost.

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  • Account Maintenance Fee:  $50 annually

  • Custodial fee:  None IPX waives their custodial fee for using this platform.

  • Surrender fees: None

  • Mutual Fund Expenses: range from 0.04% to 0.45%

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IPX -Fund Portal:

IPX is one of the few companies that offers an open architecture platform. The centerpiece of the IPX’s offerings is the Open Architecture Plus system – an open investment trading platform that allows access to hundreds of no-load, no-transaction-fee mutual funds on their 403(b) platform.  Participants can customize the 403(b) Platform to construct an investment portfolio based on their goals or risk tolerance.  IPX is open to advisors or participant’s requests to add (or delete) funds to your account based on availability at the 403(b) custodians.

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  • Account Administration Fee:    $50 annually

  • Custodial Fee:  0.20% of product account value (deducted .05% per Quarter)

  • Mutual Fund Expense ratios range from 0.04% to 1.28%

    Possible Advisor-Directed Account fee:

    • Advisor Fee: This is negotiated between you & your advisor. (typically range from 0.5%-1.0% of account value annually. The fee is charged quarterly based on average daily balance.

    IPX Mutual Fund Platform has:

  • No minimum investment amounts.

  • No front-end mutual fund charges

  • No surrender fees

  • No transaction costs

IPX’s Fixed Annuity Option:

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The Standard Fixed Annuity Option*

IPX partnered with The Standard insurance company this product is a fixed annuity that pays a highly competitive interest rate. This fixed annuity offers a competitive interest rate for investors looking to put a portion of their retirement funds in a stable fixed interest account.

There are no transfer restrictions to move in and out of this product on the IPX platform. There are also no surrender charges to redeem this product.

·         The Current Interest Rate:  2.55%.

·         Minimum crediting rate: 1.0%

4. Fees And Charges

All 403(b) providers charge fees for their products. The amount of fees varies greatly depending on which 403(b) product you choose. It is important to know the fees you are paying because a slight increase in fees can substantially reduce the growth in your account which will reduce your income in retirement.

When working with IPX or other 403(b) custodial providers you will encounter fees and investment-related costs that you will have to pay from your account even though most of these fees may not be transparent to participants.  These fees come in two forms: direct fees and indirect fees.

If you are totally confused, let me try to explain.

Direct fees are the fees charged for access to the company’s retirement plan platform or fees for various services, these types of fees are normally visible to the plan participants and would generally be visible online or on your account statements.

AS an example, IPX charges service fees for processing 403(b) loans & distributions.

  • IPX Loan Origination Fee: $100 per transaction

  • IPX Distribution Fee:        $50 per transaction

  • IPX Custodial Administration Fee:  0.20% of product account value

Indirect fees: These are the fees your being charged by the investment product providers.  These fees are often overlooked by investors because are not normally listed on your account statement and often take a little investigating to find.  These types of fees are unavoidable because all investment products have costs. You will encounter this fee on all the IPX’s products you choose to invest in.

The most common fees that you will encounter on the IPX platform are Mutual Fund Operating Expense fees. This is an ongoing fee that is charged for the management of the mutual funds you select. Mutual fund fees on IPX’s Platform can range from as low as 0.04% to as high as 2.00% annually on the dollar value of you have invested in various mutual fund investments that are selected.

So, the total fees that participants pay may differ depending on which mutual funds are selected in their retirement account.

5. Conclusion

IPX is a company that offers one of the most diverse investment product platforms in the 403b marketplace. IPX’s platform are invested in mutual fund products.

They are one of the few investment providers that allow 403b plan participants to manage their own accounts and also let you work with an advisor of your choosing.  IPX gives you access to dozens of different families of mutual funds. If you like the current mutual funds is a good chance that you can invest in the same funds that you’re currently invested in at another 403b company, possibly at a lower cost.

Being low cost does not mean that you miss out on any features and benefits. IPX’s Performance Reporting and other easy to use account management tools are some of the best I have seen in the industry.

 Whatever your investment philosophy, passive index, active managers, or investing to socially responsible investing, IPX provides mutual funds that could potentially fit your all your needs.

If you don’t currently use the  IPX  platform or another open architecture platform now may be a good time to take a look and evaluate these types of companies to see if they would be a good fit for your long-term goals.  If you are interested in a more detailed analysis specific to your situation, feel free to contact me.

Do You Need Any Additional Info? Did You See Any Mistakes in this 403(b) Provider REVIEW?

While we do realize that this product review was a bit lengthy – and we appreciate you sticking with us through it all – we feel that it is much better to “err” on the side of providing “too much” information than not enough. With that in mind, if you felt this 403(b) review was helpful, then please feel free to forward it on to anyone else that you think may benefit from it, too.

Also, as humans will often do, we also understand that information about these providers can change quickly. Therefore, if you happened to notice any details in this review that were out of date or that need correction, please let us know that as well, and we will get it fixed quickly.

Are there any other 403(b) providers that you would like to also see reviewed?

If you have checked out our list of provider reviews and there is another company’s  product that is not currently in our review database, but that you would like to see reviewed, please let us know (https://warwickfa.com/contact-us/ )  the name of the company or product and our team will get right on it. So, be sure to check back with us soon to see any updates.

Thank You

Thanks again for reading, and as always, if you have any questions or would like to have your retirement portfolio reviewed, don’t hesitate to reach out and schedule your no-obligation consultation.

About Me

For readers who have found my website and don’t know much about me, I am a fee-only financial planner held to the fiduciary standard which means I am legally obligated to make recommendations that are in the best interest of my clients. I’m also on a mission to inform teachers and other school district employees about the companies and products that are offered in the 403b marketplace. I have clients that use this the IPX platform & I am registered investment advisor who is approved to manage accounts on the Investment Provider Xchange (“IPX”)

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF’s net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.

Guarantees are based on the claims paying ability of the issuing company. No investment strategy assures a profit or protects against loss.

None of the third parties referenced in this communication are affiliated with K-12 Financial Advisors, Private Advisor Group or LPL Financial. 

Brighthouse 403b Annuity Review

Brighthouse Annuity Review

This is an independent review of the Brighthouse Universal Annuity Contract, a popular 403(b) annuity product. If you work in K-12 public schools and participate in a 403(b), there is a good chance you might have been sold this annuity. If you are wondering what fees you may be paying, what investment options you have or whether you can switch to a different plan, this is the annuity review for you. 

This information was gathered from Brighthouse’s Universal Annuity prospectus dated April 29, 2019 and is not a substitution for individual tax or legal advice. I’m just reporting on the main facts; to find answers specific to your situation may require a review of the full prospectus or a consultation.

Legal Disclosures

Before we get into the details, here are some legal disclosures. For readers who have found my website and don’t know much about me, I am a fee-only financial advisor held to the Fiduciary Standard. I am legally obligated to make recommendations that are in the best interest of my clients. Unlike other advisors, I find that some annuities may be a part of a comprehensive financial plan when used correctly.

This is a review, not a recommendation to buy or sell a variable annuity. Brighthouse Financial has not endorsed this review in any way, nor do I receive any compensation for this review. This review is meant to be an independent review at the request of a client so they can see my perspective when breaking down the positives and negatives of this annuity product. Before purchasing any investment product, be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances.

Let’s Get Started!

TABLE OF CONTENTS:

• Platform Overview
• Investment Options
• Fees & Expenses
• Advertised Features & Benefits
• Conclusion

Brighthouse Life Insurance Co Platform Overview:

Brighthouse Life Insurance Company is a provider of insurance, annuities, employee benefits and asset management. They are one of the largest institutional investors in the United States with a $270.2 billion general account portfolio. Brighthouse Financial, Inc. was formerly part of MetLife, Inc and officially spun off from them on August 4, 2017. Brighthouse Financial is the brand name for Brighthouse Life Insurance Company, Brighthouse Life Insurance Company of NY, and New England Life Insurance Company.

Product NameBrighthouse Universal Annuity
Type of ProductVariable Annuity
IssuerBrighthouse Life Insurance Company
Standard & Poor’s RatingA+
Phone Number(800) 638-7732
Websitehttps://www.BrighthouseFinancial.com
What Is a Variable Annuity?
A variable annuity is a contract between an individual and a life insurance company where, in exchange for the individual’s purchase payments, the insurer agrees to pay out a lump sum or a stream of retirement income at a later date. It is called “variable” because the account and the value of the income payments will vary based on the performance of the investments that you select, resulting in payments that may go up or down. Read More on SEC.gov.

The Brighthouse Universal Annuity is a variable annuity issued to help employees of public schools, colleges and universities, nonprofit hospitals and nonprofit organizations. This variable annuity may help participants accumulate assets for retirement as well as provide a steady stream of income throughout their retirement years.

*Standard and Poor’s Rating Service provides ratings which measure the claims-paying ability of an insurer. These ratings are the opinions of an operating insurance company’s financial capacity to meet the obligations of its insurance policies in accordance with their terms.

Brighthouse Annuity INVESTMENT OPTIONS

Brighthouse Annuity offers a wide range of investment options. Investors have access to over 50 different investment fund options (sub-accounts) including numerous equity and fixed income portfolios as well as various asset allocation and target date retirement portfolios. The underlying investment options available in a variable annuity invest in stocks, bonds, money market instruments, or some combination of the three.

Brighthouse has entered into sub-advisory agreements with these various investment providers:  

Blackrock, Brighthouse, BlackRock, Clarion, ClearBridge, Fidelity, Frontier, Harris Oakmark, Investco, JP Morgan, Jennison, Loomis Sayles, MFS, Neuberger Berman, Oppenheimer, PIMCO, SSGA, Templeton, T. Rowe Price, Victory Sycamore, and Western Asset Management.

These financial companies provide the investment options also referred to as sub accounts in the Brighthouse Universal annuity. Depending on market conditions, you may make or lose money in any of these Funding Options.

You can transfer among the Funding Options as frequently as you wish without any current tax implications. Currently there is no limit to the number of transfers allowed. Brighthouse may, in the future, limit the number of transfers allowed. At a minimum, Brighthouse would always allow one transfer every six months.

Brighthouse Annuity FEES & EXPENSES

Keeping fees low should be a top priority when saving for your retirement. If you’re not familiar with variable annuity products and how they work, their fees can be confusing to decipher. With a variable annuity, the majority of your cost comes from two types of fees:

  1. Fees to the insurance company associated with risk protection: Income & Death Benefit
  2. Fees associated with the investment funds inside the annuity.

Below are Brighthouse Annuity fees and how you will be paying for them.

Mortality and Expense Risk Charge: 1.25% annually
Each business day, Brighthouse deducts a mortality and expense risk (“M&E”) charge from your account. This charge is equal to 1.25% annually and compensates Brighthouse for risks assumed, benefits provided, and expenses incurred, including the payment of commissions to your sales agent. This fee comes right out of your account annually for the life of the investment, whether your investments earn money or not. It compensates the insurance company for the risk it assumes under this annuity contract, and it applies to all variable investment options. This charge is commonly found in variable annuities, but it’s not something you have to pay with all annuities. A variable annuity is the only type of annuity that charges the M&E fee.
Underlying Sub Account Operating Expenses: Range from 0.28% to 1.43%
This is another ongoing fee charged for the investments inside of the variable annuity. You may not find this fee listed by the materials presented to you by the sales. To find out about these fees, you have to dig through the prospectus. I did that for you. The internal expenses of the sub-accounts for this variable annuity contract range from 0.28% to 1.43%.
Administration Charge: $30
Brighthouse deducts a semiannual contract administrative charge of $15 in June and December of each Contract Year. This is a standard fee that is charged in most annuity contracts.
Fixed Interest Account fee: $20
A $20 Annual Contract Fee is imposed on money in the Fixed Interest Account. This fee may be waived under certain circumstances.
Withdrawal / Surrender Charges: Declining 7-year withdrawal charge
In addition to all the fees listed above, this variable annuity also charges a surrender fee (sometimes known as a withdrawal charge). Typically speaking, a surrender fee is only assessed when an investor makes a withdrawal prior to a specified time. If You withdraw amounts from the Contract, Brighthouse may deduct a withdrawal charge. The charge equals 5% of each Purchase Payment withdrawn if withdrawn within 5 years of the payment date. There are situations when the withdrawal charge maybe waived—details are in the prospectus (see link at the beginning of this post.
Brighthouse surrender charge schedule

Commissions: How is Brighthouse paying the agent?

The Financial representative who sells this investment product receives a sales commission. These commissions are not transparent. You will not see this compensation as a line item in any statements. The amount and timing of compensation may vary depending on the selling agreement but could be as high as 6-7% upfront to the Brighthouse annuity salesperson.

A broker-dealer firm or financial representative of a firm may receive different compensation for selling one product over another and/or may be inclined to favor one product provider over another product provider due to differing compensation rates.

Brighthouse pays agents’ commissions on every future dollar you contribute to your 403(b) Brighthouse Annuity. This creates ongoing compensation for your broker.

Brighthouse Annuity FEATURES & BENEFITS

Guaranteed Death Benefit: A common feature of variable annuities is the death benefit. We highly suggest you read our in-depth Death Benefit article to determine whether this insurance benefit is worth the extra cost.

How this insurance benefit works: If you die, a person you select as a beneficiary (such as your spouse or child) will receive the greater of: (i) all the money in your account, or (ii) some guaranteed minimum (such as all purchase payments minus prior withdrawals).

In this case, the Brighthouse variable annuity agrees to pay out your total contributions even if your account takes a significant market hit.

Income Benefits: Brighthouse annuity does NOT provide an income benefit. So, in order to receive income from this account during retirement, you may have to annuitize the contract.

What is annuitization?
One of the basic insurance features that comes with a variable annuity is called annuitization. Annuitization refers to the process by which, you elect, your account value is converted into a stream of payments (this being the payout phase), for a specific period or for the rest of your life. When you annuitize a variable annuity contract, you forfeit your account value in return for these guaranteed payments. The insurance company calculates your payments using an algorithm that considers factors such as your age, your initial investment premium, and the annuity account value at the time of annuitization. Annuitization could be considered if an investor’s account value has declined substantially at a time when he or she needed income from the annuity.

Tax Deferred Benefit: One of the major selling points of a variable annuity is the benefit of tax deferral. An annuity lets you save for retirement and delay paying taxes on your earnings until you make withdrawals. By deferring taxes, you can increase compounded earnings growth and potentially end up with a bigger nest egg.

Here’s what you may not realize: If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 403 (b) plan or IRA), you will get no additional tax advantage from the variable annuity. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity’s other features, such as lifetime income payments and death benefit protection. The tax rules that apply to variable annuities can be complicated – before investing, you may want to consult a tax adviser about the tax consequences to you of investing in a variable annuity.

Dollar Cost Averaging: This is a program that allows you to invest a fixed amount of money in investment options each month, theoretically giving you a lower average cost per unit over time than a single one-time purchase. Dollar cost averaging involves continuous investment in securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit or protect against loss in declining markets.

Automatic Rebalancing: You may elect to have Brighthouse periodically reallocate the values in your contract to match the rebalancing allocation selected.

Free Withdrawal Allowance: Beginning in the second Contract Year and prior to the Maturity Date, you may exchange/transfer up to 10% of the Contract Value annually without the imposition of any applicable withdrawal charges or tax implications if moving to another 403b account.

T-Flex Guaranteed Investment Option: Brighthouse also offers a guaranteed interest account inside this Brighthouse annuity contract. T-Flex is a fixed annuity option that offers competitive interest rates. Interest rate guarantees and income options are backed by the financial strength and claims-paying ability of Brighthouse Life Insurance Co. This product or some product features may always not be available in all states. It also has withdrawal charges of 7% for five years on each purchase payment

Required Minimum Distribution Service (RMD): The minimum distribution generally required each year once an individual reaches age 70 1/2, by Federal income tax rules, can be calculated and forwarded from the annuity contract. Failure to take required minimum distributions for a year will generally result in a 50% penalty tax on the amount of the shortfall. Brighthouse will calculate the required minimum distribution for this Brighthouse annuity contract based on information provided and for this Brighthouse annuity contract only. If the participant opts in, Brighthouse will remit the required minimum distribution to the participant in installment frequencies elected by the participant. May not be available in all markets.

Roth Eligible: Brighthouse allows for Roth Contributions in this Brighthouse Annuity contract.

Loan Provision: The amount that may be borrowed, the interest rate charged, the loan repayment schedules and loan application fees are described in the loan application form and the contract Loan availability may be subject to plan provisions but normally allows you to borrow up to a maximum of 50% of your account balance or $50,000.

Conclusions on the Brighthouse Universal Annuity

To conclude, variable annuities can be unnecessarily expensive and complex investment vehicles for most people. As we learned above, variable annuities will generally add at least 1% in costs just for the M&E fee alone, not to mention the fees for the investment sub-accounts and/or income riders that can (and often are) added on.  Over time, these additional costs can negatively impact your return potential.

My biggest concern with this annuity (and most annuities in general), is that you are paying extra for tax deferred growth when you already have that benefit in a qualified retirement account such as a 403(b). As the Securities Exchange Commission states:

My biggest concern with this Brighthouse annuity (and most annuities in general), is that you are paying extra for tax deferred growth when you already have that benefit in a qualified retirement account such as a 403(b).

As the Securities Exchange Commission states:

“If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 403b, 401(k) plan or IRA), you will get no additional tax advantage from the variable annuity. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity’s other features, such as lifetime income payments and death benefit protection.“

THINGS TO CONSIDER ABOUT THE BRIGHTHOUSE ANNUITY

  • No additional tax benefits when part of a 403(b): You’re buying a tax-deferred product (an annuity) inside an already tax-deferred product (403b). Since 403(b) plans are already tax-advantaged, a variable annuity will provide no additional tax advantages. It most likely will increase the expenses of the 403(b), while potentially generating higher fees and commissions for the broker or salesperson.
  • Fees: especially the Mortality and Expense Risk charge: There are additional fees associated with variable annuities that are not found in other types of annuities or mutual funds. Over time, higher fees can negatively impact your return potential. If you don’t need the benefits of an annuity at this time, then paying these extra fees for the next 10 to 20 years will hinder the growth of your retirement account. This variable annuity carries additional fees that should be considered. Whether the higher fees make sense for you will depend on your specific needs and situation.
  • Surrender Charges based on ongoing contributions: You should carefully consider whether it is in your best interest to buy an investment that charges a penalty fee to get out of it. Many annuities will impose a surrender charge if the annuity is cashed in before a specific period.
  • No Income Benefit rider available. Brighthouse offers only a standard death benefit. Which means, in order to receive an income for life, annuitization of the contract may be required.
  • Agent commissions and compensation based on ongoing contributions.

HOW DO BRIGHTHOUSE ANNUITY FEES STACK UP AGAINST OTHER INVESTMENT OPTIONS?

According to one analysis from the independent investment research company Morningstar, the most popular version of the Brighthouse annuity has total annual operating costs that can range from 1.50% to 2.50%. Investment products with high costs must perform better than a low-cost investment product to generate the same returns. Comparable investment choices may be available that do not include the additional fees in insurance benefit costs. However, variable annuities offer features and benefits that may not be available with other investment options. 

WHEN THIS INVESTMENT MIGHT MAKE SENSE:

Variable annuities are appropriate only in very specific circumstances. If you have already maxed out all qualified retirement account options (403b, 457b and/or IRA) and would like to put aside more money into a tax-deferred account, then a variable annuity might be an appropriate option. However, think carefully about whether this specific variable annuity with the structure of its surrender fees, agent commissions, and income rider options would best support your retirement goals. You may also want to consider the relative features, benefits, and costs against or with any other investment that you may use in connection with your retirement. Be sure to read carefully the marketing materials and prospectus, and if you don’t understand what you’re paying for, ask questions and receive a full disclosure before deciding.

CAN YOU GET OUT OF A BRIGHTHOUSE VARIABLE ANNUITY?

  • If you are out of the Surrender Charge period, you can transfer the balance to another 403b account.
  • If you are still in the Surrender period, contract owners can withdraw 10% of the value per year without penalty. That 10% can be transferred or rolled to another 403(b) provider or qualified retirement account if you met certain terms.

IF YOU CURRENTLY OWN THIS ANNUITY:

Over the past few years I’ve discovered that many of my 403(b) clients were paying for insurance benefits to protect their retirement savings and paying high costs for it. You should understand that the significant factor in determining your investment’s rate of return—after asset allocation—is cost. Fees eat into your bottom line, so to make the most of this investment, you will want to minimize the fees you pay.

Now may be a good time to take another look and evaluate this product considering your long-term goals. If you are interested in a more detailed analysis specific to your situation, please, contact us.

THANK YOU!

We hope you learned something from reading our Brighthouse annuity review. If you did, please send your friends the link so they can be informed too.

However, if after reading this annuity review you still have questions or concerns, then please reach out to us directly via our secure online contact form here and we’ll be happy to help.

Did you notice anything in this review that may be outdated or in need of revision? Please let us know and we will make the necessary updates as soon as possible.

Are there any other annuities that you would like to have us review?

Let us know the name of the annuity and our team of experienced annuity geeks will get on it!

Thanks for reading! -Ken Ford

None of the third parties referenced in this communication are affiliated with Warwick Valley Financial Advisors, Private Advisor Group or LPL Financial.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Variable annuities are long term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They have fees and charges, including mortality and expense risk charges, administrative fees, and contract fees. They are sold only by prospectus. Guarantees are based on the claims paying ability of the issuer. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than their original value.

Investors should consider the investment objectives, risks, charges and expenses of the variable annuity contract and sub-accounts carefully before investing. The prospectus and, if available, the summary prospectus contains this and other important information about the variable annuity contract and sub-accounts. You can obtain contract and sub-account prospectuses and summary prospectuses from your financial representative. Read prospectuses carefully before investing.

Free Guide: What Every K-12 Employee Should Know About Their 403B Plan

Retirement investing for teachers can be confusing. This guide is an excellent source of information about the various options available to you as a school district employee answering important questions.

Get Your Free 403b Guide
403b-vs-457-comparison

The 403b and 457 Plan Comparison for Public School Employees

As a public school employee, pension plans are an important component of retirement planning. However, your pension alone may not provide enough retirement income to support your desired future lifestyle.

Fortunately, there are additional options available to help you achieve your retirement savings objectives. Contributing to 403b and/or 457 plan offered by your school district affords you the opportunity to supplement your defined benefit pension plan.

HOW ARE THE 403B AND 457 PLAN SIMILAR?

403b and 457b plans are both retirement plans offered to public school employees and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts. Employers may also contribute to employees’ accounts. Both plans have the following in common:

Tax-deferred Contributions
Both employer sponsored plans allow you make contributions on a pre-tax basis via a Salary Reduction Agreement. Contributions to qualified savings plans, are made on a pre-tax basis, reducing taxable income received by the employee, which typically equates to a keeping you in or lowering you to a lesser tax bracket. For the past 3 years, contribution limits have been the same for both plans.

Tax-deferred growth on earnings
Your taxes are paid at a future date which allows your investment to grow without current tax implications. The use of a tax-deferred investment account is most often a wise decision when you are in a higher tax bracket now compared to the income tax bracket you anticipate to be taxed at in the future when you will be taking withdrawals. This can help you to build wealth quicker because you are reinvesting all growth in your account rather than paying a chunk each year to Uncle Sam.

Portability
If you leave your job, your plan contributions and earnings can be exchanged into your new employer’s plan without tax implications if done properly.

Investment Options
Both plans allow you to select from various investment options like mutual funds and annuities.

ROTH option available
Both plans may have a ROTH option available where you pay income tax on the contributions to the plan, while distributions from the plan (if certain requirements are met) are tax-free. Choosing whether to use the ROTH option is a decision based on your age and when you need access to the funds.

DIFFERENCES BETWEEN THE 403B AND 457 PLANS

While the plans have much in common, they do have a few key differences that may affect your decision to invest in one or the other. The main differences between 403(b) and 457 plans center on how and when you can access the funds.

Early/premature withdrawals

  • 403bs are subject to possible 10% penalty (link: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions) (if under age 59-1/2.
  • 457b does NOT have early withdrawal penalties.

Catchup provisions*

We recommend you speak to a professional when deciphering which catchup rules may apply to you. Below is a brief summary of the differences in catch up provisions.

403(b) Catchup Provisions:

  • 50 years or older rule. If permitted by the 403(b) plan, employees who are age 50 or over at the end of the calendar year can also make catch-up contributions of $6,000 in 2015 – 2019 beyond the basic limit on elective deferrals.
  • 15-year rule. Employees with 15 years of service with their current employer and an annual average contribution of less than $5,000 per year are eligible for an additional $3,000 contribution per year up to a lifetime maximum catch-up of $15,000.
  • When both catch-up opportunities are available, the law requires deferrals exceeding the standard limit ($19,000 in 2019 and $18,500 in 2018) to be first applied to the 15-year catch-up (to the extent permitted), and then to the age 50 catch-up.

457 Catchup Provisions: The 457 plan has special catch-up contributions that may be allowed.

  • If permitted by the plan, this allows a participant for three years prior to the normal retirement age (as specified in the plan) to contribute the lesser of:
    • Twice the annual limit of $38,000 in 2019 and $37,000 in 2018, or
    • The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions)

Fees and Expenses

Whether you ultimately choose a 403(b) or 457(b) you will also need to make important decisions regarding the investments within those accounts. Be sure to compare the fees associated with mutual funds and annuities before jumping into either plan. Choosing a plan with even a 1% higher fee could affect your retirement savings nest egg.

WHICH PLAN SHOULD I CHOOSE?

DID YOU KNOW? If eligible, you could contribute to a pension, a 403(b) AND a 457 plan at the same time.

Contact Us to find out if you qualify for this savings strategy.

There are many factors to consider when you decide which plan to enroll into, how much to contribute, and how to invest your money. Many of these decisions will also be based on your age, your personal goals for the future, and when you will need to access the money.

Warwick Valley Financial Advisors specializes in helping teachers and school district personnel understand the issues they face. We have become seasoned industry advisors on the 403(b) and 457 plans and can help you make informed decisions early in your financial planning journey.

If you have not yet signed up for a 403(b) or 457 plan, consider doing so as soon as possible. The sooner you begin saving, the more substantial the sum of retirement funds you can potentially save, and the better your chances to be able to afford to live the retirement lifestyle you want to live.

If the idea of picking the right plan intimidates you, contact a financial advisor who specializes in working with teachers and school district personnel to help you make an informed decision.

*Catchup Provision – Source: https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions

Free Guide: What Every K-12 Employee Should Know About Their 403B Plan

Retirement investing for teachers can be confusing. This guide is an excellent source of information about the various options available to you as a school district employee answering important questions.

Get Your Free 403b Guide

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

An Independent Review of the MetLife Preference Plus® Annuity

This is an independent review of a popular 403(b) MetLife annuity product. If you work in K-12 school and participate in a 403(b), there is a good chance you might have been sold the MetLife Preference Plus® Account Variable Deferred and Income Annuity Contracts.

If you own this MetLife annuity and want an independent, objective review—then you’re in the right place.

Legal Disclosures

Before we get into the details, here are some legal disclosures. For readers who have found my website and don’t know much about me, I am a fee-only financial advisor held to the Fiduciary Standard. I am legally obligated to make recommendations that are in the best interest of my clients. Unlike other advisors, I find that some annuities may be a part of a comprehensive financial plan when used correctly.

This is a review, not a recommendation to buy or sell a variable annuity. MetLife has not endorsed this review in any way, nor do I receive any compensation for this review. This review is meant to be an independent review at the request of a client so they can see my perspective when breaking down the positives and negatives of this annuity product. Before purchasing any investment product, be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances.

This information was gathered from MetLife’s prospectus dated April 30st 2018 and is not a substitution for individual tax or legal advice. I’m just reporting on the main facts; to find answers specific to your situation may require a review of the full prospectus for applicable the details.

Let’s Get Started!

TABLE OF CONTENTS:

• Platform Overview
• Investment Options
• Fees & Expenses
• Advertised Features & Benefits
• Conclusion

PLATFORM OVERVIEW:

metlife-annuity-review

Metropolitan Life Insurance Company (MetLife) is a provider of insurance, annuities, employee benefits and asset management. They are one of the largest institutional investors in the United States with a $270.2 billion general account portfolio.

Product NameMetLife Preference Plus® Account
Type of ProductVariable Annuity
IssuerMetropolitan Life Insurance Company
Standard & Poor’s RatingAA- (Very Strong)*
Phone Number(800) 638-7732
Websitehttps://www.MetLife.com
What Is a Variable Annuity?
A variable annuity is a contract between an individual and a life insurance company where, in exchange for the individual’s purchase payments, the insurer agrees to pay out a lump sum or a stream of retirement income at a later date. It is called “variable” because the account and the value of the income payments will vary based on the performance of the investments that you select, resulting in payments that may go up or down. Read More on SEC.gov.

The MetLife Preference Plus® Account (PPA) is a variable annuity issued by MetLife to help employees of public schools, colleges and universities, nonprofit hospitals and nonprofit organizations. This variable annuity may help participants accumulate assets for retirement as well as provide a steady stream of income throughout their retirement years.

MetLife no longer actively offers the PPA to new purchasers. However, current contract owners may still make additional purchase payments. Metlife does currently offer another 403b annuity product through Brighthouse Financial which we will review at a later date.

*Standard and Poor’s Rating Service provides ratings which measure the claims-paying ability of an insurer. These ratings are the opinions of an operating insurance company’s financial capacity to meet the obligations of its insurance policies in accordance with their terms.

INVESTMENT OPTIONS

MetLife Preference Plus® Annuity offers a wide range of investment options. Investors have access to over 50 different investment fund options (sub-accounts) including numerous equity and fixed income portfolios as well as various asset allocation and target date retirement portfolios. The underlying investment options available in a variable annuity invest in stocks, bonds, money market instruments, or some combination of the three.

MetLife has entered into sub-advisory agreements with these various investment providers:

American Funds, Brighthouse, BlackRock, Clarion, ClearBridge, Fidelity, Harris Oakmark, Loomis Sayles, MFS, Neuberger Berman, Oppenheimer, PIMCO, SSGA, T. Rowe Price, Victory Sycamore, and Western Asset Management.

FEES & EXPENSES

Keeping fees low should be a top priority when saving for your retirement. If you’re not familiar with variable annuity products and how they work, their fees can be confusing to decipher. With a variable annuity, the majority of your cost comes from two types of fees:

  1. Fees to the insurance company associated with risk protection: Income & Death Benefit
  2. Fees associated with the investment funds inside the annuity.

Below are MetLife Preference Plus® Annuity fees and how you will be paying for them.

Mortality and Expense Risk Charge: 1.25% annually
Each business day, MetLife deducts a mortality and expense risk (“M&E”) charge from your account. This charge is equal to 1.25% annually and compensates MetLife for risks assumed, benefits provided, and expenses incurred, including the payment of commissions to your sales agent. This fee comes right out of your account annually for the life of the investment, whether your investments earn money or not. It compensates the insurance company for the risk it assumes under this annuity contract, and it applies to all variable investment options. This charge is commonly found in variable annuities, but it’s not something you have to pay with all annuities. A variable annuity is the only type of annuity that charges the M&E fee.
Underlying Sub Account Operating Expenses: Range from 0.61% to 2.09%
This is another ongoing fee charged for the investments inside of the variable annuity. You may not find this fee listed by the materials presented to you by the sales. To find out about these fees, you have to dig through the prospectus. I did that for you. The internal expenses of the sub-accounts for this variable annuity contract range from 0.61% to 2.09% .
Administration Charge: $30
MetLife deducts a semiannual contract administrative charge of $15 in June and December of each Contract Year. This is a standard fee that is charged in most annuity contracts.
Fixed Interest Account fee: $20
A $20 Annual Contract Fee is imposed on money in the Fixed Interest Account. This fee may be waived under certain circumstances.
Withdrawal / Surrender Charges: Declining 7-year withdrawal charge
In addition to all the fees listed above, this variable annuity also charges a surrender fee (sometimes known as a withdrawal charge). Typically speaking, a surrender fee is only assessed when an investor makes a withdrawal prior to a specified time. MetLife charges an Early Withdrawal if you withdraw purchase payments within 7 years of when they were credited to your Deferred Annuity. The charge on purchase payments is calculated according to the following schedule. MetLife states in the prospectus: “A declining 7-year withdrawal charge applies to each contribution.” There are situations when the withdrawal charge maybe waived—details are in the prospectus.

Commissions: How is MetLife paying the agent?

The Financial representative who sells this investment product receives a sales commission. These commissions are not transparent. You will not see this compensation as a line item in any statements. The amount and timing of compensation may vary depending on the selling agreement but could be as high as 6-7% upfront to the MetLife annuity salesperson.

A broker-dealer firm or financial representative of a firm may receive different compensation for selling one product over another and/or may be inclined to favor one product provider over another product provider due to differing compensation rates.

MetLife pays agents’ commissions on every future dollar you contribute to your 403(b) MetLife Annuity. This creates ongoing compensation for your broker.

ADVERTISED FEATURES & BENEFITS

Guaranteed Death Benefit: A common feature of variable annuities is the death benefit. We highly suggest you read our in-depth Death Benefit article to determine whether this insurance benefit is worth the extra cost.

How this insurance benefit works: If you die, a person you select as a beneficiary (such as your spouse or child) will receive the greater of: (i) all the money in your account, or (ii) some guaranteed minimum (such as all purchase payments minus prior withdrawals).

In this case, the MetLife Preference Plus® variable annuity agrees to pay out your total contributions even if your account takes a significant market hit.

Income Benefits: MetLife Preference Plus® annuity does NOT provide an income benefit. So, in order to receive income from this account during retirement, you may have to annuitize the contract.

What is annuitization?
One of the basic insurance features that comes with a variable annuity is called annuitization. Annuitization refers to the process by which, you elect, your account value is converted into a stream of payments (this being the payout phase), for a specific period or for the rest of your life. When you annuitize a variable annuity contract, you forfeit your account value in return for these guaranteed payments. The insurance company calculates your payments using an algorithm that considers factors such as your age, your initial investment premium, and the annuity account value at the time of annuitization. Annuitization could be considered if an investor’s account value has declined substantially at a time when he or she needed income from the annuity.

Tax Deferred Growth: One of the major selling points of a variable annuity is the benefit of tax deferral. An annuity lets you save for retirement and delay paying taxes on your earnings until you make withdrawals. By deferring taxes, you can increase compounded earnings growth and potentially end up with a bigger nest egg.

Here’s what you may not realize: If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 403 (b) plan or IRA), you will get no additional tax advantage from the variable annuity. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity’s other features, such as lifetime income payments and death benefit protection. The tax rules that apply to variable annuities can be complicated – before investing, you may want to consult a tax adviser about the tax consequences to you of investing in a variable annuity.

Dollar Cost Averaging: This is a program that allows you to invest a fixed amount of money in investment options each month, theoretically giving you a lower average cost per unit over time than a single one-time purchase. Dollar cost averaging involves continuous investment in securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit or protect against loss in declining markets.

Automatic Rebalancing: You may elect to have MetLife periodically reallocate the values in your contract to match the rebalancing allocation selected.

Free Withdrawal Allowance: Beginning in the second Contract Year and prior to the Maturity Date, you may exchange/transfer up to 10% of the Contract Value annually without the imposition of any applicable withdrawal charges or tax implications if moving to another 403b account.

T-Flex Guaranteed Investment Option: MetLife also offers a guaranteed interest account inside this MetLife annuity contract. T-Flex is a fixed annuity option that offers competitive interest rates. Interest rate guarantees and income options are backed by the financial strength and claims-paying ability of MetLife Insurance Company. This product or some product features may always not be available in all states. It also has withdrawal charges of 7% for five years on each purchase payment

Required Minimum Distribution Service (RMD): The minimum distribution generally required each year once an individual reaches age 70 1/2, by Federal income tax rules, can be calculated and forwarded from the annuity contract. Failure to take required minimum distributions for a year will generally result in a 50% penalty tax on the amount of the shortfall. MetLife will calculate the required minimum distribution for this MetLife annuity contract based on information provided and for this MetLife annuity contract only. If the participant opts in, MetLife will remit the required minimum distribution to the participant in installment frequencies elected by the participant. May not be available in all markets.

Roth Eligible: MetLife allows for Roth Contributions in this MetLife Annuity contract.

Loan Provision: The amount that may be borrowed, the interest rate charged, the loan repayment schedules and loan application fees are described in the loan application form and the contract Loan availability may be subject to plan provisions but normally allows you to borrow up to a maximum of 50% of your account balance or $50,000.

CONCLUSION

Variable annuities can be unnecessarily expensive and complex investment vehicles for most people. In general, variable annuities will add at least 1% in costs just for the M&E fee alone, not to mention the fees for the investment sub-accounts and/or income riders that can (and often are) added on. Over time, these additional costs can negatively impact your return potential.

My biggest concern with this MetLife annuity (and most annuities in general), is that you are paying extra for tax deferred growth when you already have that benefit in a qualified retirement account such as a 403(b).

As the Securities Exchange Commission states:

“If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 403b, 401(k) plan or IRA), you will get no additional tax advantage from the variable annuity. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity’s other features, such as lifetime income payments and death benefit protection.“

In reviewing the other features that this annuity offers, you should consider that it does not offer an income benefit and offers only a standard death benefit. Also consider that an investment product with high costs must perform better than a low-cost investment product to generate the same returns. Comparable investment choices may be available that do not include the additional 1.25% in insurance benefit costs.

THINGS TO CONSIDER ABOUT THIS ANNUITY

  • No additional tax benefits when part of a 403(b): You’re buying a tax-deferred product (an annuity) inside an already tax-deferred product (403b). Since 403(b) plans are already tax-advantaged, a variable annuity will provide no additional tax advantages. It most likely will increase the expenses of the 403(b), while potentially generating higher fees and commissions for the broker or salesperson.
  • Overall fees including a Mortality and Expense Risk charge: There are additional fees associated with variable annuities that are not found in other types of annuities or mutual funds. Over time, higher fees can negatively impact your return potential. If you don’t need the benefits of an annuity at this time, then paying these extra fees for the next 10 to 20 years will hinder the growth of your retirement account. This variable annuity carries additional fees that should be considered. Whether the higher fees make sense for you will depend on your specific needs and situation.
  • Surrender Charges based on ongoing contributions: You should carefully consider whether it is in your best interest to buy an investment that charges a penalty fee to get out of it. Many annuities will impose a surrender charge if the annuity is cashed in before a specific period.
  • No Income Benefit rider available. Which means, in order to receive an income for life, annuitization of the contract may be required.
  • Agent commissions and compensation based on ongoing contributions.

HOW DO THE FEES IN THIS ANNUITY STACK UP AGAINST OTHER INVESTMENT OPTIONS?

According to one analysis from the independent investment research company Morningstar, the most popular version of the MetLife Preference Plus® annuity has total annual operating costs that can range from 1.85% to 2.63%. There may be other investment options that have lower costs. However, variable annuities offer features and benefits that may not be available with other investment options.

WHEN THIS INVESTMENT MIGHT MAKE SENSE:

Variable annuities are appropriate only in very specific circumstances. If you have already maxed out all qualified retirement account options (403b, 457b and/or IRA) and would like to put aside more money into a tax-deferred account, then a variable annuity might be an appropriate option. However, think carefully about whether this specific variable annuity with the structure of its surrender fees, agent commissions, and income rider options would best support your retirement goals. You may also want to consider the relative features, benefits, and costs against or with any other investment that you may use in connection with your retirement. Be sure to read carefully the marketing materials and prospectus, and if you don’t understand what you’re paying for, ask questions and receive a full disclosure before deciding.

CAN YOU GET OUT OF A METLIFE PREFERENCE PLUS® VARIABLE ANNUITY?

  • If you are out of the Surrender Charge period, you can transfer the balance to another 403b account.
  • If you are still in the Surrender period, contract owners can withdraw 10% of the value per year without penalty. That 10% can be transferred or rolled to another 403(b) provider or qualified retirement account if you met certain terms.

IF YOU CURRENTLY OWN THIS ANNUITY:

Over the past few years I’ve discovered that many of my 403(b) clients were paying for insurance benefits to protect their retirement savings and paying high costs for it. You should understand that the significant factor in determining your investment’s rate of return—after asset allocation—is cost. Fees eat into your bottom line, so to make the most of this investment, you will want to minimize the fees you pay.

Now may be a good time to take another look and evaluate this product considering your long-term goals. If you are interested in a more detailed analysis specific to your situation, please, contact us.

THANK YOU!

If you found the information in the MetLife Annuity Review to be beneficial to you, please feel free to forward the review and share it with anyone else that you think may also benefit from it, too.

If, however, after reading this annuity review you still have any additional questions or concerns, then please feel free to reach out to us directly via our secure online contact form here and we’ll be happy to help.

If you happened to notice anything in this review that may be outdated or in need of revision, please let us know that, too and we will make the necessary updates as soon as possible.

Are there any other annuities that you would like to have us review?

If so, let us know the name of the annuity (or annuities, if there is more than just one), and our team of experienced annuity geeks will get on it!

Thanks for reading! -Ken Ford

None of the third parties referenced in this communication are affiliated with Warwick Valley Financial Advisors, Private Advisor Group or LPL Financial.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Variable annuities are long term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They have fees and charges, including mortality and expense risk charges, administrative fees, and contract fees. They are sold only by prospectus. Guarantees are based on the claims paying ability of the issuer. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than their original value.

Investors should consider the investment objectives, risks, charges and expenses of the variable annuity contract and sub-accounts carefully before investing. The prospectus and, if available, the summary prospectus contains this and other important information about the variable annuity contract and sub-accounts. You can obtain contract and sub-account prospectuses and summary prospectuses from your financial representative. Read prospectuses carefully before investing.

Free Guide: What Every K-12 Employee Should Know About Their 403B Plan

Retirement investing for teachers can be confusing. This guide is an excellent source of information about the various options available to you as a school district employee answering important questions.

Get Your Free 403b Guide

An Independent Review of Confidential Planning 403(b) Retirement Plan Platform

Dear Reader,

This is a detailed review of Confidential Planning, a lesser known 403(b) retirement plan provider. If you work in a K -12 school district with a 403(b) option, especially in the Tri-State area, there is a chance you have access to Confidential Planning on your district’s 403(b) provider list. We suggest reading 403b basics and our Teachers 403b Shopping Guide if you are unfamiliar with 403bs.

About this Review

The world of investments can be intimidating, but really it’s like any other shopping experience.  You want to compare prices and features and understand exactly what you’re buying. This review will help you do that.

My goal is to make my review of this company platform as impartial and objective as possible. The review will cover the following information on Confidential Planning:

How will this product review help you?

In this review you will:

  • Learn about a lesser known provider that may be an available option at your school district.
  • Familiarize yourself with the advantages of an open architecture structured 403b plan
  • Understand how to compare this product’s fees, features, and benefits against other available 403(b) investments options to determine if it is priced competitively.

About Me

Fiduciary: A person who occupies a position of financial trust with respect to the assets of another person, for example, a financial advisor. In the financial service industry, fiduciaries are held to higher ethical standards than non-fiduciaries. Fiduciaries also have greater accountability for the advice they give investors

For readers who have found my website and don’t know much about me, I am a fee-only financial planner held to the fiduciary standard. I am legally obligated to make recommendations that are in the best interest of my clients. I’m also on a mission to inform teachers and other school district employees about the companies and products that are offered in the 403b marketplace. I am a financial advisor who does not advise or manage any client accounts at Confidential Planning.

Legal Disclosure

This is a review, not a recommendation to buy or sell a mutual fund or variable annuity. Confidential Planning has not endorsed this review in any way, nor do I receive any compensation for this review. This review is meant to be an independent review at the request of a client so they can see my perspective when breaking down the positives and negatives of this an open architecture platform company.  Before purchasing any investment product, be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances.

This information was gathered from Confidential Planning’s website –and is not a substitution for individual tax or legal advice. I’m just reporting on the main facts; to find answers specific to your situation may require a review of the full plan for applicable details.

Let’s get started.

Confidential Planning 403(b)(7) Plan Review

Platform Overview

Confidential Planning is a 403b retirement recordkeeping platform currently acting as a provider in school districts in the United States. Confidential Planning is headquartered in Syracuse, New York; they have a strong presence throughout the northeast. Hundreds of school districts, hospitals, universities and non-profit organizations entrust them with providing retirement planning services for their employees.

Product NameMultiChoice®
Type of product403(b)7 custodial account/Mutual Funds
Platform TypeOpen Architecture
Phone Number 800.822.9968
Websitewww.cpcfs.com
E-mailinfo@cpcfs.com

Confidential Planning, I, LLC is related to Pinnacle Investments, LLC. Pinnacle Investments, LLC is dually registered as a securities broker-dealer and investment advisor. Pinnacle Investments, LLC’s SEC File number is: 801-67860 and its CRD number is:142910

Other business activities and affiliations:
Pinnacle Holding Company, LLC is the parent company of 1) Pinnacle Investments, LLC, 2) Confidential Planning I, LLC and 3) Pinnacle Capital Management, LLC. Confidential Planning Corporation. Pinnacle Investments, LLC is affiliated with Pinnacle Advisors, LLC. Pinnacle Advisors, LLC is an SEC-registered investment advisor. The advisory services provided by Pinnacle Advisors, LLC are separate and distinct from the advisory services provided by Pinnacle Investments, LLC, or any other subsidiary of Pinnacle Holding Company, LLC.

Investment Options Overview

Open Architecture:

Open architecture is used to describe a financial institution’s ability to offer clients products and services. Open architecture ensures that a client can satisfy all their financial needs and that the investment firm can act in each client’s best interests by recommending the financial products best suited to that client, even if they are not proprietary products. Open architecture helps investment firms minimize the conflict of interest that would exist if the firm only recommended its own products.

Confidential Planning offers a multifamily fund menu of investment options inside their open architecture 403(b) platform. Investors have access to 28 mutual fund options including equity and fixed income portfolios as well as various target date retirement portfolios.

They offer access to thousands of no-load, no-transaction fee mutual funds on their 403(b) Multi-Choice program. Participants can customize the 403(b) Multi-Choice program to construct an investment portfolio based on your needs or overall financial plan. At any time, you may request to add (or delete) funds to your account based on availability at the 403(b) Multi-Choice.

Confidential Planning MultiChoice® 403(b) gives you access to some of the leading mutual fund families such as:

American, Blackrock, Fidelity, First Eagle, Janus, PIMCO,
T. Rowe Price, and Vanguard (28 Funds in total)

Fees & Expenses

Direct fees vs. Indirect fees

When working with Confidential Planning you will encounter administration fees and costs that are assessed to your account which will be direct as well as indirect. Direct fees are the contractual fees that are visible to the plan participants and generally include an annual custody fee and a participant fee charged by Confidential Planning. Indirect fees are fees charged by the mutual fund families that are netted against the value of that you have invested in each investment fund as part of the funds overall expense ratio and are not visible to you the participant.

Direct Fees:

Confidential Planning is compensated for their investment advisory services by charging fees for the percentage of assets that are under their management. These fees are paid by the participant:

Administration Custodial fee:  0.15% ($40 annually)
Confidential Planning charges a custody fee of 15 basis points (0.15%) of the account value annually for its recordkeeping services. These fees are assessed against the participant’s accounts monthly.

Annual Advisory fee: 1.0%
.25 to firm, .75 to advisor. The maximum annual asset fee charged will be 1.25% points for advisory services.

Management fees are separate and distinct from other fees that might apply, including transaction fees, underlying mutual fund fees and expenses paid to the fund by shareholders of the fund as outlined in each fund’s prospectus, and custodian fees.

Other Applicable, Transparent Plan & Participant-Level Fees:

  • $50 loan initiation
  • $75 per distribution processing
  • $10 recurring distributions
  • $25 check replacement
  • Surrender fees: None

Indirect Fees:

Underlying Portfolio Operating Expenses: 
This is another ongoing fee charged for the investments inside of the mutual funds. The internal expenses of mutual funds range from 0.13% to 1.00%

Features & Benefits of Confidential Planning 403(b)

Plan Benefits:

Fiduciary Standard:
• The duty to have a reasonable,
independent basis for the
investment advice provided;
• The duty to obtain best execution
for a client’s transactions where the
Firm is in a position to direct
brokerage transactions for the
client;
• The duty to ensure that investment
advice is suitable to meeting the
client’s individual objectives needs
and circumstances; and a duty to be
loyal to clients.
  • Traditional 403(b)
  • Loans available up to 50% of your account value with a $50,000 maximum
  • Firm & representatives are held to Fiduciary Standard

Investment Platform Benefits:

  • No proprietary funds
  • Target date retirement portfolios
  • Dollar cost averaging

Fee Benefits:

  • Transparent fee structure
  • 403(b)7 custodial account platform offers access to low-cost mutual funds

Customer Service Benefits:

A wide range of account and investment data is available on Confidential Planning.

  • Customized portfolio & rebalancing services
  • Required Minimum Distribution Services
  • Paper statements are mailed quarterly; however, statements can be accessed online.
  • Financial Planning, Debt management, Retirement income planning
  • Portfolio Analysis (Through Vanguard and Morningstar)

Fee Schedule:

When working with an advisor, you should be aware of the various ways in which the adviser can be compensated. There are a few layers of fees at this vendor that you will need to be aware of.

  1. Direct Fees: Confidential Planning’s fees a 0.15% fee on assets & $40 per year.
  2. Indirect Fees: Investment fees will be the same. An expense ratio is the cost investment mutual fund companies charge investors to manage a mutual fund. The expense ratio represents all of the management fees and operating costs of the fund.
  3. Advisor / Sales Rep Compensation: Confidential Planning 403(b) accounts can only be set up and managed by an advisor that is affiliated with Confidential Planning or one of its subsidiaries. The way these advisors are paid for their services is on a fee-basis.
    • Fee-based advisors: Confidential Planning’s advisors are fee-based financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Fee-only financial advisors are paid directly by clients for their services, be it a flat fee, hourly rate or a percentage of assets under management, which adds up to 1.15% ibn total of a client’s portfolio value each year.

Advantages Of Confidential Planning 403(b)

  • Fiduciary standard and DOL Compliant: K-12 403(b) plans are Non-ERISA, meaning they do not comply with the Employee Retirement Income Security Act of 1974. Confidential Planner’s adheres to the fiduciary standard, which means they must put the client’s best interest first.
  • Also, as fiduciaries charging investment management they are required to have annual reviews with clients at least once a year
  • Access to Vanguard’s Target Date Retirement Funds: These Target date retirement funds have a 72% lower average expense ratio then other mutual funds with similar holdings.
  • The Mutual funds on this platform are load waived. So that any share class that isn’t an institutional share will rebate the upfront commission
  • Fee Transparency: Confidential Planning has transparent fees, so you know how much it is going to cost you annually to use their platform. • Flexibility: Each client is given the opportunity to build a comprehensive financial plan and to work with a CFP if they so choose. No extra charge for planning services.
  • Access to a CFP professional: Pinnacle Investments, LLC has several advisors with a Certified financial designation that will construct a basic financial plan at no additional charge. For those that have not done any financial planning, this may justify paying higher fees, especially if you are just starting out.
  • Money Tree software is used to build financial plans. Clients have their own unique login and can adjust or review their plan at any time.

Disadvantages

  • Fee structure: They are not a low cost 403(b) provider. Their advisory platform fee adds up to 1.15% annually. But the total fees paid are closer to 1.50% and could be closer to 2% depending on which of the mutual funds that you invest in. This is comparable to other advisor directed vendors in the 403b marketplace, but the fees are much higher than some of the low-cost providers we have reviewed. (ex. Vanguard, Fidelity, Aspire )
  • There is no self-directed account option if you work with Confidential Planning. This mean you must work with an advisor that is affiliated with Confidential Planning or one of its subsidiaries.
  • Their platform only gives you access to 28 Mutual Fund options to invest in, this may or may not give you enough options to build a desired portfolio.
  • Accounts cannot be set up or managed without a representative of Confidential Planning. This means you will have to find an in-house representative that you feel comfortable building a financial relationship with.
  • You may already be working with a financial professional that you trust who helps you make investment related decisions, but you will still have to pay the advisory fees related to your CP account.
  • They do not provide a Roth 403(b) option.

Conclusions on The Confidential Planning 403(B)

Let’s recap:

Confidential Planning is a company that offers a multi-fund family 403b platform. They are one of the few companies that offers an open architecture mutual fund platform available with TPAs.

Confidential Planning may work best for those who are seeking the following:

  • The opportunity to work with an advisor that also has value added services ex. Financial Planning.
  • Wants to turn over the responsibility of managing the investments to an investment advisor.
  • Confidential Planning’s has a large presence in upstate or central region of New York. So, if you live in that area & want to meet face to face it might make sense to research them further.

Things to consider about this company’s platform:

  • Un-avoidable fees:
    • Custodial fees: 0.15% of your account value.
    • Advisor fee: The combined advisory fee is 1.0% per annum. This fee is said to be is negotiable with the advisor, but we cannot confirm or deny that.
    • Investment fund fees: These will vary depending on which funds are selected. Confidential Planning gives you access to some of the lowest cost funds available in the industry, but there are others that are on the higher side, so do your homework.
  • There are no Surrender Charges to leave Confidential Planning’s platform, but some funds may have surrender charges.
  • No death benefit fees are charged on any on the investment options on the platform.

When this investment might make sense:

If you don’t currently use Confidential Planning or another open architecture platform now may be a good time to take a look and evaluate these types of companies to see if they would be a good fit for your long-term goals.  If you are interested in a more detailed analysis specific to your situation, feel free to contact me.

THANK YOU

Thanks for reading this review. It’s always satisfying for me to provide some clarity on how they really work.

Free Guide: What Every K-12 Employee Should Know About Their 403B Plan

Retirement investing for teachers can be confusing. This guide is an excellent source of information about the various options available to you as a school district employee answering important questions.

Get Your Free 403b Guide

If you have an annuity or other financial product you’d like to see an in-depth review on just let me know,  I’d be happy to take a stab at it. If you know a teacher or someone who is thinking about an annuity and might benefit from this post, feel free to forward it on to them via email.

Are you a Facebook user? One of the best ways to spread this message around is by “sharing” the post by using the Facebook icon below (it’s a blue square with a white F on it).

Thanks again for reading, and as always, if you have any questions or would like to have your retirement portfolio reviewed, don’t hesitate to reach out and schedule your no-obligation consultation.

None of the third parties referenced in this communication are affiliated with Warwick Valley Financial Advisors, Private Advisor Group or LPL Financial. 

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. 

No investment strategy, including asset allocation and diversification, assures a profit or protects against loss.

Mutual fund investing involves risk, including possible loss of principal. 

The target date is the approximate date when investors plan to start withdrawing their money.  The principal value of a target fund is not guaranteed at any time, including at the target date.

omni 403b preferred provider program

Understanding the OMNI 403b P3 Plan Providers

In this post we aim to provide objective, trustworthy information about OMNI® and their 403(b) P3 Providers. As of this publish date, there are 35 providers available for school districts to add to their retirement plans.

Who is OMNI?

OMNI® is a Third-Party Administrator (TPA) of 403(b) plans. They work with school districts to help ensure compliance with IRS regulations governing the operation of 403(b) plans. OMNI® also helps your employer remit 403(b) contributions to participating service providers.

If your TPA is OMNI, then your school district may offer any of the 35 OMNI P3 Preferred Providers, each with their own account options, pricing structures, fees and investment products for you to choose from.

If you see an OMNI P3 provider that is not currently available to your school district, go ahead and contact your HR department and request to add that provider. Most times it’s just a flip of a switch. Many of these providers also offer a ROTH 403b option that you can request to ‘turn on’ as well.

What is 403bCompare?

Where possible, we have linked to vendor details on 403bcompare.com. The 403bCompare web site is a database of free, objective information about 403(b) vendors and the products they offer. The site was created to help employees of California’s local school districts, community college districts or county offices of education make better-informed investment decisions.

Suprisingly, neither NY (nor Omni 403b) have a comparable, objective resource but the vendor information is still relevant and accurate for NY’s K-12 school employees.

We hope the below links will serve as a great resource when making your initial 403(b) selection or if you are trying to make a change.

PROVIDERProduct TypesROTH eligibleProvider Details
American CenturyMutual FundsROTH eligible403b provider details
American Fidelity* Mutual Funds – 403b provider details
Ameriprise Financial / River Source Annuities
–403b provider details
Aspire Financial ServicesMutual FundsROTH eligible403b provider details
AXA Equitable 
Life Insurance Company
Annuities
ROTH eligible403b provider details
axa annuity review
MetLife


Brighthouse Life Insurance Co.		AnnuitiesROTH eligible403b provider details
metlife annuity review

Brighthouse 403b Annuity Review
Chemung Canal Trust Co.––403b provider details
Confidential Financial Planning / Multichoice
Mutual Funds
–403b provider details
confidential planning 403b review
Faculty Services Corp
Annuities & Mutual Funds
ROTH eligible403b provider details
Foresters Financial 
(First Investors)
Mutual Funds
ROTH eligible403b provider details
FTJ Fundchoice / Orion Portfolio Solutions
Mutual Funds ROTH eligible403b provider details
Global Atlantic Financial Group
 ––403b provider details
GLP & Associates
Mutual Funds–Provider details
Great American Insurance Group
Annuities–403b provider details
GWN/Employee Deposit Acct*Mutual Funds
ROTH eligible403b provider details
Horace Mann Life
Annuities–Provider details
Kades Margolis
––Provider details
The Legend Group, Inc / Adserv
Annuities & Mutual Funds
ROTH eligible403b provider details
Lincoln FinancialAnnuities–403b product details
Lincoln Investment Planning, Inc. Annuities & Mutual Funds ROTH eligible403b provider details
Mass MutualAnnuities & Mutual Funds –403b provider details
Mutual Inc/Plan Member Services Corporation Annuities & Mutual Funds ROTH eligible403b provider details
National Life Group (LSW)
Annuities
–403b provider details
New York Life Ins. & Annuity Corp.
Annuities
–403b provider details
Oldham Resource Group
Mutual Funds
ROTH eligible403b provider details
Oppenheimer Funds Distributors, Inc Mutual Funds ROTH eligible403b product details
Primerica Financial Services
Mutual Funds
ROTH eligible403b provider details
Security Benefit Annuities & Mutual Funds ROTH eligible403b provider details
Sgroi Financial––403b product details
TEG Federal Credit UnionAnnuities & Mutual Funds
–403b provider details
Thrivent Financial for LutheransAnnuities & Mutual Funds
–403b provider details
TIAA-CREFAnnuities / Mutual Funds
–403b provider details
VALICAnnuitiesROTH eligible403b provider details
Voya (formerly ING) AnnuitiesROTH eligible403b provider details
Waddell & Reed, IncMutual Funds–403b provider details

How do you narrow down a list of 403(b) Providers?

Comparing providers, analyzing the pricing structures and finding hidden fees is no small task…and neither your school district, nor OMNI® can recommend any specific provider.

But is essential to make an informed decision about 403(b) providers because your selection WILL affect your retirement account in the future.

We can help.

Free Guide: What Every K-12 Employee Should Know About Their 403B Plan

Retirement investing for teachers can be confusing. This guide is an excellent source of information about the various options available to you as a school district employee answering important questions.

Get Your Free 403b Guide
  • Read our recent post on How to Select a Suitable 403(b) Vendor
  • Download our user-friendly 5-step Teachers Shopping Guide that covers the basics of narrowing down your Provider options.
  • Check out our (b)informed blog dedicated entirely to K-12 teacher retirement plan topics.
  • Ask us to host an informative school seminar for your district employees.
  • Schedule a complimentary portfolio review at school friendly hours. This is where we look over your plan, discuss your needs, and identify the investments that are suitable for you.

If you’re still suffering from the paradox of too much choice, or if you have specific questions about your plan or the fees you might be paying, please get in touch.

Get in Touch Today!

Warwick Valley Financial Advisors aims to help teachers make the most of their money and utilize their finances to live exceptional lives. We’d love to hear from you and provide more information on how we can help with your financial planning whether it be retirement, insurance, student loans, or other important financial matters.

I am an independent advisor committed to the fiduciary standard, and I don’t earn commissions from the recommendations that I make to clients.


Investing in mutual funds and variable annuities involves risk, including possible loss of principal.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Warwick Valley Financial Advisors and LPL Financial are not affiliated with or endorsed by OMNI 403b.

1-830185

Warwick Valley CSD 403(b) Plan Review

Before You Sign On The Dotted Line, Do Your Homework

A 403(b) plan can be an excellent way to save money for retirement. It can serve as a supplement to your NYSTRS pension plan. But choosing the right 403(b) retirement plan can be overwhelming especially if you work in a school district.

In this article, we aim to provide a comprehensive overview of Warwick Valley CSD’s 403(b) Plan & Provider options. The article is broken into two parts:

1403(b) BASICS
Click and expand these sections below to learn more about each topic.

2403(b) PLAN REVIEW
Warwick Valley CSD’s 403(b) providers and their products.

Let’s get started!

403(b) BASICS

What is a 403b plan?

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan provided by certain employers. Employers such as public educational institutions (public schools, colleges and universities), certain non-profits, and churches or church-related organizations may offer 403(b) plans.

Similar to 401(k) plans, 403(b) plans allow you to contribute pre-tax money from your paycheck to your 403(b) plan to invest in certain investment products.

The 403(b) is named after the section of the IRS code governing it.

How does a 403(b) plan work?

School district employees make contributions to a 403(b) on a pre-tax basis through a Salary Reduction Agreement.

This is an arrangement where the participating employee agrees to take a reduction in salary. The amount by which the salary is reduced is directed to investments offered through the employer and selected by the employee. These contributions are called elective deferrals and are excluded from the employee’s taxable income.

These pre-tax contributions and any investment earnings will not be taxed until you withdraw the money, typically after you retire.

What are the benefits to contributing to a 403(b) plan?
There are three main benefits to contributing to a 403(b) plan.

  • The first benefit is that you don’t pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. Allowable contributions to a 403(b) plan are either excluded or deducted from your income. However, if your contributions are made to a Roth contribution program, this benefit doesn’t apply. Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free.
  • The second benefit is that any earnings and gains on amounts in your 403(b) account aren’t taxed until you withdraw them. Any earnings and gains on amounts in a Roth contribution program aren’t taxed if your withdrawals are qualified distributions. Otherwise, they are taxed when you withdraw them.
  • The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account.
Contribution & Catchup Limits

Participants may contribute up to $19,000 for 2019.

Participants age 50 and older at any time during the calendar year are permitted to contribute an additional $6,000 in 2019, for a total of $25,000.

Also the plan offers the 15-years of service catch-up provision. Employees with 15 years of service with their current employer and an annual average contribution of less than $5,000 per year are eligible for an additional $3,000 contribution per year up to a lifetime maximum catch up of $15,000. This is known as the 15-year rule.

Source: Omni 403b

Catch-ups under the Plan

  • 15 Years-of-Service Catch-up Elective Deferral Contributions: Yes
  • Age 50 Catch-up Elective Deferral Contributions: Yes

Contributions to the Plan

  • Direct Rollovers Into the Plan: Yes
  • Employer Contributions Allowed: Yes
  • Employer Post Severance Contributions Allowed: Yes
  • Exchanges Within the Plan: Yes
  • Roth Contributions: Yes

Other Plan Transactions

  • Hardship Distributions: Yes
  • In-service Distributions After Age 59-1/2: Yes
  • In-service Distributions From Rollover Accounts: Yes
  • Loans: Yes
  • Permissive Service Credit Transfers: Yes
  • Plan-to-Plan Transfers To the Plan: Yes
  • Plan-to-Plan Transfers From the Plan: Yes
Roth Contributions Available

MWCSD allows Roth 403(b) Contributions. Roth contributions are deferred from paychecks to investment accounts on an after-tax basis, as opposed to Traditional 403(b) which are deferred on a pre-tax basis.
The Roth 403(b) offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Withdrawals prior to age 59 ½ or prior to the
account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth accounts.

For more details read: The Roth 403(b)

Note: Roth 403(b) accounts are not available from all P3 Providers. Please review the information listed on the Warwick Valley CSD 403(b) Providers page for providers that show “403(b) Roth Account Available” after the provider name where applicable, then follow the Enrollment Steps to begin participation.

How do I enroll in the plan and start contributions?
To enroll in a 403(b) Retirement Plan, you must do 3 things:

  1. Select the provider you wish to invest with from the OMNI’s list of approved providers on its Web site.
    Employees should contact each provider for information about the 403(b) products and services it offers. This is often the biggest and most important hurdle!
  2. Establish an account with your chosen provider. Application forms can be obtained from the representative of, or the investment provider you select. The application is submitted to the investment provider for processing.
  3. Make contributions by completing the “OMNI Salary Reduction Agreement” (SRA) form*, which authorizes OMNI to withhold the amount you elect to contribute to your 403(b) via payroll deduction. The Omni SRA
    form is used to establish, change, or cancel salary reductions withheld from your paycheck and contributed to the 403(b). Your employer will forward the contribution to the investment company on your behalf.

*Important- You MUST establish an account with your selected provider prior to the date you begin the Salary Reduction. If the account has not been properly established, your contributions will be returned to you and will be taxable. Verifying that account has been established before submitting the SRA will expedite the process and help to avoid having funds returned to you.

What are the investment options in a 403(b) Plan?

As a participant in a 403(b) plan, you may need to choose among different types of investments. Typically, 403(b) plans offer two types of investment products – annuities and mutual funds.

An annuity is a contract between you and an insurance company that requires the insurer to make payment to you, either immediately or in the future. There are three basic types of annuities:

Fixed annuity.

The insurance company promises you a minimum rate of interest and a fixed amount of periodic payments. Fixed annuities are regulated by state insurance commissions. Please check with your state insurance commission about the risks and benefits of fixed annuities.

Variable annuity.

The insurance company allows you to direct your annuity payments to different investment options, usually mutual funds. Your payout will vary depending on how much you put in, the rate of return on your
investments, and expenses. The SEC regulates variable annuities. For more information about their benefits and risks, please read our Investor Bulletin: Variable Annuities – An Introduction.

Indexed annuity.

This annuity combines features of securities and insurance products. The insurance company credits you with a return that is based on a stock market index, such as the Standard & Poor’s 500 Index. Indexed annuities are regulated by state insurance commissions. Please check with your state insurance commission about the risks and benefits of indexed annuities.

Mutual Fund

A mutual fund is the common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from investors and invests the money in stocks, bonds, short-term debt or money market instruments, or other securities. Mutual funds issue redeemable shares that investors buy directly from the fund or
through a broker for the fund.

IMPORTANT! Vendors may use different names for these investment products. After reviewing the vendor’s plan materials, if you are uncertain about what type of investment product a vendor offers, contact the vendor and ask them to explain it to you.

For more information about annuities and mutual funds, please read our descriptions on Investor.gov (annuities,mutual funds).

Things to consider before selecting a provider
First, do not assume that your employer has endorsed any vendor. Neither your employer nor Omni 403b can offer any investment advice or market investment products.

Determining which investment products best meet your financial objectives and identifying a vendor who sells those products is very important. Different vendors sell different types of products, and some vendors only offer a limited number of choices. Before selecting a vendor you should:

  • Read your employer’s 403(b) documents to learn the basic rules for how your plan operates.
  • Read each vendor’s 403(b) plan materials. A vendor’s plan materials generally may include:
    • A background description of the vendor
    • A description of the vendor’s investment products and services, including information related to product fees and past investment performance
    • Information related to the vendor’s fees for administering and operating the 403(b) plan (“vendor fees”), including: brokerage fees, advisor fees, account transfer or closure fees, record-keeping or custodial fees, and general administrative fees
    • Any additional information the vendor may need to provide as required by applicable federal or state laws.
  • Research each vendor’s background, credentials and experience. For tips on researching a vendor registered with the SEC or state securities regulators, please read the SEC’s Investor Bulletin: Top Tips for Selecting a Financial Professional. Vendors that are insurance companies generally register with your state’s insurance commission. For information on how to research insurance companies in your state contact your state insurance commission.
  • Understand how much you’ll pay for the vendor’s investment products and services, including any fees or commissions. Ask each vendor if it provides this information in a simple form that you can easily compare to similar information from other vendors.

You may want to consult with your own stock broker, tax advisor, financial consultant, or insurance agent before making your decision.

Warwick Valley CSD 403(b) Plan Review

Warwick Valley CSD is part of OMNI’s Preferred Provider Program (P3) which allows you to choose your 403(b) provider from a list of pre-selected Providers / Investment Companies.

Who/what is the Omni Group?
OMNI® is a Third-Party Administrator (TPA) of 403(b) plans. They work with your school districts to help ensure compliance with IRS regulations governing the operation of 403(b) plans. OMNI® also helps your employer remit 403(b) contributions to participating service providers. OMNI® is NOT an investment company/ service provider- they do not offer and cannot recommend any specific investment vehicle.

Warwick Valley CSD currently has 15 different Providers listed at OMNI, each with their own account options, pricing structures, fees and investment products for you to sift through.

Generally, Providers offer access to their investment products in three different ways:

  1. Via In-House Professionals:
    The investment products offered by these Providers are accessed through a financial professional. Typically to access an annuity or mutual fund from these Providers you would work with a financial professional that is an employee of the Provider. Most these companies only offer their proprietary investment products.
  2. Via Independent financial professionals:
    The investment products offered by these Providers are accessed through a financial professional like Warwick Valley Financial Advisors. These Providers typically do not sell through in-house employees but rely on independent financial professionals to market their annuities and/or mutual fund products. Independent financial professionals often have relationships and experience with multiple, but not all, Providers.
  3. Direct to Plan Participants (DIY):
    The investment products offered by these Providers generally are accessed directly by plan participants. Typically, participants work directly with these Providers and do not work through a financial professional.

Below, are Warwick Valley’s 15 Providers with links to provider details. We have tried to provide more informative links about each Provider than is currently available on OMNI’s 403(b) Plan Detail page.

PROVIDERProduct TypesROTH eligibleProvider Details
Ameriprise Financial / River Source Annuities
–403b provider details
Aspire Financial ServicesMutual FundsROTH eligible403b provider details
AXA Equitable 
Life Insurance Company
Annuities
ROTH eligible403b provider details
axa annuity review
MetLife


Brighthouse Life Insurance Co.		AnnuitiesROTH eligible403b provider details
metlife annuity review

Brighthouse 403b Annuity Review
Confidential Financial Planning / Multichoice
Mutual Funds
–403b provider details
confidential planning 403b review
Foresters Financial 
(First Investors)
Mutual Funds
ROTH eligible403b provider details
FTJ Fundchoice / Orion Portfolio Solutions
Mutual Funds ROTH eligible403b provider details
GWN/Employee Deposit Acct*Mutual Funds
ROTH eligible403b provider details
IPX FidelityMutual FundsROTH eligible403b provider details
IPX VanguardMutual FundsROTH eligible403b provider details
Lincoln Investment Planning, Inc. Annuities & Mutual Funds ROTH eligible403b provider details
The Legend Group, Inc / Adserv
Annuities & Mutual Funds
ROTH eligible403b provider details
Lincoln Investment Planning, Inc. Annuities & Mutual Funds ROTH eligible403b provider details
New York Life Ins. & Annuity Corp.
Annuities
–403b provider details
Oppenheimer Funds Distributors, Inc Mutual Funds ROTH eligible403b product details
VALICAnnuitiesROTH eligible403b provider details
Voya (formerly ING) AnnuitiesROTH eligible403b provider details

Effective July 1 2014, the following Service Providers are no longer authorized to establish new 403(b) accounts for this plan. Please note, Employees contributing to one of these service providers as of July 1, 2014 may continue their contributions without interruption:
Fidelity Management Trust Co.,   Mass Mutual VA,   MetLife (FC), Paul Revere Insurance Group, Putnam Investments,   T. Rowe Price Trust Co., Vanguard Fiduciary Trust Co.

So how do you choose a 403(b) Provider that’s right for you?

Comparing 15 Providers, analyzing the pricing structures and finding any hidden fees is no small task. But it is essential to make an informed decision because your selection WILL affect your retirement account in the future.

Our 5-step Teachers Shopping Guide is a user-friendly guide that covers many of these topics. Visit our (b)informed blog for more informative 403(b) articles.

There is no cost or obligation to ask a question about your options. Call 845-981-7300.

We can help.

Warwick Valley Financial Advisors aims to help teachers make the most of their money and utilize their finances to live exceptional lives. We’d love to hear from you and provide more information on how we can help with your financial planning whether it be retirement, insurance, student loans, or other important financial matters.

If you’re suffering from the paradox of too much choice, or if you have questions about your plan and the fees you might be paying, please drop us a note.

If you have recently retired or are terminating employment with the Warwick Valley Central School District, then you have some important decisions to make about your investment allocations. Contact us today to get started on your complimentary portfolio review.

I am an independent advisor committed to the fiduciary standard, and I don’t earn commissions from the recommendations that I make to clients.

My firm has agreements with FTJ Fundchoice & Aspire financial who are available on the Warwick Valley CSD Omni Provider list and I offer prospective clients a complimentary portfolio review. This is where we look over your plan, discuss your needs, and identify the investments that are the right fit for you.

Get in Touch Today!

Investing in mutual funds and variable annuities involves risk, including possible loss of principal.

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

Equity Indexed Annuities (EIAs) are not suitable for all investors. EIAs permit investors to participate in only a stated percentage of an increase in an index (participation rate) and may impose a maximum annual account value percentage increase. EIAs typically do not allow for participation in dividends accumulated on the securities represented by the index. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Withdrawals prior to 59 ½ may result in an IRS penalty, and surrender charges may apply. Guarantees are based on the claims paying ability of the issuing insurance company.

None of the third party service providers mentioned are affiliated with Private Advisor Group, Warwick Valley Financial Advisors or LPL Financial.

Warwick Valley Financial Advisors and LPL Financial are not affiliated with or endorsed by the Warwick Valley CSD.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

An Independent Review of Aspire Financial 403(b) retirement plan platform

Dear Reader,

If you are like many school district employees, there is a good chance you are using a 403(b) plan as a supplement to your pension in order to build a healthier retirement. This is a detailed review of Aspire Financial, a lesser known 403(b) retirement plan provider.  If you work in a K-12 school district with a 403(b) option, there is a chance you have access to Aspire Financial 403b on your district’s 403(b) provider list. 

Aspire does not employ or compensate a sales staff to go into school districts and solicit participants. Aspire mainly derives new business by either a participant contacting them directly or through independent investment advisors, so many school district employees probably have never had a chance to learn about the benefits of using the Aspire Financial 403b platform.

About this Review

The world of investments can be intimidating, but really it’s like any other shopping experience.  You want to compare prices and features and understand exactly what you’re buying. This review will help you do that.

My goal is to make my review of this company platform as impartial and objective as possible. The review will cover the following information on Aspire Financial:

How will this product review help you?

In this review you will:

  • Learn about a lesser known provider that may be an available option at your school district.
  • Familiarize yourself with the advantages of an open architecture structured 403b plan  
  • Make you aware of one of few “do it yourself” retirement plan options that could help you reduce your fees and expenses vs. other advisor directed plans.
  • Understand how to compare this product’s fees, features, and benefits against other available 403(b) investments options to determine if it is priced competitively.

About Me

For readers who have found my website and don’t know much about me, I am a fee-only financial planner held to the Fiduciary Standard . I am legally obligated to make recommendations that are in the best interest of my clients. I’m also on a mission to inform teachers and other school district employees about the companies and products that are offered in the 403b marketplace. I have clients that use this company & I am a financial advisor who is approved to manage accounts at this Aspire Financial. 

Legal Disclosure

This is a review, not a recommendation to buy or sell a mutual fund or variable annuity. Aspire has not endorsed this review in any way, nor do I receive any compensation for this review. This review is meant to be an independent review at the request of a client so they can see my perspective when breaking down the positives and negatives of this an open architecture platform company.  Before purchasing any investment product, be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances.

This information was gathered from Aspire Financial’s website –and is not a substitution for individual tax or legal advice. I’m just reporting on the main facts; to find answers specific to your situation may require a review of the full plan for applicable details.

Let’s get started.

Aspire Financial 403b Plan Review

PLATFORM OVERVIEW

Aspire Financial 403b

Aspire Financial is a company that offers a multi-fund family platform in the 403b marketplace.   Aspire is an open-Architecture retirement recordkeeping platform currently acting as a provider in over 3,500 school districts in the United States.  They have been in the 403(b) marketplace since 2012.

Product NameAspire Financial 403(b)(7)
Type of productMutual Funds
Platform TypeOpen Architecture
Phone Number866-634-5873
Websitewww.aspireonline.com

INVESTMENT OPTIONS

Aspire is one of the few companies that offers an open architecture mutual fund program which allows plan participants to manage their own accounts or to work with the advisor of their choosing, the investments of their choosing, and money managers or investment strategists of their choosing.

Aspire Financial offers a wide range of investment options inside their platform. Investors have access to over 10,000 investment options including numerous equity and fixed income portfolios as well as various risk based asset allocation and target date portfolios.

They offer access to thousands of no-load, no-transaction fee mutual funds on their 403(b) FundSourceSM program.  Participants can customize the 403(b) FundSourceSM program to construct an investment portfolio based on your needs or overall financial plan. At any time, you may request to add (or delete) funds to your account based on availability at the 403(b) FundSourceSM custodian.

Aspire gives you access to some of the leading mutual fund families such as:

Vanguard, Fidelity, Blackrock, Invesco, DFA, American, MFS, Oppenheimer, PIMCO, Franklin Templeton and  T Rowe Price (500 in total)

They also offer a guaranteed interest option and professional money management.

Mutual Funds – FundsourceSM
Prudential Guaranteed Interest Option*
Professional Money Management
Aspire makes available a selection of more than 10,000 mutual funds from over 500 fund families.
This includes those share classes available from the associated fund family. Some funds may require certain minimum contribution levels in order to meet institutional share class availability. Aspire does not have proprietary mutual funds.		Aspire partnered with Prudential to develop an unallocated fixed-annuity that trades like a mutual fund. All money receives the same rate of return, making it easier for a participant to understand the crediting rate.
There are no transfer restrictions associated with the option. There are also no surrender charges. The option is not available in every state and is only offered through advisors who are insurance-licensed and have an appointment with Prudential.
*May not be available in all states. 		By using third-party investment managers (Strategists), participants—and, if applicable, their advisors—are able to select from portfolios designed by professionals, instead of picking individual funds. The money manager is responsible for monitoring the performance and rebalancing or changing funds to help meet the performance objective.

FEES & EXPENSES of Aspire Financial 403b

Direct fees vs. Indirect fees

When working with Aspire or other custodial brokerage firms you will encounter administration fees and costs that are assessed to your account which will be direct as well as indirect. Direct fees are the contractual fees that are visible to the plan participants and generally include an annual custody fee and a participant fee charged by Aspire. Indirect fees are fees charged by the mutual fund families that are netted against the value of that you have invested in each investment fund as part of the funds overall expense ratio and are not visible to you the participant. So your fees may differ from other participants depending on multiple factors.

Direct Fees:

Administration Custodial fee:  0.15% 
Aspire charges a custody fee of 15 basis points (0.15%) of the account value annually for its recordkeeping services. These fees are assessed against the participant’s accounts monthly.

In most cases, up to $20 of the account fee is used to offset some or all the
TPA’s fees.

Other Applicable, Transparent Plan & Participant-Level Fees:

  • $100 loan initiation
  • $75 per distribution processing
  • $10 recurring distributions
  • $25 check replacement
  • Surrender fees: None

Indirect Fees:

Underlying Portfolio Operating Expenses: 
This is another ongoing fee charged for the investments inside of the mutual funds. The internal expenses of mutual funds range from 0.05% to 2.09%.

Investment Expense
Reflected in the mutual funds selected.

Withdrawal Charges: 
Some share class mutual funds may have surrender charges. Please check each funds prospectus for more details.

Professional Money Management//Strategist Services
If you choose to use money managers, fees specific to the strategist are deducted from participant account balances.

FEATURES & BENEFITS of Aspire Financial 403(b)

Plan Benefits:

  • Traditional and Roth for 403(b) and 457 are available
  • Loans available up to  50% of your account value  with a $50,000 maximum
  • Third-Party Money Manager services are available
  • Participants can enroll directly and invest at their own direction, or work with an advisor of their choice. (see more on Self-Directed or Advisor-Directed below)

Investment Benefits:

  • No proprietary fund requirements
  • A guaranteed interest option is available, without surrender charges or restrictions
  • Dollar cost averaging

Fee Benefits:

  • Transparent fee structure
  • 403(b)7 custodial account platform offers access to low-cost mutual funds

Customer Service Benefits:
A wide range of account and investment data is available on Aspire’s website, including links with prospectus, annual reports, semi-annual reports, and SAI.

  • Within online accounts, participants have links to educational videos, FAQs, white papers, and several calculators from S&P and other sources.
  • Links to Morningstar® reports a leading fund analysis source
  • Rebalance investments based on new investment election percentages.
  • Required Minimum Distribution Services
  • Customer Service Support – Representatives are available Monday – Friday, 8:00 a.m. – 8:00 p.m.
  • Paper statements are mailed quarterly; however, statements can be accessed at any time and for custom time periods via this portal.

Self-Directed vs Advisor Directed Option:

Self-Directed Account Option

Many investors feel comfortable putting their investment decisions in their own hands. Self-directed brokerage accounts enable the participant to set up, pick funds and manage their account without an advisor. Being a self-directed investor has its advantages, as it allows you to take more control over your money.

More control begets two main benefits:

  1. Lower costs — investors who use to use self-directed option avoid any advisory fees that might be charged when working with a financial professional on Aspire’s platform. Also participants can choose from hundreds of no-load, lower-cost mutual funds choices that are available.
  2. Fewer conflicts — Hiring a financial advisor could invite conflict of interest. Many advisors are paid more to sell certain products that carry higher fees. Some less ethical advisors will steer you toward products where they get the largest commission when you invest in them. Self-directed investors eliminate many of the conflicts of interest that can work against them.

Advisor-Directed Account Option

If the participant chooses to work with an advisor, they should be aware of the various ways in which the adviser can be compensated. When working with an advisor or Registered Rep there are a few layers of fees that you will need to be aware of.

  1. Direct Fees: Aspire’s fees are still the same.  0.15% fee on assets & $40 a year.
  2. Indirect Fees: Investment fees will be the same. An expense ratio is the cost investment mutual fund companies charge investors to manage a mutual fund. The expense ratio represents all of the management fees and operating costs of the fund.
  3. Advisor / Sales Rep Compensation: Aspire 403(b) accounts can be set up and managed by Registered Reps or Investment Advisor Reps.  The way advisors are paid can lead to some big differences between the two and the services you receive from them.
    • Commission-based advisors: Advisors on Aspire’s platform that are paid by commission receive their compensation from their clients purchasing mutual funds with a “load”. A load fund is a mutual fund that comes with a sales charge or commission. The fund investor pays the load, which goes to compensate a sales intermediary, such as a broker, financial planner or investment advisor, for his time and expertise in selecting an appropriate fund for the investor. For a commission-based advisor, the more transactions they complete or the more accounts they open, the more they get paid.  Participants should familiarize themselves with the various Mutual Fund share classes that Aspire offers. Each share class differs in what type of load or compensation their advisors will receive up-front & in the future. 
    • Fee-based advisors: Fee-only financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Fee-only financial advisors are paid directly by clients for their services, be it a flat fee, hourly rate or a percentage of assets under management, typically around 1% of a client’s portfolio’s value each year.

ADVANTAGES of Aspire Financial 403b

  • Aspire has one of the most extensive open architecture platforms in the 403b marketplace.
  • Retirement investors can select their own mutual fund investment or work with the assistance of a Financial Advisor Representative.
  • Aspire has some industry leading technology that enables you the manage your retirement account through their web-based platform.
  • Very competitive fee structure vs other providers (0.15% custodial fee & $40 annual maintenance fee)
  • Whatever your investment philosophy,  passive index investing  to socially responsible investing  Aspire provides funds that could potentially fit your needs?

DISADVANTAGES

  • Aspire’s customer service may be slower than some participants expectations and what they may be accustomed to with providers.
  • As an example, processing time for opening a new account is 7 – 10 business days.
  • Having to choose from mutual funds with multiple loads schedules can be confusing. Make sure you read each mutual fund’s prospectus that you plan on investing in in order to understand the load & fees of each fund
  • If you chose to “do it yourself” be aware that you will need to build knowledge regarding investing, spend time managing your own account & hopefully have the desire to do this on your own.

CONCLUSIONS on Aspire Financial 403b

Let’s recap:

Aspire Financial is a company that offers one of the most diverse multi-fund family platforms in the 403b marketplace.

Aspire is one of the few companies that offers an open architecture mutual fund program which allows plan participants to manage their own accounts or to work with the advisor of their choosing, the investments of their choosing, and money managers or investment strategists of their choosing.

Selecting a 403b provider that only sells their proprietary products may not offer all the financial products a client needs or that are in a client’s best interests. Open architecture makes it possible for investors and their advisors to select the best funds available and obtain the best potential investment performance given their needs and risk tolerance. Open architecture also helps investors obtain better diversification and possibly reduce risk by not placing their entire future investment returns in the hands of a single investment firm and its approach.

Many companies offer school district employees their proprietary mutual fund products but if the participant is unhappy with any component (fee/performance) of the plan, it is forced to close their accounts and transfer to another vendor.

At Aspire you have access to 500 different families of mutual funds so there is a good chance that you can invest in  the same funds that is being offered at any of the other 403b companies and possibly at a lower cost.

Things to consider about Aspire Financial 403b platform:

Avoidable vs un-avoidable fees:

  • Aspire’s unavoidable fees are their custodial fees charged by Aspire are 0.15% of your account value. $40 annually
  • Other unavoidable fees are the investment fund fees, but these will vary depending on which funds are selected. Aspire gives you access to some of the lowest cost funds available in the industry, so do your homework.
  • If you choose to work with an advisor, then there is a good chance there will be an additional fee which is negotiable with would be negotiated between you and the advisor.  Aspire has no policy for determine what advisers charge for there services.
  • There are no Surrender Charges to leave Aspire’s platform but some funds may have surrender charges.
  • No death benefit fees are charged on any on the investment options on the platform.

When this investment might make sense:

If you don’t currently use Aspire Financial 403b or another open architecture platform now may be a good time to take a look and evaluate these types of companies to see if they would be a good fit for your long-term goals.  If you are interested in a more detailed analysis specific to your situation, feel free to contact me.

THANK YOU

Thanks for reading this review. It’s always satisfying for me to provide some clarity on how they really work.

If you have an annuity or other financial product you’d like to see an in-depth review on just let me know,  I’d be happy to take a stab at it. Do you know a teacher or someone who is thinking about an annuity and might benefit from this post? Feel free to forward it on to them via email. If you have a Facebook account, one of the best ways to spread this message around is by “sharing” the post by using the Facebook icon below.

Thanks again for reading, and as always, if you have any questions or would like to have your retirement portfolio reviewed, don’t hesitate to reach out and schedule your no-obligation consultation.

None of the third parties referenced in this communication are affiliated with Warwick Valley Financial Advisors, Private Advisor Group or LPL Financial. 

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. 

No investment strategy, including asset allocation and diversification, assures a profit or protects against loss.

Mutual fund investing involves risk, including possible loss of principal. 

The target date is the approximate date when investors plan to start withdrawing their money.  The principal value of a target fund is not guaranteed at any time, including at the target date.

Free Guide: What Every K-12 Employee Should Know About Their 403B Plan

Retirement investing for teachers can be confusing. This guide is an excellent source of information about the various options available to you as a school district employee answering important questions.

Get Your Free 403b Guide