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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.

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.

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.

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.

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.

An Independent Review of: The AXA EQUI-VEST® (Series 201) contract for employer-sponsored 403(b) retirement plans

Dear Reader,

This is a detailed post about a popular 403(b) annuity product, the AXA EQUI-VEST variable annuity. As a participant in a 403(b) account, you have the choice to invest in either mutual funds or annuities. If you work in K-12 school and participate or plan to participate in a 403(b), there is a good chance you may get pitched the AXA EQUI-VEST variable annuity. In 2017, the North American Securities Administrators Association listed “variable annuity sales practices” as one of its top investor threats. If you own this annuity, or you’ve been pitched this by an agent/advisor and want an independent, objective review—then you’re in the right place.

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 about this commonly available variable annuity.

About this Review

Today I’m going to break down an annuity that is issued by AXA Equitable Life Insurance Corporation. Unlike other fee-only planners, I find that some annuities may be a part of a comprehensive financial plan when used correctly. My goal is to make my review of annuities as impartial and objective as possible.

This independent review will cover the following information on the AXA Equi-Vest Annuity:

  • Product type
  • Investment Options
  • Contribution Limits
  • Fees
  • Benefits
  • Features
  • Advantages
  • Disadvantages
  • Conclusions/Opinion

How will this AXA annuity product review help you?

If you are like many school district employees, there is a good chance you are using a 403(b) plan as a way to supplement your pension in order to build a healthier retirement. 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.

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.

In this review you will:

  • Learn facts/information you need to know about one of the most popular products being sold in school districts around the country today so that you can decide whether or not it is a good fit for you.
  • Get familiar with the various types of fees so that you’ll know exactly what you’ll be charged by the AXA Equi-Vest variable annuity.
  • Understand how to compare this product’s fees, features, and benefits against other available 403(b) investments options in order to determine whether this product is reasonably priced.
  • Gain a much clearer sense of whether this annuity fits your individual savings needs so that you can make an informed decision.

LEGAL DISCLOSURES

This is a review, not a recommendation to buy or sell a variable annuity. AXA 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 particular annuity model. 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 their prospectus dated May 1st 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.

So let’s get started.

 

AXA Equitable Life Insurance Company Variable Annuity Review

 

AXA EQUITABLE logo

AXA Equitable Life Insurance Company is the #1 provider of retirement plans for K-12 schools, serving more than 820,000 participants in over 17,000 plans.

The AXA EQUI-VEST® 201 series for 403(b) plan is a deferred annuity contract that is designed for school district employees.

Product NameAXA EQUI-VEST® 201
Type of ProductVariable Annuity
IssuerAXA Equitable Life Insurance Company
Standard & Poor's Rating A+ (Strong)*
Phone Number(800) 628-6673
Websitehttps://us.axa.com

*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.


Product Type:  Variable Annuity

Investment Options:  AXA EQUI-VEST variable annuity offers a wide range of investment options inside this contract. It offers Structured Investment Options (SIO) that enables you to invest for growth with some downside protection for a set period of time. Personal Income Benefit investment options give you the ability to turn your retirement savings into an annual withdrawal benefit. Investors have access to over 80 variable investment options including numerous equity and fixed income portfolios as well as various asset allocation and target date portfolios.

AXA has entered into sub-advisory agreements with Fidelity, Goldman Sachs, Invesco, Ivy Funds, Lazard, MFS, Oppenheimer, PIMCO, Franklin Templeton and Van Eck. (12b1)

Summary of Fees

  • Administration charge: 2% or $30
  • Separate Account Charges: 1.20 % (Mortality & Expense charge 0.95% + other expenses 0.25%)
  • Underlying Portfolio Operating Expenses: 1.03% (average fund expense)
  • Personal Income Benefit Charge: 1%
  • Withdrawal Charges: 5%

If you’re 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 to the insurance company associated with risk protection
  • Fees associated with the investment funds inside 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 a retirement, fees are an important consideration.  Let’s examine each fee and how they stack up against other investment options.

Administration Charge: This fee is charged on the insurance side and it will be the lower of either 2% or $30 of your account value plus any amounts withdrawn. They won’t charge you the $30 fee if your account value is $25,000 or more. This fee is pretty standard for annuity contracts of this nature.

Separate Account Charges: This is what the AXA Variable Annuity calls the M&E or mortality and expense fee at 0.95%, and they add another 0.25% for a total fee of 1.20%. 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 particular annuity contract, and it applies to all variable investment options.

This charge is common for 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. Mutual funds typically do not charge you this fee.

While 1.20% might not sound like that much, this fee can make a significant difference to the value of your portfolio when you retire. The SEC’s Office of Investor Education and Advocacy has issued bulletins warning investors how much fees can impact the growth potential of a portfolio. While the difference between .25% and 1% might not sound like a lot, assuming a hypothetical investment of $100,000 earning a 4% annual return, in 20 years’ time, that difference could reduce your portfolio by nearly $30,000. That could mean the difference between retiring early or late. Once you do retire, the difference between paying 1% or 2% could mean running out of money sooner.

Underlying Portfolio Operating Expenses: This is another ongoing fee charged for the investments inside of the variable annuity.  Detailed information about these fees can be found by digging through the prospectus. I did that for you. The internal expenses of the sub-accounts for this particular variable annuity range from 0.61% to 2.09% and average around 1.03%.

Personal Income Benefit Charge: This is the charge for Income Rider, an optional fee common for deferred annuities. This fee is charged by the life insurance side to cover the cost of providing the “Personal Income Benefit.” For this benefit, you will pay 1% annually, based on the value of your Personal Income Benefit account. One percent is a pretty standard charge for income riders, but do you need it?

For the younger investor in their 40s or 50s, paying the additional 1 percent for an income guarantee now may not make sense, especially when you consider that the income rider fee is assessed for the life of the policy. I’ll be going into the details when we get to the benefits and features section.

Withdrawal Charges: In addition to all the fees listed above, the AXA Equi-Vest 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.

Deferred annuities are long-term contracts and most annuities of this type charge surrender fees during the first 5 to 10 years of the contract. They also typically allow a 10% free withdrawal amount subject to federal income tax withdrawal restrictions.

In this case, AXA charges its contract holders a 5% penalty on any funds withdrawn that exceed the free withdrawal amount, but the duration of this fee starts over when you make a contribution. AXA states in the prospectus: “. . . the amount of the withdrawal charge deducted is equal to 5% of any contribution withdrawn attributable to contributions made within the current and five prior contract years, measured from the date of the withdrawal.”

It’s very common for people to withdraw money from their retirement plans. One in four workers currently in a qualified plan will take some form of an early withdrawal from a 401(k) or similar plan (according to the 17th annual Transamerica Center for Retirement Studies (TCRS) report). One thing to be aware of with this particular annuity is that the surrender charge is based on how long your contributions have been in the contract.

For example, if you are contributing $1,500 a month to your retirement plan, and 10 years into your contract you want to make a small withdrawal to pay off your home, you would have to pay 5% to AXA on any contributions made during the five previous years. Furthermore, withdrawals may “significantly reduce” the future income payments of the Personal Income Benefit for which you’re paying that additional 1%.

There are situations when the withdrawal charge is waived—for example, if you are confined to a nursing home for more than 90 days—and they no longer apply after the completion of 12 contract years.

How do the fees in this particular annuity stack up against the fees inside other investment options? According to one analysis from the independent investment research company Morningstar, the most popular version of the AXA Equi-Vest annuity has total annual operating costs that can range from 1.81% to 2.63%. By contrast, the average investment fees for mutual funds inside a 401(k) retirement plan cost investors 0.88%, according to a 2015 BrightScope report. However, variable annuities offer features and benefits that may not be available with other investment options.  Whether the higher fees make sense for you will depend on your specific needs and situation.


BENEFITS & FEATURES AS ADVERTISED BY THE AXA EQUI-VEST ANNUITY:

Contribution Limits

  • $18,500 / year (same as with a 401(k))
  • $6,000/ year allowed for catch-up contributions if over 50

Features

  • Tax-deferred Growth
  • Guaranteed Death Benefit
  • Personal Income Benefit
  • Structured Investment Option
  • Target Date Allocation Portfolios
  • Guaranteed Investment Option
  • Dollar cost averaging
  • Required Minimum Distribution Services
  • Roth Eligible

HOW IS AXA PAYING THE AGENT?

The salespeople who come out to your workplace and present you with investment options typically earn a sales commission whenever they get someone to buy into their annuity. AXA Equitable pays contribution-based and asset-based compensation to their agents.

Brokers generally receive an up-front commission when they sell a variable annuity.

This annuity also gives the agent commissions based on your contributions.

AXA pays agents 1.5% to 2% commissions on every future dollar you contribute to your 403(b) annuity. This creates ongoing compensation for your broker.

If you’re contributing the maximum 2018 amount of $18,500 to your plan and, if over 50, also taking advantage of $6,000 catch-up contributions, then AXA could be paying as much as $490 a year to your broker.

HOW AN AGENT MIGHT TRY TO SELL YOU THIS POLICY

EQUI-VEST® is a deferred annuity contract issued by AXA Equitable. This product is marketed as a solution to help supplement your retirement income needs. Its benefits include providing for the accumulation of retirement savings via tax-deferred growth. The contract also offers death benefit protection and, as discussed earlier, it offers a Personal Income Benefit for an additional cost.

A variable annuity is a type of deferred annuity, so there are two phases to your contract: the growth phase, and the income phase.

During the growth phase, you can invest on a tax-deferred basis in one or more of AXA’s variable investment options or guaranteed interest options (GIO) or structured investment options (SIO). There is no charge to move among the investment options. The sales agent may also tell you that these investments all benefit from tax-deferred growth.

Here’s what you may not realize:

If you have a 403(b) plan, then you’re already getting tax-deferred growth.  It’s a perk that comes with the plan. Buying this variable annuity or any annuity cannot give you double tax-deferral because there’s no such thing. Furthermore, any investment that you purchase inside your 403(b) account can give you tax-deferred growth.

There is no additional tax benefit to you when you buy this annuity inside a 403(b) or retirement plan.

On AXA’s website it will tell you this:

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.”

AXA also reminds you that you should buy this annuity based on its features and benefits, so let’s take a look at those.


ADDITIONAL BENEFITS AND FEATURES OF THE AXA VARIABLE ANNUITY

The Guaranteed Death Benefit Feature

Variable annuities invest directly in the market, and as such, they can lose money just like stocks and mutual funds. The death benefit is often sold as a way to guarantee that even if the market goes down and your contract loses money, a death benefit would still be paid. In this case, the AXA Equi-Vest variable annuity agrees to pay out your total contributions even if your account takes a terrible market hit.

Here are 3 things to keep in mind:

  • First, the death benefit is only paid out if you die. It does not guarantee that your account won’t lose money.
  • Second, this benefit doesn’t come free. You’re paying for it with the M&E fee we talked about earlier.
  • Third, you really have to ask yourself, what are the chances that you will die during the same year as a big market downturn?

Let’s say hypothetically you’ve contributed $100,000 over a 15-year period, and the investment performance helped it grow to $150,000 over that time period. Then the market takes a turn for the worse and drops by 30%. You basically lose all the returns you’ve gained. You see a $45,000 drop in your total account value, and your new account balance is now $105,000. You have a heart attack and go into the hospital. But you remember you have a death benefit! So, even if you die, you’ve been paying that 1.25% M&E fee all this time to guarantee that your beneficiary (in this case, your spouse,) will still get all the money you paid into this account. Then, you do the math and realize, you’ve only paid in $100,000. Even if you do die, your account didn’t drop below your total contributions, so the death benefit guarantee did not provide any guarantee in this example.

Statistically speaking, the chances of meeting with an untimely death when the market is down AND when you’ve lost a portion of your contributions may be relatively low. Yes, it could happen. But you should consider whether the cost of this feature is worth the potential benefits you could receive.

Case in point: A class action lawsuit brought against Hartford Life on behalf of about 24,000 municipal employees in San Diego County and Los Angeles CA illustrates one potential outcome: The plaintiff’s lawyers asked Hartford Life during the discovery process how much in death benefits the company had paid in the 17 years that both the San Diego and Los Angeles plans had existed. The answer: $119.[1]

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 AXA:

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 2.5% 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 these five allocation models:

  • AXA Moderate Growth Strategy,
  • AXA Balanced Strategy,
  • AXA Conservative Growth Strategy,
  • AXA Conservative Strategy, and
  • EQ/AB Dynamic Wealth Strategies.

EQUI-VEST® Structured Investment Options, Target Date Allocation, and Guaranteed Interest Option

AXA also gives you other options if you don’t want to pay the income rider fee. In fact, that’s one thing this annuity does have—a lot of choices.

If you’re looking for protection from market risk, you may select the Structured Investment Option (SIO) available within certain EQUI-VEST variable annuities. The SIO enables you to seek growth, up to a limit, with some downside protection. But how good is the protection?

The EQUI-VEST overview states: “There is risk of substantial loss of principal because you would
agree to absorb all losses to the extent they exceed the protection provided by the SIO at maturity. If you
want a guarantee of principal, you should consider other investment options or products that provide
such guarantees
.”

Okay. So, then you might select a Target Date Allocation Portfolio. This option gives you different investment strategies designed to adjust with you as you move through the phases of your life and become more conservative. Does being more conservative inside this variable annuity mean you won’t lose money right before your retirement date?

Says AXA: “The Target Date Allocation Portfolios are not guaranteed at any time, including the target date.”

How about the Guaranteed Interest Option (GIO)? This offers a guaranteed rate of interest and a guarantee of principal. That might sound good for someone who is nearing retirement and wanting to protect their nest egg. But how much can you protect?

25%. What if you know you need more money than that? Says AXA: “No more than 25% of any contribution can be allocated to the GIO.”

Let’s recap: As a participant in a 403(b) account, you have a choice to invest in either annuities or mutual funds. As previously noted, mutual funds may be less expensive, but do not offer the same features and benefits.

However, 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 variable sub-accounts and income riders that can (and often are) added on.  Over time, these additional costs can negatively impact your return potential.

POTENTIAL CONSIDERATIONS

Tax-deferred Growth: One of this annuity’s main advantages is that the investments inside this product give you tax-deferred growth. Investments growing tax-deferred can accumulate and compound untouched by federal, state, or local income taxes until you begin making withdrawals, which is usually after retirement. This is a good thing. But you’re probably already getting this benefit.

All deferred annuities provide tax-deferred growth potential, not just this one. Any investment inside a 403(b), 401(k), IRA, or tax-qualified retirement plan has the potential to grow tax-deferred, even if they aren’t inside an annuity.

A variable annuity in a 403(b) does not give you any additional tax benefits.

Overall Fees: There are additional fees associated with variable annuities that are not found in other types of annuities or mutual funds. If you don’t need the benefits of an annuity at this time, then paying for these fees for the next 10 to 20 years may not be in your best interest. Over time, higher fees can negatively impact your return potential.

 The variable annuity carries additional fees that should be considered.

You may annuitize your money

Deferred annuity contracts such as EQUI-VEST® provide for conversion to payout status at or before the contract’s “maturity date.” This is called annuitization. When your contract is annuitized, your money is converted into payouts (this being the payout phase). During this phase, you may receive periodic payments for life or for a specified period of time.

 The contract may be annuitized.


Conclusions on the AXA Equi-Vest Variable Annuity

Before buying into an annuity, it’s important to understand how it works, what benefits it may provide, the cost to you in fees, and perhaps most importantly, the role it can help play in your overall retirement plan. If the annuity doesn’t help move you toward your retirement goals, then it might not be the right choice for you.

Things to consider about this policy:

  • Overall fees including a Mortality and Expense Risk charge
  • Surrender Charges based on ongoing contributions
  • Agent commissions and compensation based on ongoing contributions
  • Income rider features that limit investment options for a lifetime fee
  • Annuitization of the contract may be required
  • Death benefits
  • No additional tax benefits when part of a 403(b)

When this investment might make sense: If you have already maxed out all your qualified retirement accounts 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 or not 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 making a decision.

If you currently own this annuity: Now may be a good time to take another look and evaluate this product in light of 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 break down complicated financial products out there to try and 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. 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. 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 (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.


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.


[1] “Can Annuities Pass Muster?” The Free Library. 2000 A.M. Best Company, Inc. 20 Apr. 2018

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

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.

Asset allocation does not ensure a profit or protect against a loss.

The target date is the approximate date when investors plan to start withdrawing their money.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

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

Riders are additional guarantee options that are available to an annuity or life insurance contract holder.  While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing.  Guarantees are based on the claims paying ability of the issuing insurance company.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.  The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

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. 

Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice 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 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 or by clicking on the prospectus link within this article. Read prospectuses carefully before investing.