by marcp » Thu Jul 19, 2012 12:10 pm
I'm self employed and most of everything I make goes into my business, but I feel compelled to get some money socked away outside of my business.
I know its not the right place to post but I am intrested in getting life insurance thats why I am here. Please look into this.
I have a 401(k) that I am in the process of rolling into an IRA with New York Life that I'm doing with a guy I know. I'm not at all convinced that a life insurance company is where I need to be putting all my money with.
I'm looking to start a Roth for me and my wife and maybe stick get some small mutual funds outside of retirement accounts. I may periodically get a stock or two to piddle with.
Anyway, I have no idea what are good companies to go with. I'd rather have one guy to go to, but it is not necessary, particularly if the fees are dramatically higher.
Where do you guys have your money stashed and do you like the service you're getting?
I know its not the right place to post but I am intrested in getting life insurance thats why I am here. Please look into this.
I have a 401(k) that I am in the process of rolling into an IRA with New York Life that I'm doing with a guy I know. I'm not at all convinced that a life insurance company is where I need to be putting all my money with.
I'm looking to start a Roth for me and my wife and maybe stick get some small mutual funds outside of retirement accounts. I may periodically get a stock or two to piddle with.
Anyway, I have no idea what are good companies to go with. I'd rather have one guy to go to, but it is not necessary, particularly if the fees are dramatically higher.
Where do you guys have your money stashed and do you like the service you're getting?
Posted: Thu Aug 16, 2012 06:38 am Post Subject:
Diversifying your investments is the key to minimizing risk. Affordable life insurance policies and the primary life insurance industry have been stable for many years. For more help, you'll get sound advice from a fee-only financial adviser who can assess your current situation and make recommendations that are appropriate to you and your financial situation at this time.
[link removed per TOU]
Pat Cassidy
Disclaimer: I work for [Link removed per TOU] and this is my personal opinion.
Posted: Thu Aug 16, 2012 04:16 pm Post Subject:
you'll get sound advice from a fee-only financial adviser
The fallacy of this statement is that the fee-only adviser will not give you bad advice. It also assumes that commission-only advisers/registered reps/agents only give advice that provides them with the most commission.
Most of us who are/were not fee-based reps give exactly the same advice that the fee-only reps do. Here's the BIG difference. For that identical advice, I get a one-time commission. The fee-only adviser gets 1% every year, whether the market is up or down. EVERY YEAR. After just 3-4 years, the fee-only adviser has been paid more than the commission-only rep. And the fee-only adviser will shameleesly collect that fee every year into the future. The higher one's portfolio value, the more their adviser is paid.
Who wins? Here's a clue: It's not the customer.
Posted: Sun Aug 19, 2012 10:31 pm Post Subject:
Max, I am parsing your statements on this one because I do agree with your premise that it is flawed thinking to believe that for some mystical reason those charging fees are somehow going to give better advice and/or be more ethical and/or be more objective.
That being said, commissioned advisors don't give the same advice that fee-only advisor gives. First of all, a commissioned advisor, can't get paid for giving advice. They get paid a commission for selling a product. The amount of commission that they get is dependent upon the product that they sell. If their b/d doesn't offer the product, they can't sell it.
The fee-only advisor can't sell a product. They can get paid for giving advice. A commissioned salesperson can't.
A fee-only advisor and a commissioned salesperson will give different advice. The commissioned salesman gets paid for selling the product. If they want to get paid again, they have to sell again. The person collecting that 1% fee is getting paid for on-going account management.
Posted: Mon Aug 20, 2012 01:35 am Post Subject:
A fee-only advisor and a commissioned salesperson will give different advice.
Well, we're probably going to disagree on this one regardless of what's said, and I'd rather not create a protracted argument. And I think it's far less a discussion of insurance than it is of other investment activity.
So what I'm categorizing as "advice" may be something entirely different than you are thinking about. Our self-promoting Pat Cassidy makes the statement about a fee-only adviser in a way that makes it appear that insurance agents do something entirely different because of commissions. I just don't see it that way -- because that's not the way I conduct my business, and never have. And neither do my other agent friends and acquaintances.
And, compared to the vast universe of products, there still aren't all that many non-commission insurance/annuity products available to fee-only advisers -- who must still have to have an insurance producer's license to transact the products. We are all under the requirements of insurance laws when it comes to providing products to clients, and the basic premise is that the client must obtain the best product at the best price.
Sure, clients occasionally come to either agents or advisers and say, "I want a variable [life insurance/annuity] product." And they might get whatever the agent/adviser wants to sell them, whether there's a commission or a fee. Theoretically, if both have the exact same lineup of products available, the client should end up with the same product either way, and with the same "well-allocated portfolio". Theoretically.
Why? Because the client should not have a different risk tolerance or investment objective whether he deals with a commission-compensated agent or a fee-based adviser.
The argument against commission sales agents/registered reps has always been, "They are only going to sell you what gives them the biggest commission." Well, I agree that SOME agents might do that -- my inbox is flooded each week with marketing hype promoting the "highest commission" rates. (In some sales environments it might once have been the corporate culture.) But you cannot make a blanket statement like that about all agents/reps.
Personally, I could care less what my commission is. And if a client asks about it, I have no trouble letting them know what it was once I get paid. Does the fee-only planner recommend something that will provide consistent 8% returns or does he recommend something that might get a 12% return in some years, in order to maximize his fee? It's the same kind of argument.
As far as I'm concerned, it makes no difference whether a person is compensated by commission or fee. It's whether they put the interests of their clients ahead of their own -- 100% of the time. When you read the articles in magazines such as Financial Planning, which almost exclusively focuses on the fee-only planner, those articles are directing their attention on finding the most affluent folks to do business with. More assets under management, more fees. Portfolio values go down 10%, so do the fees, but the fees still get paid.
I have yet to see a fee-only adviser who says, "I only bill my fee when your account goes up in value."
You close your statement with
The person collecting that 1% fee is getting paid for on-going account management.
What on-going account management happens in life insurance or annuities? Neither agents nor fee-only advisers spend much time working with their clients to review subaccount performance--it's not actually their responsibility. And I'd be surprised if most fee-based advisers actually know all that much about variable insurance products -- they're mostly concentrating on stock and bond portfolios, and, more recently, ETFs/ETNs, with an occasional mutual fund or two thrown in.
If the agent gets a one time commission and the adviser gets a fee every year for a mutual fund purchase or the purchase of an ETF/ETN, who's going to ultimately earn the most compensation over time? It will not be the commission-based agent. There is very little active management of ETF/ETN or mutual fund portfolios (just like there isn't in variable insurance/annuity products).
But this is off-the-track discussion.
The OP above Pat Cassidy says
I have a 401(k) that I am in the process of rolling into an IRA with New York Life that I'm doing with a guy I know.
Well, New York Life really doesn't "do" IRAs, do they? They sell variable annuities, and this one would be a qualified annuity. So there could be the potential for some self-dealing here.
Now, for the purpose of discussion, we have to keep this apples-to-apples. We can talk in terms of annuities on both sides, or annuities vs mutual funds (which is a slight departure from apples-to-apples)
The annuity sale, no doubt, will create a significant one-time commission for the rollover contribution. About 6 percent, right? So, let's assume the OP is bringing $500,000 to the VA.
There are now qualified VAs for sale in a fee-based wrap account. And the fee-only adviser is not going to get that big, upfront commission. But if the value of that VA separate account increases (compounding) just 4% per year, every year, the fee-only adviser will earn more over the next 7-8 years than the commissioned agent did in year 1.
But that doesn't tell the whole story. The VA in either case is probably going to be purchased without an upfront sales charge (unlike VUL where a sales charge will come off the top of the premium before anything reaches the separate account) and the same would be true of mutual fund shares purchased without a front-end sales charge.
So where does the adviser's fee come from? It comes from the pocket of the client. In the first year, that 1% fee equals $5,200 (1% of $520,00). Does it come literally from the client's pocket or their account value? Because we're talking about an IRA, so the fee is coming out of the annuity or IRA account as a taxable event, so it requires an even larger distribution to account for the taxes.
That diminishes the return on investment significantly. The person who purchased the annuity from the commission-based agent sees no annual reduction in his annuity value and his annuity grows to a larger amount over time. (For the sake of simplicity, I've omitted the calculation of RMDs -- strictly a calculation of gains and fees.)
By how much? If the client can afford to pay his annual fee out of other resources, at the end of 6 years he will have paid total fees of $34,491 (compared to the $30,000 first-year commission paid to the agent). His annuity value will be $632,660 -- exactly the same as the product that paid the agent a commission, but the client's total resources are diminished by the $34,491 fee. Now what if he cannot pay the fee from other resources. Then it must come out of the cumulative annuity principal
At the end of the same 6-year period, the total fees paid will be slightly lower How much lower? The cumulative fees are $33,602. But there is also a corresponding decrease in annuity principal, and the principal balance is $595,636. The client has saved $889 in fees and lost $37,023 in principal.
But this is an IRA, and all distributions are taxable as income. If all the money has to come out of the annuity to pay the adviser AND the taxes on the distribution (at a nominal 25% rate -- Mitt Romney, God bless him, only pays 13%), there will be further erosion of principal. But the client saves a little more on the fees.
At the end of 6 years, the cumulative fee at 1% is only $33,383, a savings of up to $1108. But due to distributions to pay taxes, the principal value is $586,668, a net decline of $45,591, compared to the account with no distributions taken.
Extend these calcs out to 18 years, when the Rule of 72 demonstrates doubling of original principal at 4%, and the undisturbed principal is $1,012,908, the principal minus fees only is $845,286, and minus both fees and taxes is $807,678. Total fees paid are $133,356, $121,317, and $118,513, respectively.
All of those fees compared to a $30,000 one-time commission? Where is the benefit of "sound advice" that Pat Cassidy leads us to believe only comes from fee-based advisers?
Now who's getting "sound advice"?
And the SEC condones this? It's because no one does the math.
But that's what I do -- the math. And the numbers don't lie. When people fail to understand and do the math -- just like reading their UL statements, they get hurt by what they don't understand.
Now, I'm not saying that fee-based advisers don't give good advice, I'm sure the majority do. And I'm not saying that they don't earn their fees. We are all worth something for what we do.
What is true is that commission-only persons don't get paid if they don't sell. That can put pressure on the agent to sell things to people they really don't need. And that is a genuine problem in our industry.
But fee-based advisers get paid even if they don't give advice, as long as they have assets under management. You have $2 in AUM, you pay $0.02. You pay it year in, and year out. Your account grows 100% to $4, you pay $0.04. If your account drops by 50% to $1, you still pay $0.01. The fee-based adviser doesn't have to do anything to get paid. Just has to get as much AUM as he can.
That's why all the focus is in trying to locate those High Net Worth folks. Folks who don't think they need to do the math, because commissions are bad and fees are good.
The fees people are paying to their fee-only advisers may not be worth the advice they are getting.
If you (or anyone else) would like a copy of my spreadsheet, just send me an email address. You can see the numbers and the formulas for yourself.
Posted: Mon Aug 20, 2012 02:31 am Post Subject:
That being said, commissioned advisors don't give the same advice that fee-only advisor gives. First of all, a commissioned advisor, can't get paid for giving advice. They get paid a commission for selling a product. The amount of commission that they get is dependent upon the product that they sell. If their b/d doesn't offer the product, they can't sell it.
I'm not going to disagree at all with your statement (in bold) above. But it seems to me that you are equating the lack of payment with the inability to give advice. And that premise doesn't hold water.
Ric Edelman gives people advice over the radio and cannot charge for that. That advice is free. You can also pay Ric Edelman for the very same advice, which he calls recommendations. Does his advice change when he's earning money for it? Of course not. His advice is either right or wrong. Doesn't make it good or bad.
Agents don't give advice, they recommend the sale of things and earn commissions. Fee-only advisers don't sell anything, they give advice and earn fees. Advice = recommendation. Commissions = income. Fees = income. Fees = commissions. We all have the right to be paid for what we do -- unless you're listening to Obama and the Democrats.
[We have a law in California that governments cannot levy new taxes without a 2/3 majority vote of the people. Fees are not taxes, according to the courts. So governments now enact "fees" in place of "taxes" in order to avoid the votes. Taxes = bad. Fees = not bad. The government gets its "revenue" . . . the new codespeak for "taxes".]
You go on to say, the fee-only adviser can't sell anything. But someone must acquires something if the fee-only adviser is to eventually be paid.
The adviser transacts the acquisition of a product for the client, whether an insurance product/annuity, a stock, bond, ETF/ETN, or mutual fund. Someone else may absorb the cost of that transaction. To transact is, in the longest sense, to sell.
A commission is not a requirement of a sale. How much faster would we make it through the supermarket checkout line if the cashiers were on commission? More sales = more income.
It's no different for the fee-based adviser, more Assets Under Management -- more "selling" of the adviser himself -- equals more income.
Long before I recently became licensed as the 24th active Life & Disability Insurance Analyst in California, I was doing policy analysis for folks. As an agent, I was free to do that all day long, as long as I did not charge anyone a fee for the analysis. Now, I have the ability to charge a fee for that analysis. My analysis does not change because I charge a fee (if I even do) -- my analysis is based on facts. It is unbiased and tells the story as it is.
Analysis = advice.
Analysis with no fee = good. Advice with a fee = the exact same result.
Now comes the editorial
We could explore the topic in a variety of differing contexts. Just one such example, in a political context, i this:
Health insurance companies make profits at the expense of their customers, because they pay high commissions to agents (or once did).
That's what the proponents of Obamacare keep telling us. I just heard on the news this morning on the way to church, that the Democrats are accusing the insurance companies of bilking Medicare out of $700 billion (or was it $500 billion) through Medicare Advantage -- which Congress created..
In the socialist mindset of the Democrats, profits are bad. Therefore commissions are bad.
Never mind that through Medicare Advantage the beneficiaries--who mostly live on the fixed income they receive from Social Security--have reduced their out-of-pocket expenses compared to Original Medicare (A & B) by thousands of dollars per year--that they can use instead to buy food or pay utility bills.
When a person only looks at one side of the issue, the perspective can become distorted. In a speech this week, Obama said, "I strengthened Medicare and Social Security," and got a big applause.
Every President since George H.W. Bush has said, "I strengthened Social Security and Medicare." Bill Clinton found enough money to extend the life of Social Security and Medicare by 12-20 years. They're all liars!
How can you strengthen a system that's got just over $120 TRILLION in unfunded liabilities (last week it was just under)? Especially when the total assets in the US -- if the government confiscated to itself 100% of what exists in America today, that would only amount to $92 TRILLION.
The President (all of them alive today) lied to the people.
Lies = bad.
The President = bad.
Commissions = bad.
Profits = bad.
If everything is bad, what do we have left?
Fee-based advice = good.
LOL.
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