Fixed-rate annuities don’t belong in a fee-based managed portfolio because they’re so straightforward, says annuity expert and author Ken Nuss.
Also known as multi-year guarantee annuities (MYGAs) or “CD-type annuities,” they provide a set interest rate for a certain term—for instance, 5.40% annually for three years. They’re sold without an upfront sales charge; all of the deposit goes to work.
“Once you’ve bought this type of annuity, you don’t need to do anything other than decide whether to reinvest the interest or receive it,” Nuss says.
In a managed portfolio, your assets are chosen and monitored by a financial professional. An investment advisor typically charges around 1.00% to 1.50% annually on assets under management. The portfolio may include mutual funds, ETFs, stocks, and bonds.
The advisor should regularly monitor each investment in the portfolio and periodically readjust the asset allocation when needed.
“That’s how a skilled advisor earns his or her ongoing management fee. But fixed-rate annuities don’t need active monitoring,” Nuss says.
Slightly higher rate dwarfed by advisor’s fees
Unfortunately, more “advisory” fixed-rate annuities are being developed and promoted by insurance companies. They’re exclusively available through investment advisors that manage clients’ money for an annual asset-management fee. They’re meant to go into a client’s managed portfolio, where the advisor earns no upfront commission but can charge their recurring management fee on those annuity assets indefinitely.
Advisors are luring savers with the siren song of a slightly higher interest rate. Because the insurance company does not pay an annuity agent’s commission to the advisor, the savings can be reflected in a higher yield to the client. (Provigil)
“But you’ll still come out behind after paying the advisor’s asset management fees,” he says.
The guaranteed interest rates offered on these annuities are typically about 0.25% to 0.50% higher than on the insurance companies’ nearly identical sister products that are marketed through the normal independent agent channel.
“Over the guarantee period, you’d pay significant management fees to the advisor that typically far outweigh the little bit of extra interest,” Nuss says.
“Don’t let that higher interest rate lure you into a bad decision. You’re usually much better off taking the slightly lower interest rate and holding the annuity yourself outside any managed account.”
By shopping around, you may find an annuity that beats the rate offered by an investment advisor, who may not have access to many annuity companies. Here’s a table of the top current annuity rates.
How fixed-rate annuities work
A fixed-rate annuity is sometimes called a CD-type annuity because it behaves much like a bank certificate of deposit. However, an annuity also offers tax deferral until you withdraw interest from it, and you can defer those withdrawals indefinitely. Your money can grow faster free of federal and state income taxes until you need it. Annuity interest withdrawn before age 59½ is normally subject to a 10% IRS penalty.
Issued by life insurers, annuities aren’t federally insured like bank CDs, but insurance companies are regulated by the states and have a solid track record of meeting their obligations. Check the A.M. Best rating of the issuing insurer before you buy.
Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.
Disclosure: This press release may contain forward-looking statements. Forward-looking statements describe future expectations, plans, results, or strategies (including product offerings, regulatory plans and business plans) and may change without notice. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements.
Media contact: Henry Stimpson
henry@stimpsoncommunications.com
Website: https://www.annuityadvantage.com/
Address: 930 Town Centre Drive Medford, OR 97504
Phone: 1-800-239-0356
Source: Story.KISSPR.com
Release ID: 602630
Fixed-rate annuities don’t belong in a fee-based managed portfolio because they’re so straightforward, says annuity expert and author Ken Nuss.
Also known as multi-year guarantee annuities (MYGAs) or “CD-type annuities,” they provide a set interest rate for a certain term—for instance, 5.40% annually for three years. They’re sold without an upfront sales charge; all of the deposit goes to work.
“Once you’ve bought this type of annuity, you don’t need to do anything other than decide whether to reinvest the interest or receive it,” Nuss says.
In a managed portfolio, your assets are chosen and monitored by a financial professional. An investment advisor typically charges around 1.00% to 1.50% annually on assets under management. The portfolio may include mutual funds, ETFs, stocks, and bonds.
The advisor should regularly monitor each investment in the portfolio and periodically readjust the asset allocation when needed.
“That’s how a skilled advisor earns his or her ongoing management fee. But fixed-rate annuities don’t need active monitoring,” Nuss says.
Slightly higher rate dwarfed by advisor’s fees
Unfortunately, more “advisory” fixed-rate annuities are being developed and promoted by insurance companies. They’re exclusively available through investment advisors that manage clients’ money for an annual asset-management fee. They’re meant to go into a client’s managed portfolio, where the advisor earns no upfront commission but can charge their recurring management fee on those annuity assets indefinitely.
Advisors are luring savers with the siren song of a slightly higher interest rate. Because the insurance company does not pay an annuity agent’s commission to the advisor, the savings can be reflected in a higher yield to the client. (Provigil)
“But you’ll still come out behind after paying the advisor’s asset management fees,” he says.
The guaranteed interest rates offered on these annuities are typically about 0.25% to 0.50% higher than on the insurance companies’ nearly identical sister products that are marketed through the normal independent agent channel.
“Over the guarantee period, you’d pay significant management fees to the advisor that typically far outweigh the little bit of extra interest,” Nuss says.
“Don’t let that higher interest rate lure you into a bad decision. You’re usually much better off taking the slightly lower interest rate and holding the annuity yourself outside any managed account.”
By shopping around, you may find an annuity that beats the rate offered by an investment advisor, who may not have access to many annuity companies. Here’s a table of the top current annuity rates.
How fixed-rate annuities work
A fixed-rate annuity is sometimes called a CD-type annuity because it behaves much like a bank certificate of deposit. However, an annuity also offers tax deferral until you withdraw interest from it, and you can defer those withdrawals indefinitely. Your money can grow faster free of federal and state income taxes until you need it. Annuity interest withdrawn before age 59½ is normally subject to a 10% IRS penalty.
Issued by life insurers, annuities aren’t federally insured like bank CDs, but insurance companies are regulated by the states and have a solid track record of meeting their obligations. Check the A.M. Best rating of the issuing insurer before you buy.
Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.
Disclosure: This press release may contain forward-looking statements. Forward-looking statements describe future expectations, plans, results, or strategies (including product offerings, regulatory plans and business plans) and may change without notice. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements.
Media contact: Henry Stimpson
henry@stimpsoncommunications.com
Website: https://www.annuityadvantage.com/
Address: 930 Town Centre Drive Medford, OR 97504
Phone: 1-800-239-0356
Source: Story.KISSPR.com
Release ID: 602630