What am I missing?

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What am I missing?

Postby windfall900 » Sat Dec 08, 2012 2:19 am

As you may know if you've followed my recent posts, I have decided to put a substantial amount of money (low 7 figures) into a variable annuity. I was planning to use a Vanguard Variable Annuity since it seemed to have the lowest cost. However, I recently discovered Jefferson National's Monument Advisor variable annuity. It offers the same Vanguard fund I was planning to hold via Vanguard's variable annuity, but at a $20/month flat fee (!!!). If I were to invest $1M, this would amount to an added annual expense of .02% to Vanguard's .29% -- 14x less. I do not see any exorbitant hidden fees in the prospectus (pdf). Is there any good reason NOT to use this VA instead? And if they're able to offer it at such low cost, why isn't Vanguard?
Last edited by windfall900 on Sat Dec 08, 2012 11:34 am, edited 1 time in total.
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Re: What am I missing?

Postby sscritic » Sat Dec 08, 2012 6:43 am

You also pay any applicable Transaction Fees (as described below), Asset Allocation Model Fees (as described below), as well as the fees of the Investment Portfolios you select and any Investment Advisor you retain.
...
The current Transaction Fee is $49.99 per transaction for the first 10 transactions in a Contract Year, which we may raise to $74.99 per transaction (for all transactions in a Contract Year).
...
Total Investment Portfolio Operating Expenses
(expenses that are deducted from Investment Portfolio assets, including management fees, distribution and/or service (12b-1) fees, and other expenses)4 .................................................
Gross: 0.17% Net: 0.17%
Gross: 5.51% Net: 4.89%
(The minimum and maximum total Investment Portfolio Operating Expenses may be affected by voluntary or contractual waivers or expense reimbursements. These waivers and expense reimbursements will reduce the actual Total Portfolio Operating Expenses for the affected Investment Portfolios. Please refer to the underlying Investment Portfolio prospectuses for details about the specific expenses of each Investment Portfolio. The net numbers displayed above reflect the minimum and maximum charges after contractual waivers that have been committed through at least April 30, 2013. The gross numbers reflect the minimum and maximum charges without giving effect to the agreed upon waivers.)


What I didn't find in the prospectus was the charge for the Operation Expenses of the various Vanguard Investment Portfolios. I was not sure which one to look for, as you did not identify which fund you were looking at that had an expense ratio of 0.29%. I did find the minimum charge of 0.17% over all the Investment Portfolios, but the Investment Portfolio wasn't identified.
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Re: What am I missing?

Postby windfall900 » Sat Dec 08, 2012 10:39 am

That isn't an expense on top of all funds as far as I can tell. It's just saying that each investment portfolio comes with its own expense ratio, and those expenses range from 0.17% to 4.89% depending on which fund you choose. Here is their list of funds, and indeed that minimum/maximum lines up.

The fund I'm looking at is Vanguard High-Yield Corporate Bond, which is listed at 0.29%. As mentioned before, if I held $1M in the account, that would cost an additional 0.02% in administrative fees annually, for a total ER of 0.31% at Jefferson. Compare that to a total cost of 0.59% at Vanguard Variable Annuity for that fund and you come in at nearly half the cost overall.

There is indeed a high transaction cost of $50/transaction with Jefferson, but that is a one-time upfront cost as I'll be investing the money in a lump sum and then letting it sit for decades.

Still looking for that catch...!
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Re: What am I missing?

Postby sscritic » Sat Dec 08, 2012 11:04 am

So you understated the difference. I read your OP as comparing 0.02% to 0.29%, a difference of 0.27%. Your updated comparison, using total ER, is 0.31% to 0.59%, a difference of 0.28%. That extra 0.01% savings makes a difference. :)
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Re: What am I missing?

Postby windfall900 » Sat Dec 08, 2012 11:11 am

sscritic wrote:So you understated the difference. I read your OP as comparing 0.02% to 0.29%, a difference of 0.27%. Your updated comparison, using total ER, is 0.31% to 0.59%, a difference of 0.28%. That extra 0.01% savings makes a difference. :)


My OP was just comparing the management overhead ("added annual expense") of the two firms independent of the underlying fund. But, true, the total comparison is even more favorable to Jefferson!

The Vanguard fund itself has an ER of 0.30% when held in a Vanguard Variable Annuity (0.59% minus Vanguard's quoted 0.29% in expenses), but only 0.29% when held in Jefferson National.

This seems almost too good to be true, which is what worries me...
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Re: What am I missing?

Postby windfall900 » Sat Dec 08, 2012 11:34 am

BTW, I updated the original post with a link to the prospectus (pdf).
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Re: What am I missing?

Postby boggler » Tue Jul 16, 2013 1:18 am

What was the verdict on this?
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