Annuity with UBS!!!

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Au Jus
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Annuity with UBS!!!

Post by Au Jus »

My wife and I are in the process of transferring funds from UBS to vanguard. Needless to say our UBS advisor is very upset about this.

Among other things, in my wifes account, He invested $40k in the following:

Jackson Natl Life INS CO Perspective L-Series Class L Annuity

surrender charge expiration date 07/11/2017

it's current account value is $45,71.75.

According to the UBS advisor the annuity is not subject to the 1.5% UBS AUM fee but there is a $3000 fee for terminating the contract now.

I requested that all accounts be liquidated so that we can begin fresh with vanguard. The problem is he is contacting my wife separately and is trying to convince her that it doesn't make sense to liquidate the annuity and take the $3000 hit.

According to him if we leave the annuity in place until 07/11/2017 then there is no 3k fee and no 1.5% AUM fee.

What say the bogleheads?? The original 40k was supposed to be used for a house downpayment. I remember him saying that we would get a guaranteed 3.25% or something with this investment vehicle but that he would need 5 days to get the money out in the event we needed it.

I find it hard to believe that UBS is getting nothing from this Annuity and I'm afraid leaving the money will cost us more long term than we know but My wifes loss aversion is kicking in as it relates to the 3k. It's also grinding my gears that he is pitting us against each other...and it appears he's winning.

It's nice to see he was looking out for us when he put us in the [(removed) --admin LadyGeek] thing in the first place!
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Dale_G
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Re: Annuity with UBS!!!

Post by Dale_G »

This is an expensive annuity. The basic fee is 1.7% of assets and the underlying funds generally have expense ratios of 1%. So you have about a 2.7%/year drag on returns - assuming you didn't sign up for any of the riders.

It looks like you are in year 1-2 of the contract so the surrender fee is = 7.5% of assets. It appears that the surrender fee drops to 6.5% about July 11, 2015, 5.5% about July 11, 2016 and 0% about July 11, 2017. Waiting until July 11, 2015 looks like it saves you $470 in surrender fees.

Basically you have to weigh the cost of the annual fees against the cost of the surrender fee.

I am sure the sales guy is right, there should be no AUM fee. He already got his commission on the sale.

I think it was totally inappropriate that money intended for a home purchase was invested in this account.

Are you under age 59-1/2? Do you intend to do a 1031 exchange to a low cost annuity - or cash it out?

Dale
Volatility is my friend
Topic Author
Au Jus
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Re: Annuity with UBS!!!

Post by Au Jus »

I'm 46 and my wife is 39. My intention was to cash the annuity out and then move the cash to vanguard. I'm not 100% sure what to do with it there as we would like it fairly liquid in case we need it.

Here is the email from our UBS adviser re the annuity (email is edited):

...I was very disappointed to learn of your decision to move your accounts out of UBS and myself.
Jackson National annuity which is up 13.36% in less than 2 years and if you liquidate this now your surrender charge would be $3000 which I would not do as you would be giving up a big chunk of your gain. If you remember we put some of the IRA in this annuity to provide guarantees that no funds or stocks can provide. This contract will have no surrender fee as of 7/11/17. I hope you can see that surrendering this makes no sense, and has performed well.

...So you can see that what you thought you were paying in fees was not as much as you might have thought.
I thank you for letting me help you 2 years ago and hope you might reconsider your thoughts of liquidating and trying to do everything yourself. That’s why we all pay professionals to help us.

Let me know your thoughts, again I do not recommend moving anything especially taking the hit on the annuity which has done very well."
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Dale_G
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Re: Annuity with UBS!!!

Post by Dale_G »

I don't want to increase your misery Au Jus, but there are a couple of other things to consider:
If you remember we put some of the IRA in this annuity to provide guarantees that no funds or stocks can provide.
This makes no sense at all. Annuities are either "qualified" (IRA or 40XX money), or non-qualified from after tax contributions. Hopefully, an IRA was not cashed out in order to partially fund the Annuity. You can look at the contract, it will tell you whether it is qualified or non-qualified.

Before age 59-1/2: If it is a qualified contract, cashing it out will result in paying tax on the entire proceeds plus a 10% early withdrawal penalty to the feds - you won't pay the tax and penalty on the amount of the surrender fee though. If it is a non-qualified contract and it is cashed out, only your "profit" after the surrender fee will be subject to tax plus the 10% penalty.

Any more details?

Dale
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dhodson
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Re: Annuity with UBS!!!

Post by dhodson »

I'm going to assume this money is not within a IRA (individual retirement account). I'd ask what the exact walk away value is for 2017. Sometimes the account value they are talking to you about isn't the true walk away value but a shadow account value that only applies if you either annuitize or activate an income rider. Once you know the walk away value at that point (when there is no longer a surrender period), then id look at what your guaranteed walk away value is this summer once the surrender fee reduces slightly (may also wish to look at a projected value assuming the funds perform the same which of course they wont). I'd then see what sort of return I need to get in order to cover the surrender fee. You would need to feel comfortable that you can beat this in a taxable. This was a bad purchase but you might be better off holding off until 2017 at this point. I would not allow this individual access to any new money.
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Oicuryy
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Re: Annuity with UBS!!!

Post by Oicuryy »

Au Jus wrote:If you remember we put some of the IRA in this annuity to provide guarantees that no funds or stocks can provide.
What guarantees is he talking about? Did you buy any of the optional guaranteed benefits? Some of those charge 3% of the benefit base per year.

Ron
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Topic Author
Au Jus
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Re: Annuity with UBS!!!

Post by Au Jus »

I sent an email today asking the following questions:

1. what "guarantees" is he referring to?
2. what are the fees?
3. is the annuity qualified or non qualified?
4. why did we put IRA money in an annuity?
5. what is the surrender schedule and exact walk away value in 2017?

I received a voice mail stating that he would prefer discuss on the phone rather than in an email. It's probably too difficult to explain all the complexities and sophistication of the annuity in an email. :confused
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mikef
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Re: Annuity with UBS!!!

Post by mikef »

If it was me I would try to get the answers to those questions in writing.
Happy trails, rancher Mike | Two fund portfolio, VTSAX and VSIGX. Age= late 60's.
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SkierMom
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Re: Annuity with UBS!!!

Post by SkierMom »

Why don't you just liquidate and be done with UBS? Tomorrow
dhodson
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Re: Annuity with UBS!!!

Post by dhodson »

Au Jus wrote:I sent an email today asking the following questions:

1. what "guarantees" is he referring to?
2. what are the fees?
3. is the annuity qualified or non qualified?
4. why did we put IRA money in an annuity?
5. what is the surrender schedule and exact walk away value in 2017?

I received a voice mail stating that he would prefer discuss on the phone rather than in an email. It's probably too difficult to explain all the complexities and sophistication of the annuity in an email. :confused
That's not it

He can document whatever he wants in person
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Raymond
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Re: Annuity with UBS!!!

Post by Raymond »

SkierMom wrote:Why don't you just liquidate and be done with UBS? Tomorrow
Exactly.

Life is too short to have to continue to listen to the self-serving bleating stupidity of this so-called "advisor".

As I understand it, phone conversations are harder to use as evidence in legal proceedings than emails :twisted:
"Ritter, Tod und Teufel"
Professor Emeritus
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Re: Annuity with UBS!!!

Post by Professor Emeritus »

He contacted your wife separately

That alone is enough for you to refuse to have any conversation

you want it in writing so there is no confusion about what is said.
Professor Emeritus
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Re: Annuity with UBS!!!

Post by Professor Emeritus »

Au Jus wrote:

It's nice to see he was looking out for us when he put us in the [(removed) --admin LadyGeek] thing in the first place!
:happy :D :) I find ladyGeek's crimson deletion much more effective than anything you might have written :happy :D :)
Topic Author
Au Jus
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Joined: Thu Jun 05, 2014 6:01 pm

Re: Annuity with UBS!!!

Post by Au Jus »

dhodson wrote:
Au Jus wrote:I sent an email today asking the following questions:

1. what "guarantees" is he referring to?
2. what are the fees?
3. is the annuity qualified or non qualified?
4. why did we put IRA money in an annuity?
5. what is the surrender schedule and exact walk away value in 2017?

I received a voice mail stating that he would prefer discuss on the phone rather than in an email. It's probably too difficult to explain all the complexities and sophistication of the annuity in an email. :confused
That's not it

He can document whatever he wants in person
yes, I know. My sarcasm didn't come through appropriately!
indexmeasap
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Re: Annuity with UBS!!!

Post by indexmeasap »

Au Jus wrote:I sent an email today asking the following questions:

1. what "guarantees" is he referring to?
2. what are the fees?
3. is the annuity qualified or non qualified?
4. why did we put IRA money in an annuity?
5. what is the surrender schedule and exact walk away value in 2017?
It is important to note that the annuity contract is between your wife and Jackson National Life Insurance. The contract has nothing to do with UBS and the UBS advisor is just a third party. The UBS statements probably just show the a policy number and annuity value.

The answers to these questions can and should be verified directly with Jackson. Call Jackson's customer service department for a full explanation of the policy/contract. In my experience, the company service reps are extremely helpful in explaining all the details. Your wife should get online access to the Jackson policy which includes online statements. Additionally, ask if there are any riders on the policy and how to cancel them.

Also, it is common for a portion (10% of purchase value) of the annuity to be 1035 exchanged penalty free each year. As others have suggested, be aware of the tax implications.
Topic Author
Au Jus
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Re: Annuity with UBS!!!

Post by Au Jus »

Here's his response (edited by me) to my questions:

"...The annuity provides a death benefit guarantee, that even if account went below the amount invested that amount is protected while monies in stocks or funds no matter where invested have that protection.
The surrender schedule is 7.5% to 7/11/15, reduces to 6.5% to 7/11/16, and 5.5% to 7/11/17 after that point there is no surrender charge. In addition if your wife passed there would be no charges to transfer those assets to you as beneficiary. As beneficiary you would receive the greater of account value or monies invested whichever greater.
Jackson has approximately 90 different sub accounts that the funds can be invested in. Many of these funds cannot be bought unless invested within this or other annuities. They are currently are invested 80% S&P Managed Moderate growth and 20% S&P Managed growth. The monies can be transferred from one sub account to another without any additional expenses. The annuity is invested in the IRA that is qualified. We have many clients who have annuities inside an IRA for the guarantees whether living or death benefit. The net return over the 22 months has been 14%.
Again, I am sorry you have decided to change your mind and go back to investing on your own. Please call me to discuss anything further. I hope you see the value in the annuity as well as the other work I have done for the three of you and hopefully I can be of other assistance to you in the future
Respectfully"

I think the only thing for us to do at this point is leave the annuity there until 07/11/17.
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grabiner
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Re: Annuity with UBS!!!

Post by grabiner »

Au Jus wrote:The surrender schedule is 7.5% to 7/11/15, reduces to 6.5% to 7/11/16, and 5.5% to 7/11/17 after that point there is no surrender charge.
That is worth waiting out. You will lose 7.5% for holding the annuity for a bit over two years, and I don't think the extra costs are 3.75%. (Usually, surrender fees are not worth waiting out because you will lose the money either way, but that 5.5% cliff is an exception.)

Make a reminder on your calendar to surrender the annuity and move the IRA to another custodian on 7/12/17; if an annuity is appropriate for you, then you can find a lower-cost option.
Wiki David Grabiner
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Hawaiishrimp
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Re: Annuity with UBS!!!

Post by Hawaiishrimp »

Two problems I see already...
"Annuity"
"UBS"
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
tj
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Re: Annuity with UBS!!!

Post by tj »

grabiner wrote:
Au Jus wrote:The surrender schedule is 7.5% to 7/11/15, reduces to 6.5% to 7/11/16, and 5.5% to 7/11/17 after that point there is no surrender charge.
That is worth waiting out. You will lose 7.5% for holding the annuity for a bit over two years, and I don't think the extra costs are 3.75%. (Usually, surrender fees are not worth waiting out because you will lose the money either way, but that 5.5% cliff is an exception.)

Make a reminder on your calendar to surrender the annuity and move the IRA to another custodian on 7/12/17; if an annuity is appropriate for you, then you can find a lower-cost option.

+1
Topic Author
Au Jus
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Re: Annuity with UBS!!!

Post by Au Jus »

Thanks all for your time, analysis and advice. We will wait out the surrender schedule and transfer 07/12/17 to Vanguard.

Thanks, again.
paul06
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Re: Annuity with UBS!!!

Post by paul06 »

Interesting situation. I have a similar scenario. I am preparing to transfer my accounts to Vanguard. I also have an annuity. However, unlike you have had it since 2007. Because the death benefit is $192,000 vs the annuity value of 122,000, I did not want to surrender the policy. I contacted the company (AXA) and was told that I could keep it intact by transferring it to AXA aS a “house account”, which I did. If you like the policy that may be to keep it as well as get it away from UBS. For me, I was able to keep the annuity while getting out of my ML account. Just a thought. In any case, I see you have been given many options from the experts from Boggleheads ( a great group). Good luck.
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