Grandparent's Variable Annuity and Edward Jones

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3CheersforLkyJack
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Grandparent's Variable Annuity and Edward Jones

Postby 3CheersforLkyJack » Thu Apr 20, 2017 9:25 pm

My grandparents who are in their eighties informed me that they would be receiving their annual rent check from their farm and asked if I knew of any good investments. My grandma mentioned that they had an account that they funded awhile ago that payed around 3.5%. Their "guy" told them they could add to it. I told her if she could get me the name of the investment that I could look into it and tell her if it was worth adding to. At this point I already had an idea what they would come back with and figured it wouldn't be good. Turns out it was just as I expected.

Mutual of New York Life Insurance Company of America
Flexible Payment Variable Annuity Contract
Guaranteed Interest Account

They made an initial deposit back in the mid nineties and it sounded like they added some additional funds a few years ago. I know these products are bad and am guessing especially so for someone their age. I asked what their risk level was when they first made the purchase and they said they were "middle of the road".

Adding insult to injury, all of their investments are held at Edward Jones. They understand the basics of investing, but I'm sure they don't know all the details of this annuity or the ridiculous fees that EJ is charging them. I know the first response will be to get them away from Edward Jones but I just don't see that happening. At their age and situation they don't need that kind of added stress. They have saved very well and with annual farm income and good long term care policies for both, money should not be an issue.

I'm sure they like the guaranteed interest portion of the annuity but I'm thinking I can get them not to deposit any additional funds when I outline the surrender charges and fees. I have an idea what these are, but would have to have them get the prospectus from the advisor to know all the details. Even if I get them not to add to the annuity, the Edward Jones advisor will then put them in some other expensive fund. I'm guessing anything is probably better than this annuity though. Stuck between a rock and a hard place.

I respect my grandparents a great deal. They have had numerous bouts with medical issues but never one complaint. They have been incredibly generous with their family and I hate to see them get taken advantage of. I'm sure someone on this board has dealt with a similar situation and might have some advice.

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BL
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Re: Grandparent's Variable Annuity and Edward Jones

Postby BL » Fri Apr 21, 2017 1:26 am

I think you are right not to pull them out of EJ, although it would be the best thing to do. Have they been changed to the new way of charging that I see EJ is starting, where they charge AUM and don't sell load funds. I have no first-hand knowledge of this, just wondering. It seems to be waking up some small investors who were not aware of the loads and high-ERs they were paying previously.

I doubt that the 3-fund portfolio would entice them to invest, but I wonder if Wellesley has just enough "secret Sauce" that they might be intrigued. It has about a 50-year history of doing very well, even though it has ~60% bonds and ~40% stock funds. Although it is an active Vanguard fund, it has quite low ER (0.15% if over 50k invested), doesn't rise or fall as much as higher stock funds do, and it pays a good dividend.

Perhaps they would read Jane Bryant Quinn's new book, How to Make Your Money Last, or the Boglehead's Guide to Retirement, if you gave it to them. Somehow that may feel less offensive than advice coming from you, unless they ask, of course.

I do hear the comment often here, that if you are using the "safe withdrawal rate" of 4%, and the advisor gets 1% AUM + funds have a 1%+ ER cost, that is 1/2 or 50% of your retirement income going to the advisor.

JW-Retired
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Re: Grandparent's Variable Annuity and Edward Jones

Postby JW-Retired » Fri Apr 21, 2017 9:09 am

BL wrote:
I do hear the comment often here, that if you are using the "safe withdrawal rate" of 4%, and the advisor gets 1% AUM + funds have a 1%+ ER cost, that is 1/2 or 50% of your retirement income going to the advisor.

3CheersforLkyJack,
Note that on top of this 50% safe retirement income cut, with those kind of fees the retirement nest egg size will have been stunted by another 1/3 during the accumulation phase. Leaving your grandparents with only 1/3rd of the safe income draw they could have had via Boglehead investing.
http://www.dinkytown.net/java/CompareFees.html

It's just unbelievable that advisors can get away with these kind of fees. Your grandparents may be beyond helping but maybe worth a gentle try. At least don't let this sort of calamity happen to your own investing.

Good luck!
JW
Retired at Last

NotWhoYouThink
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Joined: Fri Dec 26, 2014 4:19 pm

Re: Grandparent's Variable Annuity and Edward Jones

Postby NotWhoYouThink » Fri Apr 21, 2017 9:46 am

Even if your grandparents have made a foolish investing decision, what good would it do at this point to tell them that? Are they willing to break their relationship with this advisor and do the research to convince themselves that they should go somewhere else? Are they so cognitively unaware that they would let you or someone else take over their financial affairs? Does your family consider you an expert to whom they would all defer on financial decisions?

I'm not defending the current investments or advisor, just cautioning you to be very sure of what you can accomplish before you start trying to change anything. People who work with E Jones aren't always the type that can warm up to a low cost fund that you can only buy on the internet and you can't talk to a live person about it.

You might tell them how you invest, and maybe talk to your parents and their generation about investing tactics and strategies.

itstoomuch
Posts: 3770
Joined: Mon Dec 15, 2014 12:17 pm

Re: Grandparent's Variable Annuity and Edward Jones

Postby itstoomuch » Fri Apr 21, 2017 10:25 am

So, What is the current Account balance and the interest account balance? What is the credited interest rate? Got a recent statement, should be obtainable online. :annoyed
4 buckets: SS+pension;defer'd GLWB VA & FI annty, by time & $$ laddered; Discretionary; Rental. Do OK on 2 bkts. LTCi. Own, not asset. Tax 25%. Early SS. FundingRatio (FR) >1.1 Age 67/70

clip651
Posts: 228
Joined: Thu Oct 02, 2014 11:02 am

Re: Grandparent's Variable Annuity and Edward Jones

Postby clip651 » Fri Apr 21, 2017 11:23 am

3CheersforLkyJack wrote:My grandparents who are in their eighties informed me that they would be receiving their annual rent check from their farm and asked if I knew of any good investments. My grandma mentioned that they had an account that they funded awhile ago that payed around 3.5%. Their "guy" told them they could add to it. I told her if she could get me the name of the investment that I could look into it and tell her if it was worth adding to. At this point I already had an idea what they would come back with and figured it wouldn't be good. Turns out it was just as I expected.

Mutual of New York Life Insurance Company of America
Flexible Payment Variable Annuity Contract
Guaranteed Interest Account

They made an initial deposit back in the mid nineties and it sounded like they added some additional funds a few years ago. I know these products are bad and am guessing especially so for someone their age. I asked what their risk level was when they first made the purchase and they said they were "middle of the road".

Adding insult to injury, all of their investments are held at Edward Jones. They understand the basics of investing, but I'm sure they don't know all the details of this annuity or the ridiculous fees that EJ is charging them. I know the first response will be to get them away from Edward Jones but I just don't see that happening. At their age and situation they don't need that kind of added stress. They have saved very well and with annual farm income and good long term care policies for both, money should not be an issue.

I'm sure they like the guaranteed interest portion of the annuity but I'm thinking I can get them not to deposit any additional funds when I outline the surrender charges and fees. I have an idea what these are, but would have to have them get the prospectus from the advisor to know all the details. Even if I get them not to add to the annuity, the Edward Jones advisor will then put them in some other expensive fund. I'm guessing anything is probably better than this annuity though. Stuck between a rock and a hard place.

I respect my grandparents a great deal. They have had numerous bouts with medical issues but never one complaint. They have been incredibly generous with their family and I hate to see them get taken advantage of. I'm sure someone on this board has dealt with a similar situation and might have some advice.


Regarding the annuity, you really need to look at the details (or have a qualified person do so, there are services that do this) if you want to understand it.

If they made their initial deposit many years ago (you indicated mid nineties, so about 20 years ago), there may no longer be a surrender charge. I am not sure how additional later deposits would affect this - again you would need to get details.

I personally doubt that adding more to the annuity is great investing option for them. However, the details are important. There are a lot of different types of annuities, with many different terms. And the annuity should be looked at in context of their entire portfolio and situation to make a judgement on what should be done with it going forward.

From your post you indicate that they have some money coming in (in excess of their current needs, I gather) that they would like to invest. At their age, a simple, safe, and good investment would be a plain old bank CD or high yield savings account. They can get about 2.25% with a 5 year CD, if they think they will not need the money for the next five years. Pick one with a decent early withdrawal policy, and they have the ability to get at the money sooner if needed.

Going with a bank CD allows the money to safely grow a little. And it is a simple product that is easy to understand. And they are guaranteed not to lose money with it (plus FDIC insurance if below $250,000). AND they can do it completely separate from their Edward Jones accounts, so it will not incur any EJ fees or other fees at all. Simple, safe, and easy to understand. Without knowing a bunch more about their financial situation, I think this is a very practical suggestion.

If they are looking to make more than they will get with a bank CD, then they will have to also be willing to take on more risk (the investment could lose money), and possibly more fees as well. That's their decision, but ideally they should make the decision by looking at their entire financial picture to understand where this piece will fit in. There are all sorts of options here, including bond funds, stock funds, balanced funds, etc. (For stock funds, the index fund version of these will often be the simplest and lowest fee version available.)

Good for you for trying to help your grandparents, since they did ask you for ideas. I second the suggestion above to go slowly, and think carefully about asking them to make any big changes at their age if what they have is essentially working for them. (If they say they are ready to make changes, that's something else, and there will be many more issues that need to be tackled.)

best wishes,
cj

junior
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Re: Grandparent's Variable Annuity and Edward Jones

Postby junior » Fri Apr 21, 2017 11:59 am

3CheersforLkyJack wrote: I know the first response will be to get them away from Edward Jones but I just don't see that happening. At their age and situation they don't need that kind of added stress. They have saved very well and with annual farm income and good long term care policies for both, money should not be an issue.


If you want to suggest something how about something risk free like treasury inflation protected securities? That way nobody loses sleep at night if there's a market correction.

If they want something more risky how about Vanguard LifeStrategy Income Fund? It's only about 20% stock the rest is bonds. Given what you've said about your grandparents I don't know that their wilingness to take risk is that great. So I'd tread carefully.

cautious
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Joined: Fri Feb 10, 2017 1:56 pm

Re: Grandparent's Variable Annuity and Edward Jones

Postby cautious » Sat Apr 22, 2017 3:27 pm

The most important part of your post is that you were asked for advice about investing new money. Maybe they have some questions about their investments and/or see you doing well. I would not attempt to undo the existing portfolio at this time. Instead, use one of your investments to demonstrate it's value. Make a point of your how much/little it cost you. It sounds like they are astute enough to take the next step and make a comparison with their expenses. Don't push it or you will set off alarms. Expect them to ask others what they think after they've heard you out.

You may also find that by sharing your return - or at least part of it - they may be willing to share more of their portfolio. I would print out a portion that looks like the website you may have demonstrated, so they'll have a concrete piece of information to refer to.

The process may be piecemeal but you've made a start.

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Bogle_Feet
Posts: 750
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Re: Grandparent's Variable Annuity and Edward Jones

Postby Bogle_Feet » Sat Apr 22, 2017 8:33 pm

3CheersforLkyJack wrote:Flexible Payment Variable Annuity Contract
Adding insult to injury, all of their investments are held at Edward Jones. They understand the basics of investing, but I'm sure they don't know all the details of this annuity or the ridiculous fees that EJ is charging them.

Variable annuities? Start pulling money OUT of there in a tax efficient manner! Invest in a normal taxable account with AmeriTrade or ETrade, investing in index funds like SPY and BND. EJ are crooks.
Here's a good video for the grandparents to watch...
https://www.youtube.com/watch?v=ZulYOxPaoA8


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