My Fidelity rep called.... [suggested deferred fixed annuity]

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big bang
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My Fidelity rep called.... [suggested deferred fixed annuity]

Post by big bang »

He says; because of the current interest rate environment (interest rates go up, bond values go down), suggesting Deferred fixed annuity (I know, boglehead red flag!!) for part of my bond holding portion.
The Deferred fixed annuity that he is talking about has guaranteed rate of return of 1.9% yearly (today's rate) over a 3 year period, with tax-deferral.
So his explanation is to provide level of protection from principal reduction during rising interest rate for the bond holding portion.
What do you all think, does it makes sense to commit some of the Intermediate Term Bonds (in a tax deferred account) for this?

For reference this is my current asset allocation:
30% Large Cap
10% Mid Cap
5% Small Cap
15% Foreign Large
15% Intermediate Term Bonds
20% Inflation-Protected Bond
5% Short Term Treasuries (serves as our emergency fund too..)

Thank you!
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
dbr
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Re: My Fidelity rep called....

Post by dbr »

Well, for one thing you already have tax deferral so the tax deferred part is worthless.
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Re: My Fidelity rep called....

Post by Grt2bOutdoors »

Don’t know about 1.9% but you can buy $10k of Series I savings bonds per individual currently yielding 7.12 percent annualized for 6 months, then new rate announced in May. Even with last 3 months interest penalty for bonds cashed before 5 years, the yield will still be over 2.4 percent without knowing May’s rate and it’s also tax deferred until you cash out.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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big bang
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Re: My Fidelity rep called....

Post by big bang »

dbr wrote: Wed Jan 12, 2022 2:29 pm Well, for one thing you already have tax deferral so the tax deferred part is worthless.
Yep that's right. At the beginning he was suggesting doing it with my Short Term Treasuries which are in my taxable account. But when I told him that it is also my emergency fund, he suggested to do it with my tax deferred account where I have more bonds.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
dbr
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Re: My Fidelity rep called....

Post by dbr »

It's speculation on a fraction of 15% of your assets. It could turn out, one supposes, but it sure seems to me they are selling rather than you are buying. Note SEC yields on intermediate bonds are around 1%-1.5%, so there is not much to gain, speculatively speaking.

Why do you need "protection" for that little piece of your portfolio? It doesn't affect your objectives with 60% of your portfolio at risk in stocks. I suppose if he were predicting a stock crash and telling you to go to cash at least the magnitude of what is to be protected is meaningful.
exodusNH
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Re: My Fidelity rep called....

Post by exodusNH »

big bang wrote: Wed Jan 12, 2022 2:35 pm
dbr wrote: Wed Jan 12, 2022 2:29 pm Well, for one thing you already have tax deferral so the tax deferred part is worthless.
Yep that's right. At the beginning he was suggesting doing it with my Short Term Treasuries which are in my taxable account. But when I told him that it is also my emergency fund, he suggested to do it with my tax deferred account where I have more bonds.
It's not a good idea to hold a tax deferred investment in a tax deferred account, EXCEPT for the salesperson calling you, who will get a commission check!

Your intermediate fund will recover its value over the next few years. If you don't sell it now, you will be made whole. Nisiprius has some good graphs/posts on this.
dbr
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Re: My Fidelity rep called....

Post by dbr »

I have not heard from a Fidelity rep in the 30 or more years I have had assets there. Maybe it is because I told them a long time ago that I don't need anything.

I wonder if anyone has had the experience of being called by a Fidelity rep that just had something really useful to pass on rather than to be selling something?

Their customer service has been helpful when there has been a question or issue, no personal rep needed.
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rob
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Re: My Fidelity rep called....

Post by rob »

big bang wrote: Wed Jan 12, 2022 2:35 pm
dbr wrote: Wed Jan 12, 2022 2:29 pm Well, for one thing you already have tax deferral so the tax deferred part is worthless.
Yep that's right. At the beginning he was suggesting doing it with my Short Term Treasuries which are in my taxable account. But when I told him that it is also my emergency fund, he suggested to do it with my tax deferred account where I have more bonds.
ABC... Always Be Closing... If you hit a block then pivot and make the sale..... Ask him how much he makes in year 1 from the sale...
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twh
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Re: My Fidelity rep called....

Post by twh »

Just say NO.
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Taylor Larimore
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Re: My Fidelity rep called....

Post by Taylor Larimore »

big bang wrote: Wed Jan 12, 2022 2:24 pm He says; because of the current interest rate environment (interest rates go up, bond values go down), suggesting Deferred fixed annuity (I know, boglehead red flag!!) for part of my bond holding portion.
The Deferred fixed annuity that he is talking about has guaranteed rate of return of 1.9% yearly (today's rate) over a 3 year period, with tax-deferral.
So his explanation is to provide level of protection from principal reduction during rising interest rate for the bond holding portion.
What do you all think, does it makes sense to commit some of the Intermediate Term Bonds (in a tax deferred account) for this?

For reference this is my current asset allocation:
30% Large Cap
10% Mid Cap
5% Small Cap
15% Foreign Large
15% Intermediate Term Bonds
20% Inflation-Protected Bond
5% Short Term Treasuries (serves as our emergency fund too..)

Thank you!
big bang:

This link about deferred annuities may be helpful:

https://www.insureuonline.org/consumer_ ... n_tips.htm

I am a proponent of Single Premium Immediate Annuities at older ages (75-85). I own two.

Be careful about accumulating a hodge-podge of investments. Read my link below.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Depending on the particular circumstances, annuities are a good idea, but only annuities available at very low cost and commensurately high return."
"Simplicity is the master key to financial success." -- Jack Bogle
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big bang
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Re: My Fidelity rep called....

Post by big bang »

dbr wrote: Wed Jan 12, 2022 2:46 pm It's speculation on a fraction of 15% of your assets. It could turn out, one supposes, but it sure seems to me they are selling rather than you are buying. Note SEC yields on intermediate bonds are around 1%-1.5%, so there is not much to gain, speculatively speaking.

Why do you need "protection" for that little piece of your portfolio? It doesn't affect your objectives with 60% of your portfolio at risk in stocks. I suppose if he were predicting a stock crash and telling you to go to cash at least the magnitude of what is to be protected is meaningful.
Thank you dbr, your logic makes sense.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
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big bang
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Re: My Fidelity rep called....

Post by big bang »

exodusNH wrote: Wed Jan 12, 2022 2:46 pm
big bang wrote: Wed Jan 12, 2022 2:35 pm
dbr wrote: Wed Jan 12, 2022 2:29 pm Well, for one thing you already have tax deferral so the tax deferred part is worthless.
Yep that's right. At the beginning he was suggesting doing it with my Short Term Treasuries which are in my taxable account. But when I told him that it is also my emergency fund, he suggested to do it with my tax deferred account where I have more bonds.
It's not a good idea to hold a tax deferred investment in a tax deferred account, EXCEPT for the salesperson calling you, who will get a commission check!

Your intermediate fund will recover its value over the next few years. If you don't sell it now, you will be made whole. Nisiprius has some good graphs/posts on this.
Yes I have been following Nisiprius's postings on the subject and I understand that if you hold the bond fund to it's duration, you will be fine.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
quantAndHold
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Re: My Fidelity rep called....

Post by quantAndHold »

I’m still stuck on the Fidelity rep calling you. They do that?

I’m guessing my $109k 401k balance isn’t enough to trigger a phone call then.
Yes, I’m really that pedantic.
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big bang
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Re: My Fidelity rep called....

Post by big bang »

dbr wrote: Wed Jan 12, 2022 2:52 pm I have not heard from a Fidelity rep in the 30 or more years I have had assets there. Maybe it is because I told them a long time ago that I don't need anything.

I wonder if anyone has had the experience of being called by a Fidelity rep that just had something really useful to pass on rather than to be selling something?

Their customer service has been helpful when there has been a question or issue, no personal rep needed.
Their customer service is great and on time. Overall I am very happy with them.
I guess when I passed certain threshold of funds with them, that's when I started to get calls from the local office.....
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
RetiredCSProf
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Re: My Fidelity rep called....

Post by RetiredCSProf »

"Deferred fixed annuity?" Is this the same as a QLAC?

My former financial advisor recommended a QLAC to me, but I declined. I did not completely understand how it works, but it sounded like you come out ahead if you live longer than the actuaries predict.

I may not have this quite right, but I think the idea is that you can shift up to some maximum amount (e.g., $100K) from a tax-deferred IRA into a QLAC and specify a withdrawal year that is beyond the RMD-age; e.g. age 85. The QLAC is not subject to RMDs until the withdrawal age. The money in the QLAC is no longer in the investor's control; the insurance company "owns" it.
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big bang
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Re: My Fidelity rep called....

Post by big bang »

Taylor Larimore wrote: Wed Jan 12, 2022 3:06 pm
big bang wrote: Wed Jan 12, 2022 2:24 pm He says; because of the current interest rate environment (interest rates go up, bond values go down), suggesting Deferred fixed annuity (I know, boglehead red flag!!) for part of my bond holding portion.
The Deferred fixed annuity that he is talking about has guaranteed rate of return of 1.9% yearly (today's rate) over a 3 year period, with tax-deferral.
So his explanation is to provide level of protection from principal reduction during rising interest rate for the bond holding portion.
What do you all think, does it makes sense to commit some of the Intermediate Term Bonds (in a tax deferred account) for this?

For reference this is my current asset allocation:
30% Large Cap
10% Mid Cap
5% Small Cap
15% Foreign Large
15% Intermediate Term Bonds
20% Inflation-Protected Bond
5% Short Term Treasuries (serves as our emergency fund too..)

Thank you!
big bang:

This link about deferred annuities may be helpful:

https://www.insureuonline.org/consumer_ ... n_tips.htm

I am a proponent of Single Premium Immediate Annuities at older ages (75-85). I own two.

Be careful about accumulating a hodge-podge of investments. Read my link below.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Depending on the particular circumstances, annuities are a good idea, but only annuities available at very low cost and commensurately high return."
Thank you Taylor.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
djsander2022
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Re: My Fidelity rep called....

Post by djsander2022 »

I set up an appointment with a local Fido guy just to get some general info and have a point of contact for my wife. I told my wife be prepared for an annuity pitch. He called we talked told him we wanted somebody local in case we have issues. Talked about my portfolio and his thing was your doing good with indexes. He said if we needed help on anything give him a call. He was real polite and didn’t try to sell anything and knew we were in the private client group. He said just don’t let anything wait until December the phone waits are close to two hours if you call the 1-800 numbers. Liked the guy and am extremely satisfied.
BitTooAggressive
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Re: My Fidelity rep called....

Post by BitTooAggressive »

big bang wrote: Wed Jan 12, 2022 2:24 pm He says; because of the current interest rate environment (interest rates go up, bond values go down), suggesting Deferred fixed annuity (I know, boglehead red flag!!) for part of my bond holding portion.
The Deferred fixed annuity that he is talking about has guaranteed rate of return of 1.9% yearly (today's rate) over a 3 year period, with tax-deferral.
So his explanation is to provide level of protection from principal reduction during rising interest rate for the bond holding portion.
What do you all think, does it makes sense to commit some of the Intermediate Term Bonds (in a tax deferred account) for this?

For reference this is my current asset allocation:
30% Large Cap
10% Mid Cap
5% Small Cap
15% Foreign Large
15% Intermediate Term Bonds
20% Inflation-Protected Bond
5% Short Term Treasuries (serves as our emergency fund too..)

Thank you!
Help him out, he has to meet his quotas.
DesertDiva
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Re: My Fidelity rep called....

Post by DesertDiva »

I have a new Fidelity guy now, who replaced the last Fidelity guy who left for “another opportunity.” They were both randomly assigned to me.

It seems that this is an attempt to improve customer retention. Perhaps even sell an annuity at the same time :greedy
gjlynch17
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Re: My Fidelity rep called....

Post by gjlynch17 »

I will take a contrarian view that it is worth exploring further. It sounds like your advisor is suggesting a Multi-Year Guaranteed Annuity (MYGA) which is sometimes referred to as a Deferred Fixed Annuity and is so referred on Fidelity's site.

https://www.fidelity.com/annuities/defe ... s/overview

MYGAs/Deferred Fixed Annuities are similar to CDs. You can find further discussion on MYGAs in the threads below:

viewtopic.php?t=347074
viewtopic.php?f=1&t=334589


MYGAs can be a good investment if you are comfortable locking the money up for the term (3 years in your case). 1.9% compares favorably to the current 3-year treasury rate (1.21%) and CDs. If you shop around, you can find 2.5% 3-year MYGAs at Gainbridge and Blueprint Income which are discussed in the thread above.
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Re: My Fidelity rep called....

Post by indexfundfan »

I agree. It looks like the rep is suggesting MYGAs which could be a reasonable investment if it suits you.

I believe Fidelity only deals with A+ or A++ rated MYGAs, so 1.9% for a three year MYGA is decent. This matched with the New York Life MYGA listed on the Blueprint Income website.
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big bang
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Re: My Fidelity rep called....

Post by big bang »

indexfundfan wrote: Wed Jan 12, 2022 6:32 pm I agree. It looks like the rep is suggesting MYGAs which could be a reasonable investment if it suits you.

I believe Fidelity only deals with A+ or A++ rated MYGAs, so 1.9% for a three year MYGA is decent. This matched with the New York Life MYGA listed on the Blueprint Income website.
What do you mean "reasonable"?
Can you elaborate more on the advantages from your point of view?
Thank you!
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
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Re: My Fidelity rep called....

Post by Jack FFR1846 »

If you're considering buying this annuity, I have to believe you're over 72 or have a couple Billion dollars. Remember that an annuity can't be rebalanced out of and when your kids go to college, you get to stare at a big dollar amount that you can't get to without big penalties. I don't see it. I like Fidelity (I have 2 commas with them), but I'd recommend you become known to your advisor the way my advisor knows (and calls) me. I'm the Index guy according to him.
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Apathizer
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Re: My Fidelity rep called....

Post by Apathizer »

This thread makes me glad I'm with Van and not Fid.
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tenkuky
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Re: My Fidelity rep called....

Post by tenkuky »

My Fido guy (for workplace benefits) barely returns my emails.
I have been asking for 3 years about adding FTIHX to our work plan with no success.
The only time he was interested when I suggested rolling over a VUL that I had/have (long another story), but then realized I wasn't going to follow through.
Back to minimal response. :(
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Re: My Fidelity rep called....

Post by indexfundfan »

big bang wrote: Wed Jan 12, 2022 7:11 pm
indexfundfan wrote: Wed Jan 12, 2022 6:32 pm I agree. It looks like the rep is suggesting MYGAs which could be a reasonable investment if it suits you.

I believe Fidelity only deals with A+ or A++ rated MYGAs, so 1.9% for a three year MYGA is decent. This matched with the New York Life MYGA listed on the Blueprint Income website.
What do you mean "reasonable"?
Can you elaborate more on the advantages from your point of view?
Thank you!
I suggest you review this page which compares MYGAs and CDs.

https://www.blueprintincome.com/fixed-annuities

The main advantage of MYGAs is the higher yield compared to CDs. But you want to make sure you can hold for the entire duration of the term because MYGAs generally have higher surrender fees compared to CDs.

During the past two years or so, I have moved the majority of the money from maturing CDs into MYGAs.
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Elysium
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Re: My Fidelity rep called....

Post by Elysium »

big bang wrote: Wed Jan 12, 2022 7:11 pm Can you elaborate more on the advantages from your point of view?
Thank you!
OP,

Advantages, you get 1.9% for 3 years guaranteed, no fluctuation in value to worry for 3 years, knowing exactly what you get in 3 years. Those are it, nothing else. You are sure to lose to inflation as 1.9% isn't likely to keep up with current rates of inflation which while may not stay at 6%-7% for long, but could stay around 2.5% to 4% range in next 3 years on average. So you get guaranteed loss. That's the bottom line.

But, given you take away money from Interm-Term Bond fund which has an average duration of 5-6 years and a current yield of about 1.5%, you need to compare with alternate scenario of what could happen with that.

With IT Bonds, in the next 3 years you could get less than 1.9% per year (if rates rise steadily), more than 1.9% per year (if rates drop instead of rising), or get about 1.5% (if rates just go up & down narrowly). So, with bonds you have the potential to gain if your 60% risk assets drop in value (no guarantee), or you get to sell some of your appreciating stocks if they keep going up and buy bonds that are declining in price. At some point stocks drop, so you've been selling them when they went up and buying bonds that were going down creating a nice buy low sell high effect. Then your bonds appreciate and you get to enjoy a nice gain. In other words, while less is certain with bonds, but you have more possibilities. Could you lose to inflation with bonds, yes in some scenarios (which a lot of people claim to think will happen but they could be very wrong), and in some scenarios you have potential to beat inflation (yes, with bonds, if rates actually decline and inflation stays around that 2.5%-3% range, or with buy bonds low & sell high when equities drop eventually).

I personally like the possibility to earn more than inflation even if it's a small chance than 100% guaranteed option to lose to inflation. MYGA offer you 100% guaranteed loss, IT Bonds offer you more options. Lastly, MYGA isn't liquid, you lock in for 3 years.
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Re: My Fidelity rep called....

Post by abuss368 »

big bang wrote: Wed Jan 12, 2022 2:24 pm He says; because of the current interest rate environment (interest rates go up, bond values go down), suggesting Deferred fixed annuity (I know, boglehead red flag!!) for part of my bond holding portion.
The Deferred fixed annuity that he is talking about has guaranteed rate of return of 1.9% yearly (today's rate) over a 3 year period, with tax-deferral.
So his explanation is to provide level of protection from principal reduction during rising interest rate for the bond holding portion.
What do you all think, does it makes sense to commit some of the Intermediate Term Bonds (in a tax deferred account) for this?

For reference this is my current asset allocation:
30% Large Cap
10% Mid Cap
5% Small Cap
15% Foreign Large
15% Intermediate Term Bonds
20% Inflation-Protected Bond
5% Short Term Treasuries (serves as our emergency fund too..)

Thank you!
Hi Big Bang -

My concern would be managing the additional cost and complexity of a 7 fund portfolio. Strive for simplicity in investing and life. Years from now you will be happy and thankful you did.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Wiggums
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Re: My Fidelity rep called....

Post by Wiggums »

dbr wrote: Wed Jan 12, 2022 2:52 pm I have not heard from a Fidelity rep in the 30 or more years I have had assets there. Maybe it is because I told them a long time ago that I don't need anything.

I wonder if anyone has had the experience of being called by a Fidelity rep that just had something really useful to pass on rather than to be selling something?

Their customer service has been helpful when there has been a question or issue, no personal rep needed.
I’ve been with Fidelity 36 years. I got a cold call about 2 years ago from someone saying they were calling on behalf of my Fidelity rep. I told the caller after I transferred 300k into the settlement account. At least they are paying attention :-)
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Re: My Fidelity rep called....

Post by mmcmonster »

Apathizer wrote: Wed Jan 12, 2022 7:16 pm This thread makes me glad I'm with Van and not Fid.
I'm with Vanguard as well, and kinda concerned that this sort of thing is happening at Fidelity. I had recommendations on another thread that I should use Fidelity for DD's account since Vanguard is having hiccups with account creation. This thread increases my resolve in that I'm doing the right thing by taking a little extra time and creating DD's account at Vanguard.

In 7 years at Vanguard Flagship level I've never gotten a cold call. And I don't even know the name of my Vanguard rep. (If I even have one.)

Hopefully this is a rare thing at Fidelity?
dbr
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Re: My Fidelity rep called....

Post by dbr »

mmcmonster wrote: Wed Jan 12, 2022 9:44 pm
Apathizer wrote: Wed Jan 12, 2022 7:16 pm This thread makes me glad I'm with Van and not Fid.
I'm with Vanguard as well, and kinda concerned that this sort of thing is happening at Fidelity. I had recommendations on another thread that I should use Fidelity for DD's account since Vanguard is having hiccups with account creation. This thread increases my resolve in that I'm doing the right thing by taking a little extra time and creating DD's account at Vanguard.

In 7 years at Vanguard Flagship level I've never gotten a cold call. And I don't even know the name of my Vanguard rep. (If I even have one.)

Hopefully this is a rare thing at Fidelity?
I think it is kind of well known that Fidelity "advisors" try to sell things and that signing up for advice at Fidelity will cost you money and put you in the more expensive funds. But people are supposed to know not to take advice from a mutual fund company. It might be the jury is out on whether or not Vanguard PAS is an exception to that. But the way to manage Fidelity is to not talk to them. As I say, their customer service is fine. A picture of my Fidelity "rep" is posted when I sign in, but I have never spoken to her.
Apathizer
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Re: My Fidelity rep called....

Post by Apathizer »

mmcmonster wrote: Wed Jan 12, 2022 9:44 pm
Apathizer wrote: Wed Jan 12, 2022 7:16 pm This thread makes me glad I'm with Van and not Fid.
I'm with Vanguard as well, and kinda concerned that this sort of thing is happening at Fidelity. I had recommendations on another thread that I should use Fidelity for DD's account since Vanguard is having hiccups with account creation. This thread increases my resolve in that I'm doing the right thing by taking a little extra time and creating DD's account at Vanguard.

In 7 years at Vanguard Flagship level I've never gotten a cold call. And I don't even know the name of my Vanguard rep. (If I even have one.)

Hopefully this is a rare thing at Fidelity?
I understand this is actually Fidelity's MO. I like this analogy: Vanguard is like Costco in that they don't have sales but everything is reasonably priced. Fidelity is more like a drug store in that they have some amazing deals designed to entice you buy other high-profit things you don't need like annuities.

Annuities are a scam, and unfortunately my mom fell for one about 10 years ago. The salespeople deceptively state you're guaranteed a minimum rate of return, while implying it might be higher. In reality, an annuity will only deliver the minimum return. Unfortunately my mom locked up several thousand dollars in one for about a decade with only about a 2.3% return. :annoyed Needless to say, index funds would've been better, but financially my mom is an imbecile :( Rant over.
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Nate79
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Re: My Fidelity rep called....

Post by Nate79 »

MYGAs are not bad products and one of the good types of annuities often recommended on Bogleheads. There is a great master thread on the product to learn about them and not lumo them in the typical trash annuity bucket. Whether it's something you should use is a whole different subject but if their yield is better than your existing bond fund it could be reasonable to take some and put in this type of product. But I would shop around for them, no need to be stuck with the Fidelity product.

At least Fidelity isn't like Vanguard with their high pressure sales push for their PAS service.
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Re: My Fidelity rep called....

Post by Sagefemme »

My very first 401K (1985!!) was at Fidelity and I have had assets with them ever since. Despite a fairly large balance there I have never, in 35 + years, had a cold call from them. If they called I would say "don't call me, I'll call you if I need anything" and I suspect they would heed.
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Re: My Fidelity rep called....

Post by Stinky »

big bang wrote: Wed Jan 12, 2022 7:11 pm
indexfundfan wrote: Wed Jan 12, 2022 6:32 pm I agree. It looks like the rep is suggesting MYGAs which could be a reasonable investment if it suits you.

I believe Fidelity only deals with A+ or A++ rated MYGAs, so 1.9% for a three year MYGA is decent. This matched with the New York Life MYGA listed on the Blueprint Income website.
What do you mean "reasonable"?
Can you elaborate more on the advantages from your point of view?
Thank you!
Yes, I’m certain that the Fidelity guy is pitching a MYGA.

The advantage of a three year MYGA over an intermediate bond fund is that you will get your entire principal, plus interest, at the end of the three year period. Guaranteed. With no market value adjustment if interest rates are higher then.

The company quoted is likely New York Life, which represents the ultimate in safety and security and has the highest possible claims paying rating. Personally, I’d take a company rated a little lower like Oceanview or Guggenheim and earn 2.50% for 3 years instead of 1.90% from NYL.
Former life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
BabaWawa
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Re: My Fidelity rep called....

Post by BabaWawa »

abuss368 wrote: Wed Jan 12, 2022 8:46 pm
big bang wrote: Wed Jan 12, 2022 2:24 pm He says; because of the current interest rate environment (interest rates go up, bond values go down), suggesting Deferred fixed annuity (I know, boglehead red flag!!) for part of my bond holding portion.
The Deferred fixed annuity that he is talking about has guaranteed rate of return of 1.9% yearly (today's rate) over a 3 year period, with tax-deferral.
So his explanation is to provide level of protection from principal reduction during rising interest rate for the bond holding portion.
What do you all think, does it makes sense to commit some of the Intermediate Term Bonds (in a tax deferred account) for this?

For reference this is my current asset allocation:
30% Large Cap
10% Mid Cap
5% Small Cap
15% Foreign Large
15% Intermediate Term Bonds
20% Inflation-Protected Bond
5% Short Term Treasuries (serves as our emergency fund too..)

Thank you!
Hi Big Bang -

My concern would be managing the additional cost and complexity of a 7 fund portfolio. Strive for simplicity in investing and life. Years from now you will be happy and thankful you did.

Best.
Tony
Give Tony credit, never one to miss an opportunity to try to get someone to switch course without any specific knowledge of the OP. It's easy to put together a low cost diversified portfolio with more than 3 funds. And with spreadsheets these days, rebalancing is simple.

Big Bang's allocation seems very reasonable and I imagine has been well thought out based on their financial situation and risk tolerance. OP is asking for opinions on annuities, not for advice on their chosen allocation...we should allow them to stay the course.
BabaWawa
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Re: My Fidelity rep called....

Post by BabaWawa »

Apathizer wrote: Wed Jan 12, 2022 7:16 pm This thread makes me glad I'm with Van and not Fid.
With all the positive Boglehead reviews on Fidelity here and you chose one thread to validate your decision?
yougotitdude
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Re: My Fidelity rep called....

Post by yougotitdude »

Why don't you ask him if he gets paid more by putting it in to an annuity or leaving it where it is? ;)

It's highly, highly like that inflation will average more than 1.9% during the next 3 years. Why would you want to lock in a negative real return for 3 years? I mean, would it be better than a bond? There's a decent change of that.
PaulieLilly
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Re: My Fidelity rep called....

Post by PaulieLilly »

I have accounts with both Vanguard & Fidelity ... personally, I think Fidelity is great. Their website is exceptional and I promptly get phone customer service whenever I need it (rarely). They put me in their Private Client Group so I assume this helps ... they also throw in free TurboTax each year. I basically have a BH 3 fund portfolio and hold no Fidelity funds/products. I view them as a great, free resource. If you don't want them to call you, tell them. If you don't want to purchase any of their offerings, then don't. If you are susceptible to sales pitches then they may not be right not for you.

Sorry for the tangent ... as mentioned upthread, Fidelity's DFA is a MYGA. I am NOT a bond guru and hence somewhat open-minded toward this portion of my portfolio. I learned about MYGA's on BH's and decided they made sense for me (eyes wide open). Last year I moved about half of my bond index fund holding in my Fidelity IRA to 3rd party MYGA's (better rates). Fidelity's involvement (cutting checks) was prompt & seamless, I never spoke or dealt with them.
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Stinky
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Re: My Fidelity rep called....

Post by Stinky »

Apathizer wrote: Wed Jan 12, 2022 9:58 pm
Annuities are a scam, and unfortunately my mom fell for one about 10 years ago. The salespeople deceptively state you're guaranteed a minimum rate of return, while implying it might be higher.
“Annuities are a scam” is not universally true.

It’s likely that your mom was sold an indexed annuity. I agree that the indexed annuity product is not a good one, and there’s an excellent chance that your moms expectations were not met.

From what OP described, he/she is not being pitched an indexed annuity. Rather, it’s a MYGA. What the Fidelity rep is saying about the rate is rock solid - it will earn 1.9% for three years. Period.

If you choose to never invest in an annuity, that’s fine with me. But don’t paint ALL annuities with the “scam” brush, because that’s simply not true.
Former life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
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Artful Dodger
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Re: My Fidelity rep called....

Post by Artful Dodger »

Make sure you review the surrender charges. Some go for as long as ten years. I did look at the Fidelity website and they offer a number of annuities with surrender charges from three to seven years. If what he recommended is a three year rate guarantee with a three year surrender charge at least you know what you’re getting. It’s basically like buying a CD.
Apathizer
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Re: My Fidelity rep called....

Post by Apathizer »

Artful Dodger wrote: Thu Jan 13, 2022 11:49 am Make sure you review the surrender charges. Some go for as long as ten years. I did look at the Fidelity website and they offer a number of annuities with surrender charges from three to seven years. If what he recommended is a three year rate guarantee with a three year surrender charge at least you know what you’re getting. It’s basically like buying a CD.
That's what happened to my mom. She had several thousand locked in for 10 years at measly 2%-ish annual return. As I said, fiancially she's an imbecile.
40% AVUS, 20% AVDE, 15% AVEM, 25% BNDW
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big bang
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Re: My Fidelity rep called....

Post by big bang »

Elysium wrote: Wed Jan 12, 2022 8:00 pm
big bang wrote: Wed Jan 12, 2022 7:11 pm Can you elaborate more on the advantages from your point of view?
Thank you!
OP,

Advantages, you get 1.9% for 3 years guaranteed, no fluctuation in value to worry for 3 years, knowing exactly what you get in 3 years. Those are it, nothing else. You are sure to lose to inflation as 1.9% isn't likely to keep up with current rates of inflation which while may not stay at 6%-7% for long, but could stay around 2.5% to 4% range in next 3 years on average. So you get guaranteed loss. That's the bottom line.

But, given you take away money from Interm-Term Bond fund which has an average duration of 5-6 years and a current yield of about 1.5%, you need to compare with alternate scenario of what could happen with that.

With IT Bonds, in the next 3 years you could get less than 1.9% per year (if rates rise steadily), more than 1.9% per year (if rates drop instead of rising), or get about 1.5% (if rates just go up & down narrowly). So, with bonds you have the potential to gain if your 60% risk assets drop in value (no guarantee), or you get to sell some of your appreciating stocks if they keep going up and buy bonds that are declining in price. At some point stocks drop, so you've been selling them when they went up and buying bonds that were going down creating a nice buy low sell high effect. Then your bonds appreciate and you get to enjoy a nice gain. In other words, while less is certain with bonds, but you have more possibilities. Could you lose to inflation with bonds, yes in some scenarios (which a lot of people claim to think will happen but they could be very wrong), and in some scenarios you have potential to beat inflation (yes, with bonds, if rates actually decline and inflation stays around that 2.5%-3% range, or with buy bonds low & sell high when equities drop eventually).

I personally like the possibility to earn more than inflation even if it's a small chance than 100% guaranteed option to lose to inflation. MYGA offer you 100% guaranteed loss, IT Bonds offer you more options. Lastly, MYGA isn't liquid, you lock in for 3 years.
Thank you Elysium for the explanation. This is what I was looking for.
I don't want to lose the flexibility and the rebalancing opportunity.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
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SmileyFace
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Re: My Fidelity rep called....

Post by SmileyFace »

mmcmonster wrote: Wed Jan 12, 2022 9:44 pm
Apathizer wrote: Wed Jan 12, 2022 7:16 pm This thread makes me glad I'm with Van and not Fid.
I'm with Vanguard as well, and kinda concerned that this sort of thing is happening at Fidelity. I had recommendations on another thread that I should use Fidelity for DD's account since Vanguard is having hiccups with account creation. This thread increases my resolve in that I'm doing the right thing by taking a little extra time and creating DD's account at Vanguard.

In 7 years at Vanguard Flagship level I've never gotten a cold call. And I don't even know the name of my Vanguard rep. (If I even have one.)

Hopefully this is a rare thing at Fidelity?
Its an apples to oranges comparison to me. I have similar balances at both Vanguard and Fidelity. Fidelity has assigned me a free named advisor that I can call whenever I want while Vanguard does not (I have specified not to call me, only call them if needed/desired). My fidelity advisor respects my index-only approach to investing and never tries to sway me. Vanguard tries to sign me up for PAS at 0.3% and occassionally emails me about active bond funds and such. Completely backwards from what I would expect - but all new money now goes to Fidelity.

Yes - no cold call from Vanguard since they no longer assign advisors (unless you have many many millions or some special curcumstance) but also no one intelligent you can call if you do want help or guidance.
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big bang
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Re: My Fidelity rep called....

Post by big bang »

abuss368 wrote: Wed Jan 12, 2022 8:46 pm
big bang wrote: Wed Jan 12, 2022 2:24 pm He says; because of the current interest rate environment (interest rates go up, bond values go down), suggesting Deferred fixed annuity (I know, boglehead red flag!!) for part of my bond holding portion.
The Deferred fixed annuity that he is talking about has guaranteed rate of return of 1.9% yearly (today's rate) over a 3 year period, with tax-deferral.
So his explanation is to provide level of protection from principal reduction during rising interest rate for the bond holding portion.
What do you all think, does it makes sense to commit some of the Intermediate Term Bonds (in a tax deferred account) for this?

For reference this is my current asset allocation:
30% Large Cap
10% Mid Cap
5% Small Cap
15% Foreign Large
15% Intermediate Term Bonds
20% Inflation-Protected Bond
5% Short Term Treasuries (serves as our emergency fund too..)

Thank you!
Hi Big Bang -

My concern would be managing the additional cost and complexity of a 7 fund portfolio. Strive for simplicity in investing and life. Years from now you will be happy and thankful you did.

Best.
Tony
Yes Tony I agree with you regarding the simplicity. I have been investing for almost 35 years now. When I started, my company 401K did not have a Total US Market index fund. The only index and low cost option was the S&P 500.
So the reason that you see the breakdown on the US portion, is because this is how historically I wanted to still get the benefits of exposure to the Total Market. With time I also liked it because it also gave me more opportunities for rebalancing. This is the simplest that I was able to get to with the options that were available to me.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
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big bang
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Re: My Fidelity rep called....

Post by big bang »

Stinky wrote: Wed Jan 12, 2022 11:29 pm
big bang wrote: Wed Jan 12, 2022 7:11 pm
indexfundfan wrote: Wed Jan 12, 2022 6:32 pm I agree. It looks like the rep is suggesting MYGAs which could be a reasonable investment if it suits you.

I believe Fidelity only deals with A+ or A++ rated MYGAs, so 1.9% for a three year MYGA is decent. This matched with the New York Life MYGA listed on the Blueprint Income website.
What do you mean "reasonable"?
Can you elaborate more on the advantages from your point of view?
Thank you!
Yes, I’m certain that the Fidelity guy is pitching a MYGA.

The advantage of a three year MYGA over an intermediate bond fund is that you will get your entire principal, plus interest, at the end of the three year period. Guaranteed. With no market value adjustment if interest rates are higher then.

The company quoted is likely New York Life, which represents the ultimate in safety and security and has the highest possible claims paying rating. Personally, I’d take a company rated a little lower like Oceanview or Guggenheim and earn 2.50% for 3 years instead of 1.90% from NYL.
Thank you Stinky for the explanation, I appreciate it.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
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Nate79
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Re: My Fidelity rep called....

Post by Nate79 »

mmcmonster wrote: Wed Jan 12, 2022 9:44 pm
Apathizer wrote: Wed Jan 12, 2022 7:16 pm This thread makes me glad I'm with Van and not Fid.
I'm with Vanguard as well, and kinda concerned that this sort of thing is happening at Fidelity. I had recommendations on another thread that I should use Fidelity for DD's account since Vanguard is having hiccups with account creation. This thread increases my resolve in that I'm doing the right thing by taking a little extra time and creating DD's account at Vanguard.

In 7 years at Vanguard Flagship level I've never gotten a cold call. And I don't even know the name of my Vanguard rep. (If I even have one.)

Hopefully this is a rare thing at Fidelity?
There is nothing wrong with this product so what is your concern?
Gadget
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Re: My Fidelity rep called....

Post by Gadget »

tenkuky wrote: Wed Jan 12, 2022 7:23 pm My Fido guy (for workplace benefits) barely returns my emails.
I have been asking for 3 years about adding FTIHX to our work plan with no success.
The only time he was interested when I suggested rolling over a VUL that I had/have (long another story), but then realized I wasn't going to follow through.
Back to minimal response. :(
You're pitching the wrong thing. Pitch for Fidelity Brokeragelink in your 401k. The advisor will like that because it opens your 401k up to all his high fee funds. You will like it because it will open you up to FTIHX and the other low fee 3 fund portfolio equivalents from within Brokeragelink.
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big bang
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Re: My Fidelity rep called....

Post by big bang »

BabaWawa wrote: Thu Jan 13, 2022 7:51 am
Apathizer wrote: Wed Jan 12, 2022 7:16 pm This thread makes me glad I'm with Van and not Fid.
With all the positive Boglehead reviews on Fidelity here and you chose one thread to validate your decision?
Just for the record I am very happy with Fidelity and I think that the tools that they provide to manage finances on your own are exceptional and very educational. I like the access to the local and physical office, mainly for my wife. She is completely hands off and not interested in this stuff. At least, she will know where to go if she needs help or things are not getting resolved when I am gone.
"Stock Market and Real Estate are long term investments. Anything short term it's either gambling or speculation." - Big Bang
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sdelg57
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Re: My Fidelity rep called....

Post by sdelg57 »

dbr wrote: Wed Jan 12, 2022 2:52 pm I have not heard from a Fidelity rep in the 30 or more years I have had assets there. Maybe it is because I told them a long time ago that I don't need anything.

I wonder if anyone has had the experience of being called by a Fidelity rep that just had something really useful to pass on rather than to be selling something?

Their customer service has been helpful when there has been a question or issue, no personal rep needed.
I rarely speak with my assigned Fidelity Rep but when my mother in-law passed, I asked him to help my wife and brother-in-law with the transfer of money because MIL had been paying high fees at the brokerage firm and with poor choices of investments. He was fantastic and took the time to walk them through the transfer of taxable and non-taxable accounts. His team helped with all the paperwork and signatures needed. I guess this is a bonus benefit when needed. He did not sell anything and just put the money in investments we asked.
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