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How important is a Variable Annuitys Insurance Company Rating

I am very interested in purchasing a VA offered by Jefferson National Life called "Monument Advisor". This product is very appealing to me for these reasons:
1) You pay a flat fee for M&E expenses of $20.00 per month. This is guaranteed to remain constant during the life of the contract. 2) They offer about 165+ (and growing) funds as investment options. Most of these funds are with well-known, well-established fund families.
Obviously, this product is designed for someone like me who is just interested in growing assets tax deferred and not interested in any insurance features. After researching this product, the only possible fly in the ointment that I can find is that the insurance company itself (Jefferson National Life) has a B+ rating.
Should this concern me at all? My understanding is if the insurance company should go belly-up, my funds will be safe because in VA products they are held at the actual mutual fund institutions instead of the insurance company. Am I correct on this or is there something else that can bite me should something go amiss with the company? Your opinions shall be greatly valued and appreciated.
Reply to
pal123

I have to ask one question of you - by deferring the taxes, you turn dividend and long term cap gain treatment into ordinary income. And run the risk of this income putting you into the bizarre social security tax bubble where an individual can pay a phantom 46.25% on net taxable income of just $32K or so. I know that with such a low annual fee, Jefferson National has no salesman about to put his kids through college at your expense, that's a good thing, but I wonder what you feel the benefit is. I've written some negative things about VAs, but still would like to know if there is a specific scenario, i.e. pre-retirement age, income, etc, and then post retirement details, which combine to form the ideal candidate for whom the low cost VA is a clear benefit over post tax accounts.
JOE
Reply to
joetaxpayer
To the OP,
Are you maximizing 401k contribs, Roths, and IRAs if they are available to you. Deferred annuities are one of the last stops (if not the last) on the tax deferral train. How old are you?
Don't worry about the financial stability of the company until you are sure its the right investment vehicle to begin with.
Most importantly, did you FULLY read the fine print on the Jefferson National products? From the "monument advisor" page of their website:
* Jefferson National's Monument Advisor has a $20 flat insurance fee on more than 97% of our underlying funds. Certain funds also have a transaction fee ranging from $19.99 to $49.99 per transaction, depending on the number of transactions per year. See the prospects for details. Like other variable annuities, the customer pays fees of the underlying funds selected (currently ranging from 0.23% - 2.72%; except for Rydex VT Inverse Gov't Long Bond Fund which is currently 5.12%) plus the fees of any advisor hired. The range of underlying fund fees reflect the minimum and maximum charges after contractual waivers that have been committed to through at least May 1, 2008.
Reply to
kastnna
On Fri, 10 Aug 2007 08:35:37 -0500, kastnna wrote:
Yes I have maximized all other vehicles available to me. This money is what is left over from that. It is important to note that I am NOT a "buy and hold" invetsor. Every so often, I make changes to the portfolio which would trigger capital gains taxes. That is why a VA works for me. I agree that for buy and holders it may not make that much sense to go with a VA.
Reply to
Percy.Labrada
It is important to note that I am NOT a "buy and hold" invetsor. Every so often, I make changes to the portfolio which would trigger capital gains taxes. That is why a VA works for me. I agree that for buy and holders it may not make that much sense to go with a VA.
Reply to
Percy.Labrada

If the 'every so often' is less than 1 year, and you believe you will retire into a lower tax bracket, this VA may make sense for you. I don't know how much switching they permit. There's much evidence that market timing is a losing game, and that rebalancing in the 12-18 month range is a better choice, but that's your decision and a different discussion.
JOE
Reply to
joetaxpayer
Good for you on the dedicated saving. You are already ahead of the game. FWIW I am pro-VA, not anti. But as you clearly understand they are only suitable for certain situations. Yours may well be one of them.
My concern for you was the fine print of THIS PARTICULAR ANNUITY. According Jeff Nat, "Certain funds also have a transaction fee ranging from $19.99 to $49.99 per transaction, depending on the number of transactions per year." Even for buy and hold investors that makes me nervous (auto rebalancing usually counts as transactions), but for a trader that can be murder.
Jeff Nat goes on to state, "the customer pays fees of the underlying funds selected (currently ranging from 0.23% - 2.72%... plus the fees of any advisor hired)" Check out:
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If you plan on trading in the sector specific funds (biotech, int'l, health, tech, banking, etc) you are going to see expense ratios on the upper end of that range.
This may be the best VA for you, but it may not. I am just advising that you look at all the costs, not just the $20/mo.
Reply to
kastnna
On Fri, 10 Aug 2007 11:37:05 -0500, kastnna wrote:
Your points are well taken.
======================================= MODERATOR'S COMMENT: Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.
Reply to
pal123

You should do the math very carefully. With long term capital gains at 15%, a variable annuity would have to be very cheap to make sense. If you are making changes more frequently than an year, you might want to think through your investment strategy. I've never thought about a VA as a trading vehicle.
Don't let the tax tail wag the investment dog.
-- Doug
Reply to
Douglas Johnson
That's $20/month, and it beats the heck out of the typical 1.4% annual annuity fee, or even something as low as Fidelity's 0.25% once one gets over $100K. (1.4% figure is Morningstar/VARDS, quoted at:
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Yup. A whole 3% of the 165 funds offered. To avoid the transaction fee, simply avoid those 3%. They are just the 5 index funds from Nationwide Life.
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(any fund tagged with fn 28 - this info is repeated in prospectus)
It doesn't matter what the range of fund expenses is, or even what the annuity charge is - what matters is which funds within each annuity you are, or intend to, use. That is, look at your real total cost, and not piece parts that may not matter in isolation. This annuity has, e.g. a CLS balanced fund charging a whopping 1.64%, but it also has American Century Balanced at 0.90%, a Federated hybrid at 1.10%, and Janus Aspen Balanced at 0.58%. Does the 1.64% fund really matter, given all the alternatives?
With respect to the OP's original question - how concerned should one be with the lower rating of the insurance company: I think that in principle the OP is right - the assets are in the funds, and are not general assets of the insurance company. But I don't know how far this principle goes. Someone still holds the shares of those funds. "The assets of the Separate Accounts are held in [Jefferson National Life's] name on behalf of the Separate Account and legally belong to [Jefferson Nat]. However, those assets that underlie the Contract are not chargeable with liabilities arising out of any other business [Jefferson Nat] may conduct." Prospectus p. 25 (pdf p. 27).
What happens if the insurance company absconds with the assets (e.g. uses it to pay off liabilities)? If a broker does this, you're covered by SIPC and supplementary insurance. What happens with annuities? I don't know the answer to these questions. I suspect the risk is very small, but I don't see separate accounts as providing absolute protection.
Mark Freeland snipped-for-privacy@sbcglobal.net
Reply to
Mark Freeland
"kastnna" wrote
Disclosure, please? Are you in any way involved in selling VA products?
The NY Times printed an Op-Ed piece today on "bridge maintenance." An engineer wrote it. In it, he commented: "Recent technology advances include electronic sensors that identify cracks and calculate the speed at which they are spreading. (Disclosure: I'm an adviser to a company that makes such a device.)"
That disclosure makes him more credible, not less, in my mind, at least at first blush. For reputable publications, such disclosures are customary, in the interests of optimizing information dispersal to the public.
Reply to
Elle
So be it. I used quotations because I took that statement directly from JeffNat's website. I have never dealt with this company nor have I read the prospectus. This may be a great annuity. I simply suggested that he fully research the details before jumping in. I don't think that's ever a bad idea.
Following the link you provided #28 - states the "the performance numbers shown do not reflect the deduction of any transaction fees. If deducted the performance shown would be lower." Well there you go.
Reply to
kastnna
Yes I do, though not often (they're are often not suitable).
That's definitely one way of looking at it. Others will argue that I sell them and I am therefore motivated to make people buy them even if it's not in their best interest. I often feel it's lose-lose.
Back in 2006 you accused me of "generating a buzz" by recommending ETFs during a asset allocation discussion so that I could sell more of them (even though I have never given my name, location, etc.) So which is it: generating a buzz or providing credibility?
Reply to
kastnna
"kastnna" wrote E
Just my opinion, but I think you need to re-think this. Deception or obfuscation is never well-received. E.g. people finding out /after the fact/ that your line of work involves the sale, to some extent of VAs will go over far less better than simply being honest. Honesty sells. It's a win-win, unless one's goals are short-term deception and a short-term win, I guess.
Fact is salespeople of products often do have useful information that the layperson does not have. They want to sell it, they need to know it, hopefully cold. So, sure, the salesperson may be biased out of interest to just make a sale. S/he may have important info, too, to share with a potential buyer. The best salespeople, in any line of work I know, realize that word of mouth goes far, and that if their customers are always happy with what they buy, then they will get more customers. The first way to keep them happy is to ensure they know, as well as possible (granted that can be nebulous) before purchase, what they are getting.
Does this sound bite really do justice to our exchange? I doubt it. I expect more likely I queried you, and you took the query as an accusation. Because in fact I don't have all the facts about what people do here, so it's important to keep an open mind about the truth, rather than just accuse. (Of course, if one reads queries as accusations, that's the reader's fault. Just answer the query and move on, as you did at the top here.) Email in private, if you wish.
Reply to
Elle
All I told him was to make sure he covered all his bases before jumping in (as a matter of fact I said it three times). I never said buy it, I never said don't buy it.
He could have asked "should I have my prostate removed" and I still would have said, "make sure you learn all the pros and cons first". Being a doctor doesn't make that advice any more or less applicable. There is a difference between deception and omission of non-relevant facts (hint: the former implies malice and that's not a light accusation).
Reply to
kastnna

I actually took your words back then as an accusation (unfounded at that): "Re selling stuff: It's about generating buzz (and IMO not a few urban legends within that buzz) as much as plugging one's specific service."
-Will
Reply to
Will Trice

Where have you been, Elle? kastna has stated many times, in many replies, that he is in the financial planning industry, that he sells a variety of products to clients, that he has computer models that help him manage their portfolios, etc. etc. (or as you would say, blah, blah, blah). He has neither obfuscated nor deceived.
And by the way, from another thread, it's kit and kaboodle, not kitten kaboodle. See:
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Elizabeth Richardson
Reply to
Elizabeth Richardson
"Elizabeth Richardson" wrote in message news:dF6wi.426042$ snipped-for-privacy@bgtnsc04-news.ops.worldnet.att.net...
Huh, isn't that interesting. Funny, but the author of the NY Times Op-Ed article is a frequently published and well known author, too. His interests in the product he mentioned are amply accessbile on the net. Yet he disclosed yet again his possible conflict of interest in this article. Imagine that. The NY Times sure knows how to waste ink, I guess.
Thanks for the post-o correction. Maybe you'd like to become the group's official Post-o Cop? That would be a great service.
Reply to
Elle
"Will Trice" wrote
It's true, Will, human nature is such that people do not like to be reminded in any form of their ethical responsibilities.
And yet, in reputable publications, it's such common practice to disclose possible conflicts of interest that one would think others would contemplate and figure out why disclosures are done, and start the practice themselves.
Reply to
Elle

It certainly IS worth contemplating why disclosures are done, when they are substantially ineffective:
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(NYTimes article, July 28, 2007, entitled "Disclosing Bias Doesn't Cancel Its Effects", reporting that when advisers disclosed that "they would benefit if [] clients heeded [their] advice ... 'the advisers ended up making even more money than [had they not disclosed the conflict]'" - thus showing that customers throw more money at advisers who are known to have conflicts of interest)
disclosure may fail to solve the problems created by conflicts of interest and may sometimes even make matters worse."
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Cain, Lowenstein, and Moore, "The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest"
Further in the paper: "The Bottom Line ... the basic pattern of results ... is consistent: estimators [clients] earned less money when conflicts of interest were disclosed than when they were not, and advisors made more money with disclosure than without disclosure."
So it appears that it is in the advisors' self-interest to make disclosures to take advantage of people's misplaced trust of advisers who disclose. (See, e.g. last paragraph, p. 5 of paper.)
Is this really what you are advocating?
Mark Freeland snipped-for-privacy@sbcglobal.net
Reply to
Mark Freeland

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