Do you feel that something in your portfolio might not be just right for you? Maybe that monthly life insurance bill makes you wonder if you did the right things when you bought that variable life insurance years ago. Or maybe you’d have difficulty explaining how that variable annuity works — the one that has so many complex features it could be a game in a Las Vegas casino, or a cell phone bill. And then it doesn’t sound right when your advisor tells you that you don’t pay them, the fund company does. There’s no free lunch, right?

Why does it all seem so hard?

At EVOadvisers, we help new clients sort out the nagging questions that have been bothering them. While we often find the biggest problems people have faced is a lack of thorough, personal financial planning, some situations stand out as far more than that. If these sound familiar, perhaps we should talk.

  • There’s the fairly successful couple who make a lot and had amassed a portfolio that was far larger than they could spend. Their question isn’t “can we afford to retire”, but “how can we be as tax efficient today and on the road ahead”. Efficient asset location, charitable giving strategies, use of tax credits and prudent saving into retirement, college savings and regular investment accounts are good places to focus.So why did their former advisor sell them variable annuities inside their IRAs…and advise them to make monthly, non-deductible contributions to those annuities? Breaking it down, an annuity is a tax-deferred savings vehicle, just like an IRA, so that’s a little redundant. Further, making non-deductible contributions into an IRA or annuity means that while the growth and income of the investment is tax-deferred, it will be subject to income tax when you take the money out in the future. Compare that to the much lower capital gains tax rate that those dollars would have paid if invested in, and withdrawn from, a regular investment account. That’s going to be a much bigger tax bill — not that we don’t appreciate the extra help paying down the ballooning deficit, but why pay more tax than you need to? Oh, and variable annuities are generally more costly to own than say, low cost index mutual funds. A lot more expensive. Adding insult to injury, the annuity had a “surrender period” of seven years, meaning the couple couldn’t take their money elsewhere without paying a penalty for early withdrawal.Not surprisingly, variable annuities are one of the most lucrative products for advisors to sell
  • One client with substantial means shared that they were sold equity-indexed annuities in their IRAs, with ten year surrender charges. Their former advisor placed the rest of their investments in a portfolio that was tax-inefficient, had high cost mutual funds and charged a 1% ongoing fee on top of that. Sadly, their advisor insisted that their annuity was actually earning 6% a year (it wasn’t) and charging no fees (it was), and the client believed that.

Sound familiar?  Don’t get mad, get informed, and get help from someone who doesn’t get paid by anyone but you.

When you buy groceries, you like straightforward ingredients, not a litany of chemicals you can’t pronounce, let alone understand what they are or if they’re good or bad for you. Your finances should be no different. You deserve to know where your money is going, what you get out of it and who is being paid by who to make recommendations to you.

The first step in understanding if you have a healthy, balanced approach to meeting your lifetime goals is understanding what you have, what it costs, and if anyone was incentivized to recommend those products to you. At EVOadvisers, this is a core part of how we help our clients.