Beyond Axa/Equitable, other large players in this market include Voya, Valic, The Legend Group, Lincoln Financial Group, MetLife (whose retail adviser force was recently acquired by MassMutual), and New York Life according to the retirement industry publication PlanSponsor.
Selling annuities also creates a continuing income stream for the brokers. Axa/Equitable pays a commission of 1.5 percent to 2 percent on every future dollar an employee contributed to a 403(b) annuity. The annuity sold to the teacher, in a sense, becomes an annuity for the sales rep and the company’s managers.
This can translate into a healthy living for some brokers. Many of these practices are plainly stated on Axa’s website, including the fact that brokers are paid more to sell annuities than to sell mutual funds. Axa said that reflected the complexity of selling annuities.
In fact, millions of people who save in 403(b) plans may be losing nearly $10 billion each year in excessive investment fees, according to a recent analysis by Aon, a retirement consultant.
Karen S. is a 62-year-old widow nearing retirement who agreed to discuss her situation if her last name was not used to protect her family’s privacy. At the end of 2015 she would have had an additional $113,000 in savings — or nearly 50 percent more — had she not paid approximately $37,500 in commissions and various fees over the previous eight years and had instead invested in a simpler mix of low-cost stock and bond funds, according to an analysis performed by Mr. Dauenhauer, the 403(b) consultant.
Another educator, Ms. Jusinski paid more than $15,000 in fees and commissions over the previous eight years on an $87,000 account. She would have had almost $105,000 at the end of 2015 if she had been invested in a standard mix of low-cost stock and bond funds, according to Mr. Dauenhauer’s analysis.
Most of the teachers are charged a fee that is usually more than 2 percent of their savings to manage the money, in addition to sales charges of up to 6 percent each time they made a contribution from their paycheck, the analysis found. Moreover, the calculations didn’t include the expenses of the dozens of mutual funds they were invested in, some of which exceeded 1 percent.
Craig McCann, a former economist for the Securities and Exchange Commission, has built a computer model that is intended to figure out how annuities work He has employed close to a dozen people with Ph. D.s in math to dissect indexed annuity products as part of his firm’s work, which provides analyses for regulators and litigators representing investors. He said it took years for his team to master them.
“No agent selling these or investors buying these annuities has the foggiest idea of how these work,” said Mr. McCann, who reviewed Ms. Lindert’s contracts.
But indexed annuities have to make sense for at least some investors, right? Perhaps for the incredibly risk-averse? “No,” he said, without hesitation. “Never.”
Though it appears that investors have some exposure to the stock market, he says many are left with a return they could have achieved with a supersafe bond portfolio, without paying an obscured 2.5 to 3 percent annual fee charged by the annuity provider. “They are all Rube Goldberg machines,” he said.
For the full articles here are the links: https://www.nytimes.com/2016/10/27/your-money/403-b-retirement-plans-teachers-brokers-fees.html
