There are many things to consider when thinking of hiring a financial advisor. Quality of the advisor should be the first thing determined by the consumer. Determining quality means research – without skimping and with verifying the information.
There are three ways an advisor charges for their services. By commission only, an hourly rate, or a mix of the two. While commission only sounds great, be aware that they may feel pressured to generate sales, regardless of financial goals. Remember, a good financial advisor is there to teach not just sell.
There are many ways to find financial advisors. Keep the rule of three in mind when selecting an advisor. Yes, it does mean three times the research, but it is better to do the extra digging to make sure the right person is selected. Regardless of the selection process, always check their background and references. Here again contact at least three references to find out their experiences with the advisor.
When talking to current clients find out the approach the advisor has taken to helping each client. It shouldn’t be the same for everyone, as everyone’s needs are different. If current clients didn’t get a financial plan in writing or don’t get performance statements, this could be a red flag. Carefully weigh the answers received from the current clients as it is, in essence, the report card for the advisor.
When the shortlist of advisors has been determined, start interviewing the advisors. And it is definitely an interview process. Find out why they feel they are good at what they do, and their passion for their work. Have them describe their preferred client as well as services offered. It is also good to know how long they have been doing this type of work. Get full disclosure from them – it should match up with previous research.
Finding out how many clients they already serve can be important to incoming clients. Make sure they will be able to serve all clients, not just a select few. Don’t hire them because they seem like they would be a good friend. They need to be an advisor first, and if they become friends later, that can be a bonus.
Come to the meeting prepared. Usually an advisor will be in contact so the correct documents and information can be brought to the first meeting. Preparation is key for potential clients as well as advisors.
There are, without a doubt, many things to consider when hiring financial advisors. Just as each client is different, so is each advisor. Weigh all the pros and cons before deciding which avenue is best. The extra work now pays off in the long run.
Thursday, April 15, 2010
Saturday, March 20, 2010
Variable Annuities 101
Understanding Variable Annuities
A Variable Annuity contract in the US is defined within the IRS code and is regulated by individual state regulators and by the Securities and Exchange Commission. Annuity contracts can only be issued by life insurance companies. Variable annuities are a contract created by you the individual and an insurance company. The insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase avariable annuity contract by making either a single purchase payment or a series of deposits. Variable annuities have features of both life insurance and investments.
A variable annuity gives an entire host of investment options. The value of your investment as a variable annuity owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are typically mutual fund type investments such as stocks, bonds, money market funds, or a combination of the three.
How do variable annuities differ from mutual funds?
Variable annuities differ from mutual funds type investments in three important ways that one should be mindful of:
1) They let you receive periodic payments for the rest of your life (or the life of your spouse or any other person you designate). This feature offers protection against the possibility that, after you retire, you will outlive your assets.
2) They have a death benefit. If you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount - typically at least the amount of your purchase payments. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the guaranteed amount.
3) They are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within avariable annuity without paying tax at the time of the transfer. When you take your money out of a variable annuity , however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will outweigh the costs of avariable annuity only if you hold it as a long-term investment to meet retirement and other long-range goals.
How Variable Annuities Work
A variable annuity has two phases: an accumulation phase and a payout phase.
During the accumulation phase, you make purchase payments, which you can allocate to a number of investment options. For example, you could designate 50% of your purchase payments to bonds, 40% to stocks, and 10% to a money market fund. The money you have allocated to each fund investment option will increase or decrease over time, depending on the fund's performance. In addition,variable annuities often allow you to allocate part of your purchase payments to a fixed account. A fixed account, unlike a mutual fund, pays a fixed rate of interest. The insurance company may reset this interest rate periodically, but it will usually provide a guaranteed minimum (e.g., 4% per year).
Example: You purchase a variable annuity with an initial purchase payment of $10,000. You allocate 50% of that purchase payment ($5,000) to a bond fund, and 50% ($5,000) to a stock fund. Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. At the end of the year, your account has a value of $10,750 ($5,500 in the stock fund and $5,250 in the bond fund), minus fees and charges (discussed below).
Accumulation Phase: In the U.S. Internal Revenue Code the growth of an annuity value during the accumulation phase is tax-deferred and is not subject to current income tax for the annuity's owner. The tax deferred status of deferred annuities has led to their common usage in the United States. Under the U.S. tax code, the benefits from annuity contracts do not always have to be taken in the form of a fixed stream of payments and many of annuity contracts are bought primarily for the tax benefits rather than to receive a fixed stream of income. If an annuity is used in a qualified pension plan or an IRA funding vehicle, then 100% of the annuity payment is taxable as current income upon distribution.
Payout Phase: At the beginning of the payout phase, you may receive your purchase payments plus investment income and gains (if any) as a lump-sum payment, or you may choose to receive them as a stream of payments at regular intervals (generally monthly).
If you choose to receive a stream of payments, you may have a number of choices of how long the payments will last. Under most annuity contracts, you can choose to have your annuity payments last for a period that you set (such as 20 years) or for an indefinite period (such as your lifetime or the lifetime of you and your spouse or other beneficiary). During the payout phase, your annuity contract may permit you to choose between receiving payments that are fixed in amount or payments that vary based on the performance of mutual fundinvestment options.
The amount of each periodic payment will depend, in part, on the time period that you select for receiving payments. Be aware that some annuities do not allow you to withdraw money from your account once you have started receiving regular annuity payments.
In addition, some annuity contracts are structured as immediate annuities, which means that there is no accumulation phase and you will start receiving annuity payments right after you purchase the annuity.
Make sure to conduct proper due diligence when comparing
annuity rates. But the best thing to do is to find a financial advisor to do the research for you and give you the best rate.
A Variable Annuity contract in the US is defined within the IRS code and is regulated by individual state regulators and by the Securities and Exchange Commission. Annuity contracts can only be issued by life insurance companies. Variable annuities are a contract created by you the individual and an insurance company. The insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase avariable annuity contract by making either a single purchase payment or a series of deposits. Variable annuities have features of both life insurance and investments.
A variable annuity gives an entire host of investment options. The value of your investment as a variable annuity owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are typically mutual fund type investments such as stocks, bonds, money market funds, or a combination of the three.
How do variable annuities differ from mutual funds?
Variable annuities differ from mutual funds type investments in three important ways that one should be mindful of:
1) They let you receive periodic payments for the rest of your life (or the life of your spouse or any other person you designate). This feature offers protection against the possibility that, after you retire, you will outlive your assets.
2) They have a death benefit. If you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount - typically at least the amount of your purchase payments. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the guaranteed amount.
3) They are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within avariable annuity without paying tax at the time of the transfer. When you take your money out of a variable annuity , however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will outweigh the costs of avariable annuity only if you hold it as a long-term investment to meet retirement and other long-range goals.
How Variable Annuities Work
A variable annuity has two phases: an accumulation phase and a payout phase.
During the accumulation phase, you make purchase payments, which you can allocate to a number of investment options. For example, you could designate 50% of your purchase payments to bonds, 40% to stocks, and 10% to a money market fund. The money you have allocated to each fund investment option will increase or decrease over time, depending on the fund's performance. In addition,variable annuities often allow you to allocate part of your purchase payments to a fixed account. A fixed account, unlike a mutual fund, pays a fixed rate of interest. The insurance company may reset this interest rate periodically, but it will usually provide a guaranteed minimum (e.g., 4% per year).
Example: You purchase a variable annuity with an initial purchase payment of $10,000. You allocate 50% of that purchase payment ($5,000) to a bond fund, and 50% ($5,000) to a stock fund. Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. At the end of the year, your account has a value of $10,750 ($5,500 in the stock fund and $5,250 in the bond fund), minus fees and charges (discussed below).
Accumulation Phase: In the U.S. Internal Revenue Code the growth of an annuity value during the accumulation phase is tax-deferred and is not subject to current income tax for the annuity's owner. The tax deferred status of deferred annuities has led to their common usage in the United States. Under the U.S. tax code, the benefits from annuity contracts do not always have to be taken in the form of a fixed stream of payments and many of annuity contracts are bought primarily for the tax benefits rather than to receive a fixed stream of income. If an annuity is used in a qualified pension plan or an IRA funding vehicle, then 100% of the annuity payment is taxable as current income upon distribution.
Payout Phase: At the beginning of the payout phase, you may receive your purchase payments plus investment income and gains (if any) as a lump-sum payment, or you may choose to receive them as a stream of payments at regular intervals (generally monthly).
If you choose to receive a stream of payments, you may have a number of choices of how long the payments will last. Under most annuity contracts, you can choose to have your annuity payments last for a period that you set (such as 20 years) or for an indefinite period (such as your lifetime or the lifetime of you and your spouse or other beneficiary). During the payout phase, your annuity contract may permit you to choose between receiving payments that are fixed in amount or payments that vary based on the performance of mutual fundinvestment options.
The amount of each periodic payment will depend, in part, on the time period that you select for receiving payments. Be aware that some annuities do not allow you to withdraw money from your account once you have started receiving regular annuity payments.
In addition, some annuity contracts are structured as immediate annuities, which means that there is no accumulation phase and you will start receiving annuity payments right after you purchase the annuity.
Make sure to conduct proper due diligence when comparing
annuity rates. But the best thing to do is to find a financial advisor to do the research for you and give you the best rate.
How To Find Annuity Rates Online
Are you curious about how to find annuity rates online? If you are new to the subject of annuities, then more than likely you are interested in finding the best rates. However, this process can be a little more troublesome for those who do not have sufficient knowledge on the topic. There is no need to worry about it, for this is a common occurrence. The very first positive step in the process of finding the best annuity rates starts with conducting some research online.
The most primitive way of checking for the best rates would be through going to all of the big financial company websites. You would have to write down all of the information from each of these sites and then spend the extra time to compare them. This is a very time consuming, wasteful process. In order to make this process more efficient and productive, you should try a website that compares annuity rates for free. A majority of these sites only require a small bit of information before granting access to the useful tools while other charge a fee. You will have to check out the features of each and then make your decision based on that data.
Before you start on that journey you should consider these tips first. One common sales pitch that a majority of the annuity companies employ in order to get more customers is to advertise an excellent rate. With the passing of time, this “excellent” rate will almost always decline. This is why the internet is the best way to find out how to find annuity rates online. You can research and compare different companies in order to uncover the minute details about their annuity rate history and longevity. If you are able to discover this information your decision will be much more likely to be accurate.
Because there are so many different types of annuities, the whole situation becomes even more confusing. As a customer, you will need to explore the features and possibilities of each and every single one of them in order to find the most fitting choice. Once this is competed, the person looking for the very best annuity rate will need to team of with a trusted financial advisor. Because most of the individuals reading this article are not too familiar with the situation, they more than likely have no contact information with an advisor that chalks up to these standards. Therefore, other measures need to be executed. Check with family and friends to see if they have used a certain financial advisor that they have developed a trusting relationship with. This will be by far your best chance and finding the right person for the job. Some great question to ask pertain to how long they have used that advisor and how much their rates have changed over the years. Be sure to also ask how satisfied your family member was with the company or individual during the time span of service. This not always possible though. In many situations, the only choice one will have is to conduct the thorough research themselves and then take a thought out chance in hopes of success. This is not considered to be a mistake. Taking risks has always been a part of the equation when it comes to annuities and other financial services. If everyone knew that they would have success with their investments, then you wouldn’t even be reading this article. All that you can do is take a well researched, steady approach the best that you possibly can and then hope that everything pans out in your favor.
The most primitive way of checking for the best rates would be through going to all of the big financial company websites. You would have to write down all of the information from each of these sites and then spend the extra time to compare them. This is a very time consuming, wasteful process. In order to make this process more efficient and productive, you should try a website that compares annuity rates for free. A majority of these sites only require a small bit of information before granting access to the useful tools while other charge a fee. You will have to check out the features of each and then make your decision based on that data.
Before you start on that journey you should consider these tips first. One common sales pitch that a majority of the annuity companies employ in order to get more customers is to advertise an excellent rate. With the passing of time, this “excellent” rate will almost always decline. This is why the internet is the best way to find out how to find annuity rates online. You can research and compare different companies in order to uncover the minute details about their annuity rate history and longevity. If you are able to discover this information your decision will be much more likely to be accurate.
Because there are so many different types of annuities, the whole situation becomes even more confusing. As a customer, you will need to explore the features and possibilities of each and every single one of them in order to find the most fitting choice. Once this is competed, the person looking for the very best annuity rate will need to team of with a trusted financial advisor. Because most of the individuals reading this article are not too familiar with the situation, they more than likely have no contact information with an advisor that chalks up to these standards. Therefore, other measures need to be executed. Check with family and friends to see if they have used a certain financial advisor that they have developed a trusting relationship with. This will be by far your best chance and finding the right person for the job. Some great question to ask pertain to how long they have used that advisor and how much their rates have changed over the years. Be sure to also ask how satisfied your family member was with the company or individual during the time span of service. This not always possible though. In many situations, the only choice one will have is to conduct the thorough research themselves and then take a thought out chance in hopes of success. This is not considered to be a mistake. Taking risks has always been a part of the equation when it comes to annuities and other financial services. If everyone knew that they would have success with their investments, then you wouldn’t even be reading this article. All that you can do is take a well researched, steady approach the best that you possibly can and then hope that everything pans out in your favor.
Subscribe to:
Posts (Atom)
