Axiom | Vol 250

Featured: Meet The Axiom’s Guest Editor: Noi Sayaovong | Inside: Could Rising Rates Bring The End Of TINA? | Poll Recap: Do You Intend On (Or Are You Now) Helping To Pay For Your Grandchild’s College Education? | MoneyDo: Review What You’re Actually Paying For Your Annuity | Ask Annex: Are there any tax deductions for contributing to grandchildren’s 529 plans? | DYADT: Does Your Advisor Help You Update Your Estate Plan? | Mixed Outlook On Housing Market | Most CFOs Forecast Strong US Economic Recovery | What’s An ERISA Safe Harbor?

Meet The Axiom®’s Guest Editor: Noi Sayaovong

I’m Noi Sayaovong, Project & Data Analyst Specialist at Annex Wealth Management.

In the 20 years that I’ve been in the investment management industry, Annex is the first firm I’ve worked for that thrives to give their clients the full-service wealth management experience. I look forward to using my skills to enhance their tools and help Annex continue to deliver a high level of service.

I have been married for 25 years with 3 children ranging from 4 to 16 years old. When I’m not busy running between my kid’s activities, I enjoy live entertainment and traveling.


Could Rising Rates Bring The End Of TINA?

Markets were quiet this week, but experts wonder if TINA – the acronym for There Is No Alternative – and a big force in why the markets have seen record highs over the years – is waning. Rising interest rates could see some move to other investments. Annex Wealth Management’s Deanne Phillips and Todd Voit discuss.


Do You Intend On (Or Are You Now) Helping To Pay For Your Grandchild’s College Education?

The cost of college education continues to climb, and many grandparents are stepping in to help. According to a recent report, this trend is expected to accelerate with baby boomers when they become grandparents and start gifting money since most baby boomers attended college. Grandparents can also expect tax exemptions and sometimes even credits depending on funding and tuition plans as an extra benefit.  

According to our latest poll, the majority of respondents, around 80%, said that they are currently or will be contributing to their grandchildren’s college education. 15% of respondents said that they are considering helping fund their grandchildren’s college education and 5% responded that they will not be contributing. 

For the 2020-2021 school year, the average price of tuition and fees came to around $10,560 for public colleges for in-state residents, $27,020 at public colleges for out-of-state residents, and $37,650 for private colleges. Student loan debt in 2020 reached a high of $1.57 trillion with overall student debt increasing over 102% from 2010.   


I like that the Axiom brings education to our readers. Particularly, the MoneyDo and Ask Annex. The MoneyDo draws an item to your attention that you may need to review or complete.

– Guest Editor: Noi Sayaovong | Project & Data Analyst Specialist 


Review What You’re Actually Paying For Your Annuity 

This week’s MoneyDo is to Review what you’re actually paying for your annuity.

Many annuities are complex financial instruments accompanied by complex paperwork detailing how they work and the spider web of fees associated with them.

And it’s not because you’re dumb. Craig McCann, a former economist for the Securities and Exchange Commission, built a computer model intended to calculate if an annuity is right for someone. He employed a dozen people with Ph.D.s in math to “dissect indexed annuity products.” He said it took years for his team to master them[i].

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[ii].

If you own an annuity, seek how much you’re paying in fees. It’s important to understand that these fees aren’t always broken out clearly, and you might have to read deep into the fine print in order to get all the information you need on the annuity fees you’re paying, like[iii]:

1. Administration and contract maintenance charges

Insurance companies have overhead costs that they need to offset in order to offer annuities. Some annuities therefore include a specifically listed charge to maintain the policy, covering both the administrative costs of things like preparing regular statements and the ongoing expenses of monitoring the annuity contract.

2. Surrender charges

Sometimes you’ll see the term “contingent deferred sales charges” instead. Many annuity companies charge you a fee if you decide to back out of an annuity contract within a set period of time. The length of the surrender-fee period can differ, with some companies charging surrender fees for seven to 10 years. Often, the surrender fee will go down over time, with the highest charge applying if you cancel your annuity very soon after purchasing it. Some annuities offer exemptions or partial withdrawals without a surrender fee, but with typical surrender charges amounting to several percent of the contract value, be absolutely sure you understand the long-term nature of annuities before you buy one.

3. Mortality and expense risk fees

Perhaps the most confusing annuity fee is the mortality and expense risk charge. The M&E expense fees compensate the insurance company for taking on the risk of getting its estimates of essential factors like life expectancy and its underlying overhead expenses wrong – and therefore, the insurance company may end up having to pay some of those costs out of its own profits.

The M&E expense fee is often large enough to cover other expenses as well, such as sales and marketing fees, and generate profit for the insurance company. You may find commissions included in this fee. (More on that later).

In fact, M&E fees are often the key reason annuity fees are higher than those for mutual funds with similar investments. Annuities do have some features that mutual funds don’t, but many annuity owners never end up taking advantage of all of them, making it questionable whether they’re getting their money’s worth for the extra money they’re spending.

4. Premium taxes

Many states charge taxes on insurance products. In turn, some insurance companies pass through those taxes to buyers of those products, including annuities.

5. Underlying investment expenses

Annuities often invest in pooled investments like mutual funds. Mutual funds do have expenses of their own, which annuity sellers will pass on to its policyholders. Specifically, annuity owners can end up paying added expenses for mutual fund management as well as marketing and distribution fees that the fund company incurs.

Some underlying funds also charge short-term trading fees for shifting in and out of the fund on a frequent basis, and annuity companies can pass those costs on to investors as well. Like the mortality and expense risk fee, underlying investment fees are expressed as a percentage of the amount you have invested, and they’re charged on an annual basis, representing an ongoing drain on your investment capital.

6. Rider fees

Many annuities offer additional optional features, which are sometimes called riders. These add-ons can give you attractive benefits, such as guarantees of minimum levels of income or death benefits. Typically, though, you’ll have to pay an extra fee in order to take advantage of these optional guarantees.

Riders also change and can limit what you are invested in. Today most buyers who opt for a rider — 88% do, says research firm LIMRA — will see their stock stake capped at around 60%. You may also be required to use model portfolios or “managed-volatility” funds, which automatically shift assets from stocks to more conservative choices if your account value falls a certain percentage within a short time[iv].

7. Commissions

When you buy an annuity through a broker you will pay a commission, which can range from 1% to 10% depending on the product (the longer the surrender period, the higher the commission).

As you can see, there are a lot of terms and fees you’ll have to keep your eyes on as you review your annuity. If you’re having trouble determining how much you’re paying, find an advisor you can trust – preferably a fee-only fiduciary – who can help you read and understand your contract.







The Ask Annex questions are often based on topics you may have questions on yourself – and the knowledgeable team is able to provide you with answers.

– Guest Editor: Noi Sayaovong | Project & Data Analyst Specialist 


This week’s Ask Annex comes from Ruth, who asks:

“Are there any tax deductions for contributing to grandchildren’s 529 plans?”


We asked Annex Wealth Management’s Ron Johnson, CFP®:

Yes, using the 529 plan is an attractive way to help grandchildren with college because there are two notable tax benefits associated with contributions.  First, contributions will grow tax free if used for approved education related expenses such as tuition, room/board and fees.  Second, if you are a Wisconsin resident and contribute to the Wisconsin Edvest 529 plan, you can deduct up to $3,380 per beneficiary on your state return.
As an example, let’s assume you have 2 grandkids and wish to contribute $1,000 to each.  Using the Edvest website, open two accounts which are owned by you but lists a grandkid as a beneficiary on each account.  In this instance, each account will grow tax free and your total state deduction is $2,000.

We hope this helps. When – and we know it’s likely when, not if, you have questions about 529s, tax deductions, and planning for your grandkids, please let us know if you have further questions.


Does Your Advisor Help You Update Your Estate Plan?

Millions of dollars left behind with only sticky note instructions. Multiple children and ex-wives surfacing as claimants. Massive debts left to be paid. Annex Wealth Management’s Estate Planning Attorney, Jill Martin, JD, looks at a few examples of celebrities who could have used an updated estate plan.



Mixed Outlook On Housing Market


Most CFOs Forecast Strong US Economic Recovery


What’s An ERISA Safe Harbor?


Annex Wealth Management provides free workshops, open to the public, on key wealth management topics.

Each week, we provide links to register for upcoming events.