The past three episodes, we’ve discussed what to consider before moving – now Annex Wealth Management’s Tom Parks and Deanne Phillips discuss what to consider after you’ve made your decision to move – and some unique situations that you might want to think about.

A volatile week in the markets saw further uncertainty in Russia, the Fed raising rates and scheduling more this year, and mixed consumer sentiment. What types of companies should investors be looking at or avoiding? Annex Wealth Management’s Dave Spano and Derek Felske discuss.

QR codes are more popular, especially since the pandemic. One advertiser ran a commercial during the Superbowl that was just a QR code onscreen for 30 seconds.


Review What You’re Actually Paying For Your Annuity 

Do you own an annuity? If so, do you know what you’re paying for it? In this week’s MoneyDo, we encourage you to discover what you’re actually paying for your annuity. 

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

Some modern annuities are just as complex, but curiously devoid of fees. Many such annuities have performance tied to market index returns, where the “cost” of the annuity is baked into the participation rates, spreads and caps which affect the return you ultimately receive. 

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]. 

Although 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 safe 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, do your homework to determine how much you’re paying in fees. And if your annuity is completely free of fees, take the time to understand how the insurance company is getting paid instead. 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, such as the following examples[iii]: 

  1. Administration and contract maintenance charges

Insurance companies have overhead costs 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. 

  1. 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 ten 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. 

  1. Mortality and expense risk fees

Perhaps the most confusing annuity fee is the mortality and expense risk charge. The M&E 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.  

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. 

  1. 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. 

  1. Underlying investment expenses

Annuities often invest in pooled investments, which are similar to mutual funds. These investments have expenses of their own, which annuity sellers will pass on to their 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. 

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. 

  1. 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. Your investment in equities or stock-like investments may be limited to a cap, such as 60%. You may be required to use model portfolios or “managed-volatility” funds, which may not be the ideal investment option in your specific situation. 

  1. Commissions

When you buy an annuity through a broker, you will pay a commission. A typical up-front commission can range from 5% to 10% depending on the product (the longer the surrender period, the higher the commission typically will be). 

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 one who is a fee-only fiduciary all the time – who can help you read and understand your contract. 






We asked Annex Wealth Management’s Tom Berkholtz, CFP®: 

Yes, using the 529 plan is an attractive way to help grandchildren with college because of 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’re a Wisconsin resident and contribute to the Wisconsin Edvest 529 plan, you can deduct up to $3,560 per beneficiary on your State return. 

As an example, let’s assume you have two grandkids and wish to contribute $1,000 to each. Using the Edvest website, open two accounts which are owned by you but list 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.