Prudential HD Lifetime 7 Plus Variable Annuity
Thanks to Prudential for inviting me to a presentation (and dinner!) by Prudential Regional Vice-President Gary Woodward on Prudential’s HD (Highest Daily) Lifetime 7 Plus Variable Annuity product. As you well know, the primary purpose of a variable annuity is as a mechanism to save money during a person’s working years which can then be used to draw upon as an income stream during retirement. It’s not available as a lump sum, obviously. The “highest daily 7″ qualifier to this particular variable annuity refers to the product’s feature wherein a fixed 7% interest rate is applied to the highest value that an account reaches before the investor actually starts withdrawing money. The effect of this feature is to protect the investor’s downside risk. Here’s a snip from the product brochure which may help you understand what’s going on:
How It Works
You can read more about this particular product here:
HD Lifetime 7.
The upshot of using this variable annuity (either inside an IRA wrapper, or as a supplement to a current IRA or 401(k)) is that the investor is protected from severe market downturns and volatility. For the most part. Like all annuities, there are various withdrawal options available, and one of the key features of this product is that annuitization is not required in order to begin taking an income stream based on the 7% projected value in the account.
Obviously, when something is ‘too good to be true,’ it usually is, and like all annuities, there are lots of “gotcha’s” in this product which detract from the beautiful graphics in the marketing materials. The folks at Prudential are not stupid; it’s not a non-profit organization, and they’re not in business to give away guarantees for free. All of the fees and charges and “gotcha’s” are buried in the prospectus, which I think for this product exceeds 500 pages, so gets read by exactly no one. Which is the primary reason the advisor-client relationship of trust and confidence is so much more important than the actual nuts and bolts of the contracts. All of the large insurers have great annuity products which have similar features to Pru’s HD Lifetime 7 variable annuity. And all are ‘no-brainers’, in my opinion, as far as being an investment vehicle which is suitable for the overwhelming majority of Americans, whose 401(k)’s are now 101(k)’s. Is Pru’s product better than MetLife’s or John Hancock’s or Mass Mutual’s or AXA/Equitable’s variable annuity? I don’t know, because that’s an investor-specific question. They all have different features and costs; which one is right for your client is why you really, really need to do your homework and ask hard questions of your annuity wholesalers.
Nevertheless, as an advisor you need to checkout Prudential’s HD Lifetime 7 variable annuity product and consider it carefully as you’re advising your clients on their retirement planning.
Also, you want to talk to your client about the various beneficiary selections available when they purchase the contract. In other words, annuities are unbeatable investments while people are alive and during retirement. At death, they can be taxed pretty heavily. The tax treatment of annuities at death is a pretty complex topic, partially because of the available of the product inside and outside of an IRA, and because of the various living benefit features; whether the contract owner has or has not started to take withdrawals at death; whether the contract is the ’spousal’ variable annuity product; whether the named beneficiary has predeceased the owner, and so now the annuity becomes part of the decedent’s probate estate. What type of post-mortem planning is available when the contract owner dies? Are there different options available depending on whether the decedent had a will, or died intestate? Are there Private Letter Rulings which may be applicable to answer these questions? The answer is ‘yes.’ All reasons why as a financial planner you should call in an experienced estate planning lawyer to help develop the client’s financial and estate plan.
Thanks again to Prudential and Regional VP Gary Woodward.
Financial Wellness Coaching Takes Hold
A couple of months ago my friend Lora Sasiela was explaining some aspects of modern psychology and psychiatry and Sigmund Freud’s theories; much of which went over my head, but fascinating nonetheless. Lora is a licensed psychotherapist, and much of her work in the last ten years has been helping people understand the psychological causes of overeating and related health and well-being issues. Recently, Lora and others have discovered that many of the psychological issues behind overeating are the same or similar to the reasons why people spend beyond their means, and are otherwise unable to achieve financial health and well-being. Over eating and over spending are different reactions to the same psychological roadblocks.
Lora and others practicing in this field have demonstrated that the same counseling techniques which help people overcome eating issues can be transferred to help people with financial management issues. Lora’s work has nothing to do with life insurance or annuities or mutual funds, but financial planners know that an awareness of budgeting and the emotional aspects of saving and investing are more important than effective yields on investments. Here’s Lora’s press release from her Financial Wellness Coaching website. I think it’s a great and non-competitive seminar to refer your clients to, and I’ll be there as an added bonus!
FOR IMMEDIATE RELEASE
PRLog (Press Release) – Apr 09, 2009 – WHAT: An innovative financial wellness seminar for those looking to learn powerful tools to eliminate current money anxieties in addition to developing effective strategies to manage one’s own “personal economy” during these turbulent economic times.WHY: 80% of Americans are reported to be stressed out about money right now. The key techniques given by Lora Sasiela can break the cycle and create a powerful financial transformation.
WHERE: 1133 Broadway, at 26th Street
New York City, New York
Pre-Registration Required: http://www.financialwellnesscoaching.com/WHEN: Saturday, April 25th
10am-12 noonHOW: In this comprehensive two hour seminar attendees receive the following: Easy-to-use techniques for making peace with money, freedom from the isolation surrounding money struggles, 5 daily disciplines to prevent money anxiety, an understanding of the importance of money being “just money,” simply a tool, identification of unique limiting money beliefs and how to get rid of them, how to cultivate an attitude of gratitude – which will attract more abundance into your life, a take-home booklet of beneficial tools to continue developing ease in your relationship with money.
WHO: Lora Sasiela, founder of Financial Wellness Coaching, is a psychotherapist and money coach, guiding clients in the powerful transformation of limiting money beliefs that prevent them from enjoying full and rich lives. She has trained at the Financial Recovery Institute and the Women’s Earning Institute.
Financial Wellness Coaching
80 East 11th Street
New York, NY 10003
917.673.3867
Website and Event Registration: http://www.financialwellnesscoaching.com/
Financial Advisor and Quarterback Sacked for Loss of Yards
Most of my estate planning engagements come from insurance advisors and CFPs, because among estate planning lawyers I recognize the benefits of life insurance and annuities where many attorneys just can’t get passed the ‘exhorbitant’ commissions being earned by the sales rep despite the value of the product to the client. For that reason, I have a pretty good sense of how all of the client’s advisors work together to put the client’s plan in place correctly and effectively and efficiently. That’s how I run my business and profession. The financial advisor is almost always the “quarterback” of the client’s financial plan; providing the broad outlines of how a client’s goals might be achieved. Unfortunately, I lost a big estate planning engagement recently which was in the works for months, and a potentially long term relationship with an advisor, because (in my opinion, obviously) the advisor didn’t actually understand the role of a quarterback.
The financial advisor (somewhat new to the business, but very successful in a short period of time) was aggressive during the client meetings regarding her role: “I am the quarterback,” came out of her month every ten minutes. Unfortunately, to me at least, she didn’t actually understand an important aspect of that position. Which is (at least it used to be before headsets), to setup the offensive formation and assign the routes for the wide receivers and backs, and watch the defense setup and call an audible where necessary. And then the ball is snapped and the quarterback’s plan is set in motion. The point now though is once the quarterback hands the ball off to the running back, the back gets to carry the ball according to how he does his job; cut left or right and juke and sidestep; whatever. Once the quarterback hands the ball off, it’s no longer his job to follow the back down the field and direct where he goes to gain yardage. The QB steps back and watches the play unfold, unless he’s blocking, of course.
Similarly, once I am handed the role of advising and drafting on the proper construction of a Grantor Retained Annuity Trust, for example, the financial advisor no longer has a role in watching over my shoulder to opine on the clauses I decide to use and how I word various provisions of the document. This advisor simply couldn’t understand that trust construction can be accomplished in a variety of ways, and that I was not going to let her nitpick and comment and have me explain the use and available alternatives of every sentence in my documents. Despite the fact that it was her client and her relationship, the financial advisor just couldn’t get over her need to control those aspects of the game plan which properly fell under my purview as the attorney on the team. Unfortunate; one meeting ended acrimoniously and I doubt the clients are going forward with their estate plan, or with the purchase of the insurance and annuities which were on the table. Most unfortunately, I had about $7,000.00 of billable time on this case, and I’m certain that’s money lost, along with a potentially good client relationship, and a relationship with the financial advisor. Fortunately, I was able to discuss what happened with the advisor’s managing partner, whom I’ve known for a long time, and who was aware of the advisor’s controlling nature. So at least referrals will still be coming from that agency, if not from that particular advisor. Oh well; we’ve all got to live and learn.