On the surface, annuities seem like a simple investment. The investment generally entails paying an insurance company a lump sum with the expectation that, at some point, the insurance company will begin making a string of payments to you from that lump sum plus any investment growth. While the fundamental idea of an annuity is fairly straightforward – you invest your lump sum and we’ll give you a stream of income – as with most financial products designed by Wall Street, annuities can become extremely complex. The simplest type of annuity is a fixed annuity, which earns a fixed rate of interest and can be converted to a stream of payments at the investor’s request. Slightly more complex are variable annuities, which allow the purchaser to invest in “sub-accounts”, which are mutual fund-like investments into which funds can be directed. Finally, many annuities offer various add-on options, or riders, including … Continue reading
The total cost of financial advice includes a number of items we’ve discussed in the last few posts. For clients who work with us those costs include: The hourly cost of the plan Cost for specific investment recommendations The ongoing costs of the investments Not all financial advisors charge a separate fee for the plan AND for the investment recommendations. As I mentioned in a previous post, advisors who sell commissionable products may not charge a fee for either the plan or the investment recommendation. Getting a “free” plan and investment recommendations may not be a good deal, however, as the ongoing fees for the investments will, over time, very likely dwarf the upfront cost of a plan. As an example, let’s take a look at a hypothetical investor who has $500,000 to invest and has the opportunity to work with two planners as described below: Planner A – works … Continue reading
The cost of investments is a key component of your financial plan. Regardless of whether you work with fee-only advisors or commission-based brokers, portfolio design is likely the largest cost of your plan. So how do you determine what you’re paying? First, it’s important to determine if you need specific investment recommendations from your advisor. For some people, most or all of their investments are in their 401k. If the 401k has just a few options, it may be enough to understand what your general allocation should be – what percentage in large cap U.S. stocks, what percentage in bonds, and so on. Many advisors – ourselves included – will deliver this as part of the basic financial plan. However, if your situation is more complex, you might need to know exactly what should be bought and sold in each account. If this is the case, portfolio design might be … Continue reading
As fee only financial advisors one of the most common queries we receive from the web has to do with how much a financial plan costs. It’s a good question as there are a number of ways you can pay for a plan, from fee-only to commission only. Fee only typically costs a good bit more up front, while commission based may be much less expensive or even free initially, but ultimately end up costing more. So how do you know what you’ll be paying? The first step is to understand the costs involved. Typically, you can break those costs down into two categories: The cost for the plan The cost for the investments The cost for the plan should be identified up front. Many advisors – ourselves included – work on an hourly rate, but if you can provide an accurate outline of what you need, the advisor should … Continue reading
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