Updated Thursday, November 20, 2014 as of 5:56 PM ET

Retirees Suffer as 401(k) Rollovers Enrich Brokers

(Bloomberg) -- Kathleen Tarr says AT&T Inc. employees looked to her as “their de facto 401(k) expert.” Visiting their homes and offices, she advised them on their retirement plans as they called up balances on computer screens.

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Comments (6)
FINRA's comment that "Investing in a variable annuity within an IRA "may not be a good idea" because it provides no additional tax savings over an already tax-advantaged IRA" misses the point that some of the fee guarantees that payments will continue for life, which is a legitimate insurable risk that many seniors face.

Tax deferral is not a product feature; it's tax code. Certainly no one is worse off with one type of investment or another in a conventional tax-qualified plan -- it's going to be taxed coming out. That's no criterion for evaluation.

The article does not state whether the decline in the value of the REITS was due to interest rate changes (quite possible) or because the REITs were poor quality.

The annuities that I sell feature extremely strong guarantees, which my B/D is comfortable in identifying as guarantees.

Here's a key point: Fees associated with providing the guarantees, investment allocation and management, distribution, and administration are assessed against the EXCESS over an above the guarantees. Anything above the guarantees is subjected to a haircut which modest next to the downside protection and the possible upside.
Posted by ROBERT L | Tuesday, June 17 2014 at 12:37PM ET
This is Michael Chindamo, CFP, AIF, CSP, Co-Founder of Fautores Family Offices
Much of the problems would be resolved if 401k participants would take the following steps:
I will preface that many AT&T execs have substantial balances, thus should consider hiring experts. However, the following advice may apply to all 401k participants.

1) Engage the services of a CFP Certificant and have them advise you on creating a comprehensive written financial plan.

2) Create a personal Investment Policy Statement (IPS)

3) Take into account all behavior nuances and factor those into the IPS as well as the recommendations after analyses in the written financial plan.

4) All investments should not be within the stock market. The IPS should create the written rules as pertains to investments in the stock market and not.

5) Carefully analyze the risk sector, including coeverages and exposures within the property and Casualty policies, make sure that the client has addressed any gaps. Have the estate plan professionally designed by an appropriate attorney that works with the client's tax and financial planner.

6)Make sure that all advisors on the team operate within a fiduciary capacity. Get this in writing.

The 6 steps above will go a very long way in attaining the level of financial advice that you are entitled to.
Posted by Michael C | Tuesday, June 17 2014 at 1:05PM ET
Mike C again.
One last thought. Forgot to add this.
There are many CFP practitioners that will take on an engagement that will offer the written plan and IPS creation and analyses without taking on the assets under management side. That way the participant would clearly be attaining non-conflicted advice.
Posted by Michael C | Tuesday, June 17 2014 at 1:15PM ET
I just wanted to strongly second Robert L's statements regarding VAs. Redundant tax deferral between annuities and IRAs isn't a reason to avoid VAs; in reality, it simply makes tax deferral a complete non-issue in the decision. The often reputed "high fees" in an annuity are simply reasonable and justified costs of features, benefits, and guarantees. As in any vehicle, if those features are not appropriate for the individual, that particular product is inappropriate; but most retirees should have some form of bottom-side security. For many, FIAs (gasp!) are an even better alternative.

Bottom line: Just as no product is appropriate for everyone, no product in inappropriate for everyone. Every single type of investment product in existence is the very best alternative for someone in a particular situation.

Rob Drury
Executive Director,
Association of Christian Financial Advisors
Posted by ROB D | Tuesday, June 17 2014 at 2:43PM ET
I found it interesting that in the entire article there wasn't any mention of the fact that many/most of the retirees who were 55 (or would become 55) in the year of "separation from service" could probably have left their 401-K account with the company, and taken partial distributions if needed before 59 1/2 without being subject to the 10% penalty for early distributions. This is rarely mentioned to the employee because the "advisor" wants the commissions from the rollover and investment under their control. Also, there was no mention of NUA ( Net Unrecognized Appreciation of Employer Stock) which in many situations is preferable to any other option. Most brokers have no knowledge about either of these options because they are poorly or improperly trained, or because their primary perspective is their own commissions. Further, they rarely consider tax consequences of their recommendations, and in some circumstances rollovers to ROTH IRA accounts might be advisable, but is rarely considered.
Posted by DAVID L Z | Wednesday, June 18 2014 at 10:28AM ET
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