Saturday, October 22, 2011

Collecting an Annuity is the Easy Part

These insurance products have big appeal for retirees and nervous investors, but you still can’t buy them without paperwork and phone calls.

Annuities have been on a roll lately because they promise protection from bad markets and offer guaranteed payouts, regardless of economic conditions. With so many people reaching retirement age, the appeal is understandable. A Barron’s June 20 cover story on the best annuities generated so much online discussion and inquiry, we decided to learn how intrepid electronic investors can research and purchase annuities.

What we found was disappointing.

Today’s online annuity market reminds me of the bond market of eight to 10 years ago: You can find tons of descriptions, and even use some evaluation tools to find an annuity that seems to meet your needs, but buying usually requires a chat with an advisor.

One reason for this is that annuities are, in essence, an insurance product, rather than a security, which means they fall under different regulations, many of which vary by state. Ian Lundahl, a senior analyst at consultant Corporate Insight ( who specializes in annuities and life insurance, says, “It’s going to be tough for a retail investor to set up and buy an annuity online without talking to a human.” Lundahl, whose firm specializes in financial-customer research, doesn’t believe that purchasing an annuity will become a fully online experience for at least another five years.

Lundahl notes that annuities can be a big-ticket item and says that they’ve gone through some “rough patches” with regulators worried about sales practices. As a result, insurers want to make sure that their advisor units are “prepared to answer questions and perform certain tasks that you can’t do online by yourself.” Regulators tend to focus most closely on whether a particular annuity is suitable for a particular investor, and that an investor has completely answered all of the required questions before signing up.

I MUST ADMIT TO some skepticism about these products. I watched some relatives deal with the bankruptcy of the insurance company that held their annuities back in the late 1980s. When I took a look at the contract they had signed, I saw a lot of fees and charges that had reduced their initial investment considerably.

As a baby boomer myself, with retirement looming a decade from now, I circle back to check out annuities every couple of years. But I’m put off by the hard sell, as well as the feeling that I can generate more income investing on my own. Frankly, I would be more likely to consider an annuity if I could complete all the steps online, avoiding the possibility of talking to an advisor who sounds like, well, an insurance salesman.

There is now a wide variety available; in our June feature, contributing editor Karen Hube found approximately 1,600 iterations of the product. Your choices include variable annuities, whose growth fluctuates based on the underlying investments, and fixed annuities, which are tied to a specific interest rate. Your payouts can begin immediately, or be deferred to a later date. You can also choose the length of time that the annuity will generate monthly income, and purchase riders to ensure that your heirs will receive payments after you’re gone.

ROBERT SCHAFFER, assistant vice president in the annuities division of USAA (, says he understands my misgivings, but believes his firm’s products are straightforward and can help anyone who wants to guarantee a certain amount of income for life. Shaffer, a former Marine, explains that annuities originally were designed as bond substitutes because that market could be tough for retail buyers to negotiate.

USAA’s Website, open to active or retired military personnel and their families, allows users to calculate the size of an annuity, based on either the desired monthly payout or the sum available to invest. To purchase the annuity, however, you must call a representative.

USAA sells two flavors of fixed annuities: one that generates an immediate payout and one that defers the payout. For the former, an investor would deposit a lump sum immediately and start drawing a monthly check. For the latter, an investor would make regular investments and build up the account. There are simple-to-use tools on the USAA Website that guide a member through the process of figuring how much to invest.

Fidelity ( is one of the few online brokers that also gives customers access to annuities. Fidelity has its own suite of variable annuities that it packages and sells; customers who prefer to buy a fixed annuity are directed to a partner firm.

On the Fidelity site, clicking on “Investment Products” and then the “Annuities” tab directs you to a page with links to descriptions of the various Fidelity products, as well as a link to the site’s Income Strategy Evaluator. The latter requires either a Fidelity account or a free login that lets you play with the tool without opening an account. You answer questions regarding your assets, plans for savings in the future and the expenses you need to cover in retirement, and a personalized strategy is presented. The paperwork needed to open an annuity can be prefilled, based on data already stored on Fidelity’s site, but you still must print it all out, sign it, and send it in. Or you can telephone an advisor.

TIAA-CREF (, best known as a pension provider for the education and medical professions, also offers individual annuity contracts. The contributions are made from after-tax income. It offers both fixed and variable annuities; availability depends on your state of residence. The firm offers a lot of tools for research and information online. An advisor handles the paperwork, though a client’s signature is required, says Jeremy Ragsdale, a managing director in the firm’s after-tax annuity group.

Vanguard ( also has annuity resources on its Website, though they aren’t as developed as Fidelity’s. The Vanguard site works hard to convince you to move any existing deferred variable annuities you have to the fund giant to save on fees.

Other sites with helpful information for your annuity search are AXA Equitable ( and Jackson National (

But for now, at least, research is about as far as you can go online. 

Published in Barron’s, October 17, 2011

Posted by twcarey on 10/22 at 02:42 PM
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Saturday, October 01, 2011

Intuit Chief Launches Finance Site

Personal Capital site offers lots of tools, plus access to a real human being.

Back in the early days of online investing—say, 1996—amateur traders moved a little “play money” out of their full-service brokerage accounts to bet with. Everyone was a genius in the late 1990s, and do-it-yourself trading became all the rage.

The past decade has been more challenging, and some of these traders have decided to retreat and get more professional help. Many online brokers have added investing advice to their sites, to retain those clients.

While there are lots of resources online for investors who want to go it alone, those who want some personal help usually find a local advisor and establish a face-to-face relationship. In the past few years, however, we’ve seen sites such as Covestor ( and Market Riders (, which help investors with asset allocation and innovative ways of getting advice and trading ideas ("From MoneyChimps to Bogleheads,” April 25).

Now there’s a new entrant, bringing an interesting twist on personal advice and investing help. Personal Capital (, which was launched last week, has a familiar feel, but contains some new features at a reasonable cost. Most of its tools are free; if you choose to hire a personal advisor, you’ll pay a typical fee of less than 1% of your assets under management. It isn’t an online broker—it’s a new-wave investment-advisory service. You start by aggregating your online accounts, and you can use the free tools to see how your portfolio should be balanced. But the real purpose is to gently nudge you toward an investment advisor.

THE MANAGEMENT TEAM at Personal Capital includes CEO Bill Harris, who has been at the helm of two big online successes, Intuit and PayPal. Harris says his new venture is designed to serve the broad middle of the investing market, which he defines as those with $250,000 to $5 million in investable assets. Harris says, “Fundamentally, Personal Capital is a financial-services firm, infused with technology, not just a software platform.”

Harris has pulled together a team of senior executives that he describes as “financial-technology-innovation rock stars.” The team includes Rob Foregger, co-founder of EverBank, along with Jay Shah, formerly chief information officer of E-Loan, plus Jim Del Favero, the former group product manager for Quicken.

When you first visit the Personal Capital site, you tweak your security settings, then start importing financial information. You can import bank, investment, credit, mortgage and other accounts—essentially any financial account that you can access online. Security appears very strong for the entire site.

We took the measure of Personal Capital with a variety of test accounts that we use for our review of online brokers, and found that importing data was pretty easy.

Once the information is imported, Personal Capital’s “dashboard” feature shows you an easy-to-understand breakdown of your spending, your investment allocation, and the gainers and losers in your portfolio. This piece feels familiar if you’ve ever used Quicken, Mint, or even Yodlee. The dashboard cannot (yet) be customized, however.

The picture of your finances that it presents is well-designed. You’ll see your current asset allocation and also a comparison to a target allocation. This takes into account any mutual funds and exchange-traded funds that you hold.

For additional detail, including an estimate of all the fees that you’re paying for the mutual funds and ETFs in your portfolio, click on the “investing” tab. There, you can view your asset allocation, and see where you are over- or under-exposed. The investment-checkup feature encourages moving money out of mutual funds and into individual stocks or ETFs.

The feature that you won’t find on other consolidation sites is labeled “your advisor.” Personal Capital assigns a real human to your account! You can communicate with this person via a toll-free phone number, online chat or video conference. Says Harris: “We want users to engage with our advisors. We’re doing a lot to create a human bond without a physical presence.”

The advisor team is in San Francisco. You can peruse the advisors’ biographies and, if you desire, call the firm to switch to one other than the individual originally assigned to you.

Should you choose to have your investments managed by a Personal Capital advisor, you will transfer funds to an account held at custodian Penson, or a bank account held at Everbank. Your advisor creates what the firm calls a “personal fund,” which is a collection of stocks and ETFs targeted to your needs. Personal Capital tends to avoid mutual funds, owing to their high management fees; you may find that you’re paying less for your investments after an overhaul.

Though the Website needs more customization features, it’s worth a visit to get a good overall picture of your finances. And if you feel that you need more assistance with your investment management, Personal Capital should be on your list of candidates.

BONDS FOR BOOMERS: Recognizing that the huge wave of baby boomers is breaking into retirement, Fidelity Investments ( has spruced up its fixed-income research center, found under the “research” tab on its Website. The goal is to help customers analyze and develop investing strategies for individual bonds, bond funds and certificates of deposit.

The opening screen of the fixed-income research center now offers a quick search tool, allowing you to scan through five types of bond inventory: Treasury, agency, municipal, investment-grade corporate and high-yield corporate. You can search bond funds and CDs with the same simple interface; a click on advanced search takes you to a much more detailed search engine.

The tweaked search-result screens can be sorted quickly by clicking on any column header, and the new layout is easier to read than its earlier incarnation. One nice touch is the ability to export a search result to a spreadsheet, letting you slice and dice the data to your heart’s content.

The Fidelity funds on the site are highlighted when they appear on a mutual-fund search result, but that’s to be expected. One odd result we’d like to see fixed: A mutual-fund search takes you out of the fixed-income research center, and it takes a few mouse clicks to get back. 

Published in Barron’s, September 26, 2011

Posted by twcarey on 10/01 at 02:39 PM
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