equities. Should a client elect a 60%
equities to 40% non-equities mix then,
Kaye says, the aUM charge increases
to 1.15%.
the fees, adds don Goldberg, a vice
president at aePG wealth Strategies, could be met with skepticism
from some advisors who hail from
the investment world and are loath
to degrade the price-performance
of portfolios for which they already
charge a fee to manage.
“what i see is a philosophical
divide between life insurance agents
schooled in the value of guarantees
and financial planners who are chiefly
focused on growing clients’ portfolios—in part by keeping costs to a
minimum. among many of these planners, there is disdain for adding an
‘expensive’ rider on top of an already
expensive product: a deferred annuity.
“the Cda represents a mid-point
on the costs continuum, where the
expense is not so great as that of a
conventional variable annuity, but the
level of security is greater than that
of a stand-alone mutual fund. Plan-
ners may come around to the notion
that the Cda is suitable for a certain
portion of their clients, but this will
take time.”
Herb daroff, a partner at Baystate
financial Planning, Boston, agrees,
adding that the likely buyers of Cdas
will be conservative investors who
view the products as a preferable al-
ternative to lower-yielding bonds and
Cds. He questions, however, whether
people with a high risk tolerance for
market volatility would be prepared to
add an insurance component to their
mutual fund or etf portfolios.
“the more aggressive investors
won’t buy a Cda or Va—they’ll just invest in the market,” says daroff. “But
if a client is totally averse to a Va and
favors investing in bonds for safety,
then the Cda would seem to be a
more appealing alternative because
of the potential for higher yields.”
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