It's the most asinine product on the planet, but they're selling them like crazy in brokerage firms and putting annual wrap fees
The DEP looks like the original "as sold" illustration, except it contains updated current annualized charges for policy expenses, premium loads, COI charges, and cash value-based wrap fees
. An advisor or insurer who has past experience with cost reductions will be happy to show multiple examples of original "as sold" illustrations along with current DEPs showing lower costs compared to the original illustration.
As the district reviewed plan administration, it noticed that the fees on the annuities were high-nearly all of those products were subject to wrap fees
, and participants faced surrender charges if they wanted to transfer their money to another vendor.
EBSA focuses on issues including: compensation practices, e.g., float compensation, transaction-based compensation and wrap fees
; engaging affiliates as service providers, e.g., affiliated broker/dealers; utilizing proprietary investment funds; transactions among affiliates or individuals in which the adviser has an interest; investments in "plan asset" vehicles; and resolution of investment and trading errors.
Plan sponsors are now encouraged to look at not only out-of-pocket or visible recordkeeping fees, but also generally hidden investment costs and wrap fees
that go along with having a fund lineup.
Unfortunately, too many organizations have no idea there can be as many as 17 different fees from administrative and transactional to revenue sharing, surrender and wrap fees
at 2-12% par fee simply devouring their employees' retirement funds.
* Benchmarking capabilities that compare various aspects of policy pricing components, including cost-of-insurance (COI) charges, fixed administration expenses (FAEs), cash value-based "wrap fees
" (M&Es), premium loads charged by the insurer, and the policy interest/earnings credited to premiums paid in excess of these policy charges, as well as the historical performance of invested assets underlying the policy cash value, and the stability of policy pricing.
The expenses most people don't know about fall under five categories: asset charges, wrap fees
, mortality expenses, fund expenses and investment management fees.
* Require plan-provider responsibility for an appropriate mix of funds and elimination of expensive insurance wrap fees
and required proprietary investment funds.
Smaller plans are more likely to use an insurance company for record keeping because they are more likely to pay fees through pooled separate accounts, investment expense ratios, and wrap fees
. Larger plans are more likely to use mutual fund companies and banks because they have the leverage to negotiate lower fees, are more knowledgeable about products, can formalize plan governance, and in some cases pay fees.