Originally posted January 10, 2015 by Christine Young, Consumer Watchdog in the Times Leader
Three years ago, Barbara Dymond, then 72, looked at her retirement account and decided if she didn’t do something fast, her money would be gone before she was.
Dymond, a registered nurse from Forty Fort, had retired in 2008, leaving the funds in her employer’s plan, which had always done well in the past. But by December 2011, the numbers were falling like cold Pennsylvania rain.
Dymond knew she had to change her investment strategy but had no idea how to do it. She went to Citizens Bank, where she had a checking account, and met with an adviser in the investment unit, CCO Investment Services.
Drawing charts and matrixes and flipping through shiny brochures, the adviser explained Dymond’s options: stocks, bonds, mutual funds, fixed annuities, variable annuities.
Dymond had $117,000. She wanted an IRA rollover investment that would supplement her monthly Social Security for life.
OK, said the adviser. How about putting $100,000 in a Transamerica variable annuity? This would enable Dymond to withdraw about $5,700 a year for life, while also growing her investment, he explained. In up markets, she’d have the opportunity to capture the gains and automatically lock them into her withdrawal base. In down markets, her withdrawal base would receive 5.5 percent annual compounding growth for any year she didn’t take a withdrawal.
Sounds great, Dymond thought, figuring if she could go the first year without making a withdrawal, her account value would grow to $105,500.
What she didn’t know was that with variable annuities come costs – mortality and expense risk charges, administrative fees, contract maintenance fees, sales charges and underlying sub-account expenses – totaling about 3.8 percent a year, not to mention hefty surrender fees if she exceeded her allotted withdrawal amount.
Dymond signed on the dotted lines, putting $100,000 in the variable annuity and the remaining $17,000 into an IRA savings account. She could withdraw from that while the annuity grew at 5.5 percent, she reasoned.
In February 2012, she received a check from the annuity, with a notation calling it a “systematic withdrawal.”
She called the CCO adviser, reminding him she did not want to make withdrawals during 2012. She wanted the 5.5 percent growth, and she wanted to cancel the withdrawal.
“He said to keep it, just leave it alone because to put the money back would be too confusing,” she recalls. “I didn’t get the 5.5 percent growth. I felt as though I’d been tricked.”
Dymond spent months calling CCO Investment Services, to no avail. She complained to the Pennsylvania Department of Banking and Securities; no luck there, either. Two years later, she still feels ripped off.
“I should have had someone with me who knew what I was getting into,” she said. “I take three-quarters of the blame, but he was the professional.”
I took Dymond’s complaint to Lauren DiGeronimo of Citizens Financial Group, the parent company of Citizens Bank and CCO Investment Services. DiGeronimo said the Office of the Chairman will touch base with Dymond over the next few days to try to resolve the problem. She also promised to investigate whether the CCO adviser steered Dymond in a direction best suited to her financial needs.
He did not, according to Lynn Evans, president and CEO of Northeastern Financial Consultants in Clarks Summit, who says putting an IRA into a variable annuity is redundant.
“A variable annuity gives you a tax deferral, but an IRA is already tax deferred, and the fees on annuities are outrageous,” she said. “I’d recommend an investment program to generate income, a conservative portfolio, something like 30 percent stocks, 70 percent bonds.”
Another major drawback to annuities is their lack of liquidity, says Chris Wang, director of research at Runnymede Capital Management in Morristown, New Jersey. If Dymond decided to withdraw her investment, she would owe Transamerica thousands in surrender fees.
Wang calls Transamerica’s surrender charges “flat-out nasty” and says the high fee structure eats away at potential returns.
“If this lady had invested $100,000 in a low-cost mutual fund, she could take out $5,500 a year until she’s 99 or 100 and still keep the principal intact,” he said.
Both Evans and Wang are fee-only advisers, paid by the client for the advice they give. Fee-only advisers do not receive commissions by selling financial products, such as annuities. So if you have a chunk of cash to invest, take it to someone who serves only one master – you.
Find a fee-only financial adviser through the National Association of Personal Financial Advisers. Tell them your Consumer Watchdog sent you.
Christine Young is the Times Leader’s Consumer Watchdog. She can be reached email@example.com. Her column appears weekly.