When Fees Go Up in Seconds, It’s Time to Go

A new client wanted to switch out of an annuity she had bought in her retirement account with a previous adviser.

Needless to say, my antenna goes up when I see annuities in a retirement account because it is both unnecessary and expensive to own these insurance products for their tax-deferral benefits, when this feature is “free” to retirement accounts.

As I waded through her paperwork, I saw that she would be hit with a $3,000 surrender charge to get out —  and I suspected she was unaware of this.  On a $78,000 account, this fee was no small matter – it equated to a 3.8% charge.

The only other investment fees detailed on her statement was a 1.1% charge (or $858).  But, knowing what I know, and having seen what I’ve seen – I knew there was more where that came from.

She was upset, as she was eager to make a clean start and get away from this company.  She needed answers only the annuity company could provide.

I don’t think I have ever found a person enthusiastic about making this call; these interactions tend to be convoluted, confusing and sometimes even condescending. That is why I offered to call the company with her.  With me on the line, we would get the full story and I could call BS on any answer I knew was not the truth, the full truth and nothing but the truth.

In order for her to make a good decision, she needed the answer to two simple questions:

  • When would the surrender charges disappear?
  • What were all the fees she was paying? If she had to pay 3.8% to get out, what would she have to pay annually to stay?

We called and the answer to the first question was very straight-forward; constrictions usually are.   The surrender charge wouldn’t disappear until 2022 – in spite of the fact that she had owned this for many years.  She sat across from me, a look of disgust and disbelief on her face.

Next came the fee question.  Immediately the service rep said the fee was 1.1%.

“That’s it?” I asked.

“Yes, that’s the only fee.”

“What about the fees associated with the investment?” I asked.

“Oh,” a long pause.  “Oh, the subaccount charges 0.95%.”

“That’s it?” I asked.  “Are you sure?”

“That’s it,” he said confidently.

“Sounds thin to me.  What about insurance-related fees?” I pressed.

A very, very long pause followed, with a lot of “ums.”  Finally, he offered to check the prospectus and after putting us on hold for a while, he came back to tell us that there was another 0.99% fee.

So we went from fees of 1.1% to 3.04% in seconds.  Her options were very clear now:

  • Pay a one-time $3,000 surrender fee (3.8%); or
  • Pay $2,418 this year and possibly more every year, for the next four years (remember, any account growth or dividends reinvested would make her account balance – and the dollar amount of her 3.1% fee – increase).

The client gladly was willing to pay the $3,000 surrender fee and start fresh.

I told her there was no rush, she could discuss it with her husband, but she wanted out of this predatory relationship yesterday.

She thanked me, realizing that the rep would have told her 1.1% and she may not have pressed him any further.  Even if she had, his initial responses would have indicated there were no other fees and she would have dropped the matter.  She may have decided to keep the assets there, unknowingly paying 3.04% annually.

I have seen this many times.  These companies are always very clear when threatening investors with the surrender fees (after the annuity has been purchased, that is), but when it comes to spelling out the other fees, it chokes in their throats.

So here’s my good deed of the day — a customer service tip:

Talk straight and answer the question without omissions.  Better yet, stop offering grossly expensive products that you have to be ashamed of; that might make the next fee conversation so much easier on you both.


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.