How I'm Compensated

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Since starting in the business in 1982, I have earned my living primarily through commissions from insurance companies when clients choose certain products, such as annuities or life & LTC insurance. 

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When a client purchases an annuity or insurance policy through me, the insurance company pays a one-time commission, which typically ranges from about 1% to 6% of the amount deposited, depending on the product.

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Importantly, that commission does not come out of your account as a bill or ongoing advisory fee. It is built into the product pricing set by the insurance company.

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In some situations, I also offer retirement income planning for a separate fee. Especially when someone wants a written strategy but may not be ready to implement or wants to implement elsewhere.

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In either case there is always full disclosure of all commissions and any possible fees.

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How This Differs from the AUM Model

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Many large investment firms use a different structure for compensation called Assets Under Management (AUM). Here they earn money off your account each year, whether you make money or not.

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These firms typically charge a percentage of the assets they manage for you each year.

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For example:

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• A typical annual fee might range from 0.75% to 1.25% annually.

• This fee is charged every year

• The amount paid increases as your account grows

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Over long retirements, these ongoing fees can add up significantly.

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Here's what a 0.75% annual AUM fee can look like on $100,000, assuming a 6% annual return.

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Assumptions

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• Starting investment of $100,000

• Gross return of 6% annually

• AUM fee of 0.75% annually

• Net return after fee of 5.25%

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The AUM fee starts at around $750 in the first year. But it grows, over 10-years the AUM fee totals about $12,000.

 

After 20-years about $42,000 in fees have been paid - that is an average of $2,100 per year.

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By comparison, when an annuity is used, the compensation is typically a one-time commission from the insurance company of 1-6%. And that commission is paid by the insurance company.

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When Each Compensation Model Makes Sense

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There are clearly times when it makes sense to compensate your advisor with a commission and clearly times when it makes sense to pay an annual advisory fee.

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And it is easy to know the difference.

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If your account has the risk of loss and requires reallocating your portfolio using stocks, bonds, cash and other asset classes - then certainly pay an advisory fee. Your money requires vigilant oversight. 

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If, however, your account does not require constant oversight - and that is what annuities and life insurance policies do not normally need - due to their conservative nature - paying an annual advisory fee makes no sense.

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Annuities are long-term accounts. Meant to grow your money safely and then to provide you with additional income, when it is needed.

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Regardless of compensation structure, my focus has always been the same: helping retirees turn savings into reliable income.

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After more than 40-years in this profession, I've found that many retirees benefit from strategies that emphasize predictable income, simplicity, and long-term stability.