Most people have heard the old story about the homeowner who hires an electrician to fix the electrical problem in his house.
The electrician sees a loose wire, re-connects it, and gives him a bill for $500. The homeowner, outraged at getting a $500 bill for 30 seconds of work, asks for an itemization of the bill. The itemization says $5 to connect the wire and $495 for knowing which wire to connect.
That story came to mind as I read the recent article by Stan the Annuity Man.
While I think the article has a number of good ideas (particularly about the value of the annuity income benefit and how the term annuities should be associated with income, not just asset accumulation), there was one premise that I take issue with.
Stan seemed outraged that a planner would charge an assets-under-management fee for an indexed annuity.
If I understand the objection, it was essentially that indexed annuities have a year-to-year “set it and forget it” aspect to them. In the comments section, he asked what the advisor does the other 364 days.
I think he makes a few errors with this kind of thinking.
First, just because the fee is how an advisor is paid, it does not mean the advisor only gives service/advice related to that product.
Second, just like with the electrician story, it is a mistake to view the transaction from the perspective of how much time or effort the advisor spends. In my opinion, value should be measured from the customer’s perspective.