92 • MARTIN H. RUBY
When he started working with us, he always came back to cost: “But how can we recommend something with such high fees?” I wasn’t convinced the fees were so high. Being an actuary, I decided to look at the numbers. First, I wanted to compare apples to apples. In a managed ac- count like an IRA or 401(k), fees tend to stay uniform as a percent- age of assets throughout the life of the account. For example, you might owe 2 percent in fees on your account that currently has $100,000 in it. You would pay $2,000 in fees. You will likely owe that same 2 percent of fees in twenty years, when your account has grown to, say, $500,000. That year, you would owe $10,000 in fees. In an IUL policy, fees are structured differently. In these products, fees are typically front-loaded to pay a higher percentage on assets in early years, when the account balance is low. That means you’re paying more fees when you have a little money, and dramatically less in fees when your account has grown. So, to compare fees in both products, I had to convert an IUL’s fees into an annualized percentage, just like in a 401(k). I took Neil, who was forty at the time, and compared the fees he was paying in his 401(k) to the fees he’d pay in an IUL policy. Then we pitted the average annual fee from both strategies against each other. What we discovered blew Neil away, and made him a true be- liever. I think it will blow you away, too. The advisors Neil had been working with in his previous job usually charged their clients around 1 percent for their services. When added with mutual fund fees and other fees, their clients were paying 2 percent or more in portfolios that took pride in their “low-cost” nature. How did IUL fare? In one IUL product I examined, Neil would be paying, on average, 0.76 percent of his annual account value in fees.
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