Wednesday, May 23, 2007

Off Topic: Don't Use Ameriprise

I'm getting bad about off topic posts. I really should start up another blog somewhere. For now, I'll rant here. Today's rant is about Ameriprise Financial. Back in 2004, a friend of a friend went to work at what was then American Express Financial Services or something like that. She called herself an advisor and promised to help me invest my money for a small (re: huge) fee. I wanted to support her, so I jumped in. It turned out to be a front to sell a bunch of their own investment options. She would promise to research other "options" I brought to the table, but she never seemed to really even know what she was talking about. She just gave me a sales pitch.

Since then, I've met many of these financial advisors. They throw little get togethers where they will buy a group lunch or drinks if they'll listen to the company line. I've been to meetups where one person in the group used his turn to introduce himself as an opportunity to pitch the group on Ameriprise, dropped off some business cards, and bolted for the door.

Used car sales tactics aside, I thought I would blog about the actual performance of my investments. Every single Ameriprise investment I put money into performed extremely poorly. I only have two left - the VUL I'm locked into and the SIRA that my last company was matching me on (instead of a 401k). You can read more about what a VUL is on wikipedia. Let me tell you how well it has performed.

I bought into the VUL in early 2004. I've made 27 investment payments of $350 each. In addition to those payments, I paid $52.33 a month for the insurance policy. (note: there was one more oddball payment in there.) The idea is that once the balance of the investment gets high enough, it will yield more than $52 in interest and the insurance policy will begin to pay for itself. So, how's that working out?

Gross Invested: $11,255.60
Cost of Insurance: $1412.91
Net Invested: $9842.69

Here's the kicker... Current value: $9058.86

That's right, the investment itself has lost almost $800! That's not accounting for the $1412.91 I've put into an overpriced life insurance policy. That's over $11k that I could have been investing in an account that gained interest. The part that confuses me is how Ameriprise investments have continued to perform so poorly in a market that is supposed to be doing so very well.

This has been the case with every investment I've made with them. Additionally, there are a variety of hidden fees. Everyone gets their cut. My account was mismanaged by my first advisor costing me about $150 in overdraft fees. She quit weeks after I made my yearly payment of over $500. The new advisor was better, but relatively unresponsive. Through him, I was able to close out most of my short term investments and consolidate some of the loss.

Now I'm faced with what I need to do with the failing VUL. Do I keep investing hoping it will turn around? Do I just continue to pay the minimum for the insurance? Do I take the penalty, close it out now, and reinvest elsewhere? I need a new advisor who can actually advise me! Recommendations would be appreciated.

My advise to everyone, read sites like the Motley Fool and invest your money by yourself.

5 comments:

Anonymous said...

Looks like you've been Ameriscammed. This company doesn't provide financial advice as they operate under the guise of financial advice to use it as marketing tool to get people into VULs as you've found out the hard way. You've also found out this company hires people and send them on a mission to prey on their "natural market" (family and friends).

The bad news is these VULs are usually money losers. In your case, everytime you give them 350 bucks each month; AMP takes out 17.50 off the top and I bet your policy is below 250K so add another 7.50 to the 17.50. This is money gone forever to Ameriprise. Then you have to pay a 0.9 M&E charge and the sub-account fees as well. In a market like this, if you're losing money now, you have very little chance to recoup. If you see a market correction, you'll still be paying the fees thus a further decrease in value.

The final decision is yours: take the surrender hit now or keep paying the over blown fees during the surrender period.

You're not alone Ameriprise Sucks

Anonymous said...

your advisor should have explained to you that of course you pay fees, you would pay those fees no matter what company you bought the VUL through. they can be amazing policies if taken care of correctly, but if mismanaged, they can be horrible. the "break even" point with a VUL (compared to buying term and investing the difference) is almost always 9-10 years. so having a VUL for short-term investing, or for somebody who is not looking for perm. ins. is wrong. trust me, if the subaccounts are mananged properly you will love the policy down the road, and those figures you gave will be flip-flopped. you did not get "scammed," just was not explained things properly. you should ask your advisor to switch your policy from a option 2 to an option 1, that will make the turn around faster. i am an advisor that personally has a VUL. some would argue that honda makes the most reliable car in the industry, but there will always be people to refute it, so don't get involved in the tit for tat game, just get educated. as i said before, take care of that policy and it will take care of you. this coming from somebody that will never "get paid" off of your policy! ; )

Anonymous said...

Congratulations, your fees just bought a lunch and learn for a bunch of "winners". Feels great doesn't it!
All sarcasm aside you have every reason and more to be upset about this. I know the other anonymous (the second one) said that you were not scammed, that it was just not explained to you. Honestly, what is the difference? It is your advisor's job to explain things to you not simply put you in the most expensive form of insurance and get a big commission.
It was not explained to you because everything at Ameriprise is scripted. Your new advisor was not taught anything in depth about the product, simply taught to memorize a presentation. As an industry insider, I have yet to see someone that had a checkbook and a job not be recommended a VUL. The Ameriprise planning computers all seem to spit out this same recommendation every time. I have no bias against VUL's they are a useful tool but can be misused to generate commissions. Anonymous2 is simply repeating what he has heard his manager say about the product and is trying to resell it to you. Don't buy again.
Treat it as an expensive lesson and move on. Be glad you learned early and have time to recover.

Anonymous said...

Speaking as someone who has been in the industry for several years and at Ameriprise for two, I'm very familiar with their VUL offerings.

I agree with the above poster who noted that typical VUL's are poor investment vehicles until you reach a 9-10 year horizon. In my own practice, I use 15 years as the bare minimum.

The appeal as an invesetment vehicle is the ability to take out zero net interest withdrawals (you take a 2% hit, then the account is credited 2%) which preserves the tax-free growth benefit. The internal expenses do decrease over the years, and it can be a very attractive vehicle in the right circumstances.

Let me stress that - "in the right circumstances" - VUL's aren't right for everybody. In my practice, they account for around 15% of the life insurance I offer. As an investment vehicle, they're most attractive once you've fully exhausted your other avenues - IRA's, 401k's, 403b's, etc. In other words, if you have money "lying around" and you'd prefer to have it invested in a vehicle which offers tax-free growth, if structured properly.

A mistake I see many advisors making is allocating too much of the investment money towards the "Fixed Account" which pays for internal expenses. A reasonable amount to allocate is no more than 2-4%. The rest should be split between the actual investment options. I suspect the reason your VUL is performing so poorly is because it isn't allocated properly. To give you an idea, my "moderate" VUL portfolios have done 9% over the last two years, net of fees and expenses with semi-annual reallocation.

If you're not confident in your ability to pick out a good portfolio and/or you're not confident in your advisor's ability to do so, call and request to be enrolled in "Portfolio Navigator", which has been offered since early 2007 as an option on all VUL-IV policies issued in 2005 or later.

"Portfolio Navigator" is free (you simply have to fill out a questionnaire from Morningstar). Based on your risk tolerance, it will select a diversified portfolio and then rebalance it quarterly. The portfolios are created by Morningstar and competely re-allocated (not just rebalanced) every 12 months. Regardless of the competence of your current advisor, Portfolio Navigator will make sure your VUL is invested objectively - the Morningstar group does the driving, not your advisor.

I use Navigator in my own practice on smaller accounts that I don't have time to rebalance manually, and they've done fairly well. I'm personally biased towards the moderate-agressive allocation because it has the most reward per unit of risk, but again - that's just me.

I hope this helps. If you have any questions, feel free to shoot me an email. Though I can't advise you in a professional capacity as I'm not licensed in Texas, I'm happy to offer my personal opinions for what they're worth.

jason_hendricks@sbcglobal.net

Anonymous said...

Oh my god one of the few knowledgeable AMP salesmen-I noticed he does not live in a state noted for Ameriprise lawsuits. I don't know why he uses Ameriprise as a vendor for his planning practice, maybe he could educate us...
Also notice that he did not mention that the scripts are the only training for most advisors, the natural market complaints are true etc.
So the company does little to help him and the poor quality of other advisors embarrasses him and now he has to clean up the mess for someone else. (shouldn't Ameriprise be helping you build a business, not you helping them keep business?)
He is a nice and helpful guy that is eventually going to grow tired of being associated with a bunch of hacks. Prepare to be recruited your too honest and talented to stay with that company.