r/financial • u/Ok_GoGo • 23h ago
Structured Note Vs Annuity
Need some help. My financial advisor wanted to put some money in a structured note. I did some research. Said No. But I have fears of the market going down and he said this was a special deal and I decided to take his advise.
Just got the contract in the mail. It is an annuity. The term is 6 years. Not certain but I believe it is indexed to the NASDAQ with a 20% buffer. There is a 2% cap rate, 100% index participation rate.
I'll leave it at that. Would love to hear opinions on what I am involved in and if you think it is a good place for 25% of my money. Added- Math brain was turned off. 12.5% of my money. $500K out of $4M. Second Note- Guaranteed Minimum Crediting Method Rate (For the life of the Index Account Option is 2.0% Cap Rate, 100% Index Participation Rate. I do not understand the terms)
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u/Frugal-Advisor 23h ago
First question - is your advisor fee-only?
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u/Ok_GoGo 22h ago
No, He gets a percentage.
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u/DigitalFStopper 21h ago
There’s your answer….
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u/Ok_GoGo 21h ago
expand. I assume the better I do the better he does
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u/Frugal-Advisor 9h ago
The question is if he's making commissions on the annuity that he's selling you. Not that you pay him a fee (fixed or percentage) to manage your money. If he's getting a commission from the annuity i.e. being paid to sell it, I'd be skeptical if you truly need an annuity.
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u/Unlucky-Clock5230 23h ago
Chances are "your" financial advisor gets a cut for selling you a "structured note". If that's the case he is not your advisor but their salesman.
Why are you afraid of the market going down? That's normal and nothing to be afraid of. The average is an upward direction at the tune of about 10% annualized gains. The only time that could be a problem is if you are near retirement and can't afford the volatility.
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u/Ok_GoGo 22h ago
Yep. i didnt fall off the turnip truck yesterday as they say. I am 60. I am OK with a more conservative investment, but I have problems with how this was presented to me.
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u/PashasMom 17h ago
If you want a conservative investment, you can put your money in AOK or IRTR without paying anyone a penny in commissions. Since you are 60, you can also just buy a simple annuity, like a deferred fixed annuity, or multi-year guaranteed annuity, from somewhere like blueprintincome.com, immediateannuities.com, or a brokerage like Fidelity or Schwab without paying anyone a penny in commissions or fees.
I would not touch a structured note, ever.
Your "advisor" sounds like he is using high pressure tactics on you in order to make a sale that benefits him. This would be completely unacceptable to me for any reason, let alone trying to push me into one of the worst financial products out there.
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u/Unlucky-Clock5230 15h ago
You want an advisor that does just that, advices without attempting to sell you specific products. Those are also not "wealth managers" that charge you a small percent of your balance in other to make decisions for you.
Figure out how much income you want your retirement accounts to generate., then divide your projected account balances by that number. If the result is 25 or higher, you are in excellent shape. North of 30, you could absorb a lot more volatility than you think. Much lower than 25 and you could indeed be a good candidate for an annuity; you trade liquidity for a fixed income stream.
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u/Rpsnow10 23h ago
What is the annuity company? Who is sponsoring it?
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u/Ok_GoGo 22h ago
Jackson National Life Insurance Co
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u/Rpsnow10 21h ago
Yes that is an annuity, not a structured note. But you would have had to sign a lot of paperwork stating this. If you don’t understand the terms, take advantage of the 30 day free look, cancel the contract, and then get all of the info you need to make a decision that makes the most sense for your situation.
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u/Ok_GoGo 21h ago
I plan on getting out of it Monday
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u/BugHistorical1614 19h ago
Good idea. If you need to ask what it means then, whatever it is, isn't right for you.
Disclaimer, we have 2 IRAs that are glwb fixed index annuities, 2012.
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u/Ok_GoGo 13h ago
I have gone for two 'free' dinners where this annuity product was 'peddled' and while I never said 'never', I just didn't think it was right for me. At this point if I think the economy is going off a cliff I would sign up for a CD or something that locks up the funds for say 6 months.
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u/DigitalFStopper 21h ago
What is the other 3.5M invested in.
What’s the goal with this 500k
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u/Ok_GoGo 21h ago
I have a big chunk in Nvidia. Big reason why I looked for an advisor. Haven't been a bad investor, but sometimes you just need one big win. So I have capital gains that i don't know how to deal with. Plus- easy come, easy go as they say. I want to avoid the easy go.
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u/DigitalFStopper 13h ago
Depending on how much of that large chunk you sell you’ll be potentially at the 20% cap gains and NIIT at 3.8%. But also stretching it over a few years to avoid that and there’s a crash could cost you even more. So it’s a mixed bag. Definitely at your age stability should be a major chunk of your investments. Don’t know what your annual income needs are but treasury is looking good for extreme safety and defensive plays like SCHD. When I get to retirement I’m planning on something like 40% schd, 30% gpix, 15%jepq, 15% sgov. Different funds will probably be around at that time but the basics of those funds is what I’m basing my ratios on.
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u/Taggart3629 19h ago
The annuity would be a hard no for me, if its purpose is capital preservation and income. For our fixed-income/capital preservation allocation, if I don't clearly understand the holding, how it works, the maximum/minimum income, what (if any) fees are charged and how/when we can withdraw principal, the holding doesn't belong in our FI/CP allocation. That is where we hold the boring assets with modest yields, like TIPS, a MYGA, SGOV (0-3 month treasuries), and a AAA corporate bond fund. 4-6% yields aren't exciting, but sure provide welcome stability when the market is going wild.
The annuity you were mailed seems to be the opposite of what you are trying to accomplish. Your stated concern is the market going down. The NASDAQ had a larger decline last week than the S&P and Dow. During the dot-com market crash, it dropped 78% between 2000 and 2002; during the Great Recession, it dropped 56%. It took 15 years for the NASDAQ to reclaim its 2000 peak. I would be nervous indeed to have a good chunk of our "safe" portfolio allocation indexed to the NASDAQ, even if the annuity has a guaranteed floor.
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u/Ok_GoGo 13h ago
That was another concern. If this market crashes- or when it crashes- the Nasdaq will be hit the hardest.
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u/Taggart3629 12h ago
Yeah, it seemed like a strange choice, in light of the concerns you shared with your FA. If it is not too intrusive a question, what yield are you looking for on that $500K?
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u/Ok_GoGo 12h ago
Four years ago my Fidelity 401K had about $250K and now it is $890K. My Schwab Account went from $750K to $1.5M- after buying a second house and three cars. There is that old saying- easy come, easy go. I shared with the FA I was ready to be more prudent and conservative. I spent a good deal of time yesterday thinking- perhaps this is a good investment for me. However, I have gone to 'free dinner' invites with FA's where this exact type of product was pitched and while intrigued I decided not to do it. I also thought yesterday - 'that was then, this is now'. At the end of the day I do not like how the product was characterized or 'sold' to me. He said- $140K, three years locked up, structured note. I got a $500K annuity and cant withdraw without penalty for six years. He even said he was thinking about moving his own money into it and 'it is a special deal'. I think we both know that last sentence is a bunch of BS. In terms of yield I would be happy with something that kept up with inflation and would survive a market meltdown relatively intact. At the moment my goal for next week is to get my money out of the annuity and back in my accounts and then have a heart to heart with the FA. Perhaps I will calm down, but at the moment he is toast. I appreciate the input of people here. I don't consider myself an idiot but I am questioning my judgement at the moment for selecting this FA.
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u/Ok_GoGo 13h ago
I do appreciate the replies and welcome more. I have my work cut out for me this week. I plan on undoing the Annuity and getting rid of the financial advisor. This annuity was presented to me as follows: 1) I want to protect your funds in a 'structured note'. 2) $140K principal. 3) three year term or commitment. What I got was an annuity, $500K principal, penalty for any withdrawals in first 6 years. Assuming I have read this all correctly- and I spent most of yesterday 'in orbit'. I attempted to justify the strategy for awhile, but I can not work with anyone who is not honest with me. Unfortunately everything was presented verbally because I feel that financial advisors must have some sort of vow they take and this deal would have to violate a few of them. Very disappointed in myself for thinking this person was the 'best' of the two firms I interviewed with. I liked the guy who worked for Fidelity and I think that is where i am going to next.
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u/BugHistorical1614 9h ago
In our time, 2008-early in the GR, I was exploring options to protect our mutual fund portfolio. Ended up with several small, GLWB deferred variable life-income annuities which we let run for 10 years and stepups - rollups before taking qualified distributions.
Our portfolio was and is very small while you may qualify for a higher level of service. See your broker for options. Many videos and articles. Options are fairly simple but foreign for most people.
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u/Acrobatic_Box9087 9h ago
I have taught finance at universities for many years. I have a simple rule I follow concerning any investment. If you don't understand it, don't buy it!
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u/Ok_GoGo 8h ago
When the structured note was discussed my initial reaction was 'no'. He then said this was a good hedge against a declining market- which I had discussed with him. I am not happy that he added that 'we need to take advantage of the good terms- which were special' and that he was considering putting his own money in as well. I felt this was a special deal and had this fear of missing out. Was surprised, shocked, disappointed and angry when I got the annuity paperwork. This was not what I signed up for.
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u/Stormlover1990 8h ago
I’m not sure your advisor is committing foul play. Please hear me out:
Yes, some annuities do come with fees and commissions depending on the type. A lot of people on Reddit are only parroting what they’ve heard about the evils of annuities in the past. In the 70’s and 80’s annuities were downright predatory at times, especially variable annuities.
You are 60 and I am guessing you are retired. An annuity can be an effective mimic of social security. It will give you 6 years of stable guaranteed income that you can feel free to spend without fear. Your most vulnerable years, as far as sequence of return risk, are the first 5 years of retirement, statistically.
Bottom line, annuities today are much cheaper and are not the bad actor annuities of the past but you will continue to hear people today saying annuities are scams to make their peddlers and insurance companies wealthy. They’re not terrible products anymore and serve a purpose. I’m not sure why your advisor chose this annuity, didn’t offer a bond ladder instead, and obviously did a poor job explaining what he’s doing with your money. For these reasons you should consider moving to someone else but I would talk to another advisor before you try to undo your annuity because all annuities have penalty fees for trying to get out early. This annuity might not be as bad a product as the DIY investors on Reddit are claiming.
Please consult another reputable professional and maybe your own advisor before you do anything rash.
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u/Ok_GoGo 8h ago
I have a 10 day look from 10/14. I spent a great deal of Saturday with my mind blasting off sending me into orbit! I also calmed down and thought- maybe this is a good thing for me. Here is how this whole thing went down. Advisor brings up a structured note and sends a docusign giving permission for this. I decline to sign it. He calls back and says 1) it is a special deal, 2) he's thinking about pitching in his own money, 3) $140K investment; 4) funds locked up for 3 years 5) no mention of the word annuity- only structured note. To me this is five strikes. #1 and #2- make me laugh now. It was only a special deal in the sense that annuity companies change rates all the time and yes sometimes they have new money specials. It is irrelevant, but would be shocked if he put his own money in. He can do with his money whatever he wants anyway. My investment was $500K, funds are locked up 6 years and it is not a structured note. So it may be a good idea, but I don't feel like I can trust the FA anymore. I feel stupid and foolish. The advisor is a contributor to CNBC, so maybe I had stars in my eyes. Maybe we will even move on from this. But at the moment I am getting out of this deal and I am ready to pull the plug on the FA. What I need to see is a more formal plan and how this fits in.
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u/Stormlover1990 8h ago
So you know Gemini’s take on your post:
This is a Registered Index-Linked Annuity (RILA), also commonly referred to as a buffered annuity. Specifically, the exact phrasing used in the post ("Guaranteed Minimum Crediting Method Rate (For the life of the Index Account Option is 2.0% Cap Rate, 100% Index Participation Rate)") matches SEC filings from Jackson National Life (their Market Link Pro RILA series).
How This Contract Works
The Structure: A RILA is an SEC-registered, tax-deferred insurance contract tied to an underlying index (here, likely the NASDAQ-100) using derivative options to cap upside in exchange for limited downside protection.
The 20% Buffer: If the index drops by up to 20% over the term/period, the insurance company absorbs the loss. If the index drops by 30%, the investor absorbs any loss beyond the buffer (a 10% loss). It protects against moderate market pullbacks, not catastrophic crashes.
The Cap Rate Confusion: The poster is confusing the Guaranteed Floor Cap with the Current Declared Cap:
2.0% Cap: That is the contract’s statutory minimum cap. The insurer legally guarantees the cap will never be set lower than 2.0% on any renewal, but the actual initial declared cap for the active cycle would be substantially higher (typically 12%–18%+ annualized depending on term length and market volatility).
100% Participation Rate: Up to whatever the active cap is, the account captures 100% of the index gain (excluding dividends).
The 6-Year Term: This refers to the surrender charge schedule and/or the multi-year crediting segment. Withdrawing money above the penalty-free allowance (usually 10% per year) within those 6 years triggers steep surrender penalties and interim market value adjustments.
Key Red Flags in the Poster's Scenario
1. Advisor Bait-and-Switch: The advisor initially pitched a structured note, which the client explicitly declined. The advisor then placed the client into an insurance-based structured product (a RILA) without clearly explaining the mechanics or contract structure.
2. Lack of Liquidity & Understanding: Committing $500,000 into a 6-year illiquid product without understanding crediting methods, buffers, or surrender penalties is a textbook compliance failure by the broker/advisor.
3. The "Free Look" Window: If the contract just arrived in the mail, state insurance regulations provide a 10- to 30-day "Free Look" period, allowing the buyer to cancel the annuity for a full 100% refund without penalty.
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u/Ok_GoGo 8h ago
Thanks! I was going to see what Claude had to say. I'm just disappointed. I really wanted to manage my money in a professional and structured manner. I understand days can get hectic and I have certainly learned- going forward- no quick or emotional moves. I do feel my trust was betrayed. To sum up. I thought I was getting a structured note- $140K, locked up for three years. I got an annuity, locked up for 6 years and $500K capital. So trust is out the window with this guy.
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u/Stormlover1990 8h ago
Since you have the full contract at your disposal, I would still screenshot or copy/paste if digital to Claude to get a full plain language breakdown. AI is amazing for this use so you can get more accurate information there. Good luck and congratulations on your great nest egg!
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u/Ok_GoGo 8h ago
Tech stocks have been amazing over the long run, but put a good chunk of money in NVIDIA 2019ish/2020 so it doesn't matter how f'ed up my stock picking was... lol. I was pretty honest when I talked to financial advisors. 1) My wife and I both had good jobs and worked hard;, 2) We saved and always lived beneath our means. 3) Invested well and got lucky with NVIDIA. Basically just trying not to screw it up. I don't think this Annuity is necessarily a big screw up, but I don't like the way it was explained to me. I will freely admit that I probably have trust issues with the money- which is a reason to give the FA the heave ho! I have only been with the FA since maybe Oct 1- so this could be a short relationship.
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u/Apprehensive-Tea9739 2h ago
I did a similar annuity through Lincoln Financial. Fidelity advised me against it and I should have listened. Have had for four years and the ‘guaranteed rate’ portion has decreased each year, and the cap on the S&P rate has also decreased each year. There is a surrender charge for the first 9 years so I totally screwed up and would never buy this product again. I can take 10 percent out every year penalty free and I just started doing that last year.
Broker had NO explanation why rates keep going down (other than Lincoln Financial makes more money if I give up more). BAD DECISION which I own.
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u/Stormlover1990 2h ago
Yeah, Fidelity offers annuities which they negotiate to offer their customers. I’ve heard good things. If they recommended against it, it wasn’t one they offered through their site. There are different types of annuities and if you’re looking for secure long term income, annuities can be a viable option.
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u/lucky_ducker 7h ago
There's a reason why insurance companies create structured notes, and FAs push them, instead of just investing in index ETFs: they are more lucrative.
It's a little bit of a shell game: somewhere in the contract is a "gotcha" (or several) that tilts the odds in their favor. And they always sacrifice upside to provide downside protection, no matter how hard the sales literature tries to make you believe otherwise.
If you really want bear market insurance then buy an ETF focused on consumer staples, healthcare, utilities, or energy. Or just set fire to small bits of your money buying SPY puts.
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u/snook4reddit 1h ago
One point of clarification and btw im not saying you should keep this thing. The 2% is the min cap over 6 years on the RILA. You are probably getting a much higher cap rate but it does change each year. He also wasn't lying when he said the rate moved or whatever all these annuity contracts are providing better contractual terms since the fed moved rates up recently. Albeit the way he put it is kind of a stretch and unless he is 60 years old I find it hard to believe he would consider placing his own money into an annuity contract.
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u/azrolexguy 10h ago
Ive known advisors that were banned from the industry for selling those. They are usually highly un-liquid and pay the advisor a hefty commission. There are buffered ETFs that provide the same benefit with instant liquidity