1720 E Calle Santa Cruz E HUTCHISON INVESTMENT ADVISORS ...

[Pages:2]Dave Hutchison, CERTIFIED FINANCIAL PLANNERTM

1720 E Calle Santa Cruz Phoenix Arizona 85022

HUTCHISON INVESTMENT ADVISORS

Registered Investment Advisor Founded on a CPA Firm Background

(602) 955-7500

E-mail:dave@ Fax (602) 955-1458

2013 ANNUITY UPDATE ? No Longer Included in our "Participate Yet Protect" Strategy

We continue to recommend other strategies for potential growth, income or protection

For the last few years I have had a hard time recommending any annuities since:

Fixed Annuities ? Lock in near lowest rates in history which after taxes and inflation is usually a negative real return. Sometimes this is called: "Going Broke Safely".

Immediate Annuities ? Same as fixed and most of the payout is your own principal. As financial writer Suze Orman says, "you are stuck at these low rates for the rest of your life."

Indexed Annuities ? Low participation rates that can change each year. This use to be a good way to "participate yet protect" but now it is hard to justify since the "participate" side is so low and "protect" often means getting original investment back in 5-10 years or longer.

Variable Annuities ? Use to be a good "participate yet protect" strategy. However with the 2008 crash, products changed.

The policy changes were because as more and more annuity owners opted to initiate the guaranteed portion of the contract, insurance companies were unprepared, leading to solvency concerns. Source:

AdvisorOne 12/21/2012

Optional Riders - Many annuities have optional riders which insurance agents "sell" that sound attractive ? Annuities often pay high sales commissions and higher if longer surrender periods. I usually do not recommend the riders for today's newer policies.

Examples: 1) Bonus credits ? Frequently, insurers will charge you for bonus credits by higher surrender charges, longer surrender periods, or higher mortality and expense risk charges and other charges ? Although the difference may seem small, over time it can add up. In addition, some contracts may impose a separate fee specifically to pay for the bonus credit.

Source: U.S. Securities and Exchange Commission "Variable Annuities: What You Should Know"

2) Guaranteed Income or "Living Benefit" riders ? It used to be some of these riders had annual resets to the highest anniversary value and you could invest all in higher potential growth equity subaccounts.

Then many polices changed to lock you into a more conservative allocation using bonds if the market declined a certain percentage.

Today, most policies limit your equity subaccount choices based on which guarantees you choose. With interest rates overall in decline over the last 30 years bonds did well. Now bonds have limited growth potential and higher interest rate risk as values decline when interest rates rise.

"Guaranteed Income, but at what cost?" by CNN Money Magazine concludes, "Once you've looked at it more closely, I think you'll find that this annuity isn't protecting the actual market value of your portfolio from market declines, and that you're paying a hefty price for whatever guarantee it is offering."

Solvency Concerns - Why State guarantee funds may cover up to $100,000 in Arizona, if an insurance company is unable to pay, it can be a long time consuming process..

Large and venerable insurance companies, some hundreds of years old, barely survived, and they aren't about to make the same mistake twice; hence the rush for the exit. Sun Life Financial's announcement in December 2012 that it will exit the annuity business is the latest company to do so in a growing trend. Hartford and Genworth have made similar announcements recently. AdvisorOne 12/21/2012

"Variable Annuity Outlook 2013: Tough Road Ahead"

Met Life took a $1.6 billion impairment charge related to its U.S. annuity business. Wall Street Journal 11/1/2012

Tax Concerns - While income tax is deferred inside an annuity, the long-term U.S. debt problem may result in future higher income tax rates. Annuity returns (if not in an IRA/Retirement account) have always been taxed as ordinary income (like wages) vs. lower taxes on capital gains from investing.

Deferring income to the future might result in higher taxes in the future. The U.S. continues to have some of the lowest tax rates in the world and historically even after increase on highest bracket in 2013.

For decades from 1932 to 1987, we had 50%-70%+ top U.S. tax rates. Of the 34 OECD countries, we

Securities offered through Cetera Advisors LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity.

have the 3rd lowest tax revenue as a share of GDP. Source Wikipedia Higher tax rates may be needed again in the future in all tax brackets.

Fiduciary Concerns ? Registered Investment Advisors (RIA's) have a "fiduciary" obligation to our clients vs. the lower "know your customer" and "suitability" standard of brokers. Insurance agents have basically a "no consumer fraud" standard. The new head of the SEC may not push it as much as Mary Schapiro but is a concern for many brokers and insurance agents as many are pushing for a fiduciary standard for all products. This is opposed by many brokerage firms and insurance companies as reported by Lifehealthpro.

With a broader fiduciary standard, sales may decline. The client's best interest would have to come before the advisors under a fiduciary standard ? as we have as an RIA.

Downgrade of Insurance Industry Highlights of 12/6/2012 article by Alan Lavine The last thing investors need in the wake of insurance rating downgrades is to deal with insolvent life insurance companies. The latest cause for concern: Moody's downgrade of its outlook for the U.S. life insurance industry to negative from stable in its September 2012 report. It pointed out that low interest rates would continue to depress earnings and put pressure on reserves to meet obligations over the next few years.

Fitch, Standard & Poor's and A.M. Best also have expressed long-term concerns about the insurance industry, but did not immediately follow suit.

Kurt Karl, chief economist for reinsurer Swiss Re in New York also warns about insurance company's interest rate risk ? where bond holdings lose value as rate increase and the guarantees of annuity polices are more difficult to hedge than in the past.

For Current Annuity Holders Overall the financial solvency risk is more long-term and there is probably no immediate risk. It is more the change in the policies and locking in todays near historic low interest rates that is the primary concern. Older policies may have better rates and terms which are worth keeping.

Policies still in their surrender period should probably not be cashed in and may have desirable benefits that have accumulated in the past.

REMINDER TO ARIZONA COUPLES While annuities and retirement plans (IRA/401K) have stated beneficiaries, you almost never want to own other investment assets as joint tenants. For potentially large tax benefits you want to own as "Community Properties with Right of Survivorship"

Tax Advantage Gifting Idea to Grandchildren or Children Take advance of the gift tax exclusion and dedicate funds for high cost of post high school education. This can be an idea birthday gift or secretly set aside to assure funds for education whether a trade school, community college or private/public collage.

With rapidly increasing tuition a growth objective can potentially assure a funded educational program for those of the next generation you love. You maintain control, is very flexible in what costs it can fund, beneficiaries can be changed and it does not disqualify child from financial aid.

Recommended Investment Strategies 1) Equity growth strategy to help maximize the potential market rebound over the next few years. We do not recommend just index returns but funds that have historically consistently outperformed the "dumb" indexes or ETFs with positive Alpha (outperformance vs. risk taken).

2) "Participate yet Protect" strategies especially for longer-term investments to help minimize the effects of a possible future market crisis.

3) Alternative opportunities - without stock or bond market exposure - for cautious investing in what we believe are timely opportunities, especially for income in retirement.

The three strategies can be combined within a portfolio, depending on your objectives.

Managing Risk in a World of Uncertainty Invitation - Free Intro Meeting

Get a Second Opinion on your Investments or Financial Planning Strategies

No cost or obligation to meet and share our ideas

We offer a "Portfolio X-Ray" of Your Current Holdings, with

Comparisons to our "Benchmarks" in Respective Sectors

Required Disclosures: Investors cannot directly invest in indices. Past performance does not assure future results. There is no assurance that objectives will be met.

The views and opinions expressed by Dave Hutchison, CFP are as of the date of the report, and are subject to change at any time based upon market or other conditions. The material contained herein is for informational purposes only and should not be construed as investment advice, since recommendations will vary based on a client's goals and objectives. Information is believed to be from reliable sources; however, no representation is made as to its accuracy. All economic and performance information is historical and not indicative of future results. Hutchison Investment Advisors, Inc. is an Arizona registered investment advisor. Part II of Form ADV (Disclosure Statement) has been given advisory clients and is available upon request and is at .

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