The following comments represent the opinions and perspective of Doug Nelson and Nelson Insurance Services Corp.

Do you provide life, disability, critical illness and long term care insurance?

Yes, as a firm we have been licensed to provide these products to our clients since 1966, when Vern began his career in the financial services business.We are very knowledgeable in these different products. Our preference is to focus on transparent, simple and cost effective insurance solutions.

Do you provide any investment products through Nelson Insurance Services Corp?

The only investment products we typically provide through Nelson Insurance Services Corp. will be GIC investments available through insurance companies. Segregated Fund Products are also investment products that are available through an insurance company. However, our preference and bias is to direct all of our actively managed investment business through our associated entity Nelson Portfolio Management Corp. Annuities are also investment related products that are available through insurance companies. Yes, these are products we use on a regular basis so as to help provide a greater source of guaranteed income to our clients in retirement.

My advisor is recommending a plan that has a Guaranteed Minimum Withdrawal Benefit (GMWB). What is this and is this an approach you typically endorse?

A GMWB is a feature added onto a traditional segregated fund plan offered through a life insurance company. These plans typically suggest that they will provide a guaranteed rate of return or a guaranteed amount of annual income representing approximately 5% of the value of the portfolio each year. It is important to recognize that the 5% figure is only a “notional” figure. This is not real money. The “notional” 5% value is simply a benchmark used by the insurance company to determine the level of guaranteed income they will provide to you. However, and this is the really important point, the insurance company will not pay you any money out of their cash reserves until your portfolio reaches a zero value. Also, some of the insurance companies present a scenario whereby a negative annual rate of return is illustrated each year for a period of 15 years, at which time the portfolio reaches zero. In my view, this is an unrealistic scenario that has never occured in history. This is not to say that it can’t happen in the future, but to base your investment product selection on a scenario that has never happened in history does not seem that prudent to me.

In addition to these points, the fees charged for such a product typically range from 3% to 4% of the value of the portfolio per year. As a matter of fact, the fees charged often relate to the “notional” market value of the investment, not the actual market value. If the notional value is higher than the market value, then the fees charged as a percent of the actual market value can be even higher.

Needless to say, this is not a product choice I recommend. I personally don’t like this approach because i) the fees, in my view, are very high and increase over time, ii) the product strives to protect against a scenario that has never occured in history (in my view) and iii) because the insurance company doesn’t actually provide any specific benefit until your portfolio reaches a zero balance. I believe that you can achieve so much more with a more conservative investment portfolio with lower investment fees.

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