Finance Vami

VAMI, or Variable Annuity Managed Investment, is a performance measurement tool specific to the variable annuity industry. It allows investors to track the performance of the underlying investment portfolios within their variable annuity contracts independently from the fees and charges associated with the annuity itself. This provides a clearer picture of how the investments are actually performing, unburdened by the impact of mortality and expense risk charges (M&E), administrative fees, and surrender charges. The VAMI calculation typically starts with a hypothetical initial investment, usually $1,000 or $10,000. This initial amount is then tracked, reflecting only the gains or losses from the underlying investment options chosen by the annuity holder. Reinvestments of dividends and capital gains are also factored into the VAMI calculation, mirroring the typical investment behavior within the annuity. Critically, no fees or charges are deducted from the VAMI calculation. The primary benefit of VAMI is its transparency. Variable annuities often involve a complex fee structure, which can obscure the true performance of the underlying investments. By isolating the investment performance, VAMI allows investors to compare the returns of the annuity’s investment options to similar investments outside of the annuity structure, such as mutual funds or exchange-traded funds (ETFs). This “apples-to-apples” comparison helps investors determine if the extra cost of the annuity is justified by the investment performance. Furthermore, VAMI can be used to benchmark the performance of different annuity investment options against each other. An investor considering multiple variable annuity products can use the VAMI of each product’s underlying investment options to assess which ones have historically delivered better returns. This allows for a more informed decision-making process. It’s important to note that VAMI is purely a performance indicator and does not represent the actual cash value of the annuity contract. The actual value is determined by subtracting all applicable fees and charges from the investment’s gross performance. Understanding this distinction is crucial when interpreting VAMI data. The VAMI only shows the *potential* growth of the investment; the actual return to the investor will be lower due to the fees. While VAMI offers a valuable tool for evaluating annuity investment performance, it shouldn’t be the only factor considered when making investment decisions. Other considerations include the annuity’s death benefit, guarantees, and surrender charges. Investors should also carefully review the prospectus and consult with a financial advisor to fully understand the features and fees of a variable annuity before investing. VAMI provides valuable clarity, but it’s just one piece of a larger puzzle.