How to Record Annuity Purchase Within an Investment Account

Quicken could not "digest" transactions involving annuities purchased / held within an investment account if the annuity itself has no ticker. This seems to apply to fixed-indexed annuities, but does not apply to variable annuities which show sub-fund holdings of instruments with ticker syms or CUSIPs.

The initial purchase of a fixed-index annuity (FIA) showed on my brokerage account statements a "0 units" and initial cost of the amount transferred in from a tax-protected swap from another annuity vendor and type (variable annuity - VA). A subsequent purchase of another separate FIA contract from the same vendor also shows "0 units" at an initial cost of this contract. In both instances the brokerage statement also showed "estimated market value" equal to the initial "premium".

PROBLEM 1:
Quicken added place holder transactions for both FIA purchases but, for some reason, in the "Holdings" pane when I expand the FIA item it shows two place holder transaction with the date and market values of only the first transaction reported on my statements. As a result, it has a different total market value (shown on my statements as the initial "premium" [purchase price]) for each contract. This results in an inaccurate account value in Quicken compared to my investment account statements.
QUESTION 1:
How do I fix this so Quicken shows the same "Market Value" - i.e. the initial purchase price / premium for each contract as shown on the brokerage statement? (NOTE: during account download Quicken appears to ignore this information and has done over the 3 years since the initial exchange / purchase of the first FIA contract.)

PROBLEM 2:
The first actual placeholder transaction is an "Adjust Share Balance" which shows the purchase price / premium payment in the "Number of shares" entry. There is no place in this type of entry to add the value or cost of the contract so the register for this place holder shows "Enter Cost" link in the "Inv. Amt" column. If I click on the "Enter Cost" link I get two choices: "Enter Missing Transaction" and "Estimate Average Cost". The first option does not offer a choice of transaction type reported on my statements (i.e. premium paid for the contract, but no shares). The second option identifies number of shares as the amount of the premium payment and provides the opportunity to add number of shares (non-existent on statements) and price per share (also non-existent on statements.)
QUESTION 2:
How do I create / modify transactions in the register so that
a) the register entries and "Holdings" window agree with my statements which show a "Market Value" equal to initial purchase price?
b) the register can show the original "Inv. Amt" (cost) of each contract?
c) fix the "Holdings" window so that when I expand the annuity entry, BOTH INDIVIDUAL placeholders show up for this annuity instead of listing the FIRST placeholder twice?

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    From the way you describe things it appears that you are using Quicken to "do your accounting for you" instead of using Quicken to "help YOU do your accounting."   You simply can't do that because that you're at the mercy of whatever information your broker sends to you and sometimes that information doesn't create correct accounting entries within the context of how Quicken works.
    The way I'd go about fixing this is delete everything the broker has sent you and start over. 
    You actually, really, "purchased" these FIAs so the initial transactions should be "Bought" actions if the cash was there in your brokerage account, or you could use "Add - Shares Added" actions if the cash wasn't in there.  (I have no idea how you handled the "swap" within your Quicken file.) 
    I'd guess in both cases you'd use "1 share" as the quantity bought/added and the cost of the contract as the purchase/add price.  From the sounds of it you need to create separate "securities" for each FIA, but you know better than I do if that's the correct approach.
    That should get your holdings correctly stated, initially.  Since these "securities" have no quote it's on you to periodically change each securities quote from time to time - presumably the broker updates these estimates occasionally.
    If the broker isn't sending you any "unit" information or sending "0 units" you're going to keep getting placeholders each time Quicken compares your holdings to what the broker is sending.  To avoid this you do Edit > Preferences... > and tick "Show hidden transactions."  Then you also edit the Account and under the "Online Services" tab make sure that Automatic entry is "Off."  Whenever Quicken throws up a "needed" placeholder, you decline it.
  • Chris_QPW
    Chris_QPW Member ✭✭✭✭
    @Tom Young
    I wanted to state that your explanations of when placeholders are created isn't correct.
    And that isn't surprising since Quicken does somethings that are not very obvious.

    First what triggers placeholder and when.  Looking at this preference:


    It tells you that it will do the compare the "downloads" (provided that the account is selected in this list).
    So at what point is "download"?

    I have experimented with this is right after you press the Done button in the Downloaded Transactions tab after accepting all the transactions.

    At that point it does the compare and posts the Placeholder dialog if there is a difference.

    Needless to say if you don't select the account in the above settings the compare isn't done and as such no Placeholder dialog comes up.

    Now I'm going to talk about "Automatically add to investment transactions lists" mode.  Here is where you will most likely get surprised.

    It seems that pressing the Done button on the Downloaded Transactions tab is the "trigger" for doing the compare.  In other words since in "Automatically add to investment transactions lists" mode you never press that Done button, in fact the compare never happens.  And of course the Placeholder dialog never comes up.  So in this mode if one wants to check for differences they have to actually select Reconcile Shares from the menu in the investment account.

    Certainly not what people might expect.  But I'm pretty sure of why it works this way based on the history.

    Years ago a few things were different.  The first is that the above settings for controlling if the compare should be done for a given account didn't exist.  The other was that the default for placeholders is that Quicken would create them by default, at least it would do that in "Automatically add to investment transactions lists" mode.  I'm not sure about the default when using the Downloaded Transactions tab.

    Needless to say people didn't like placeholders being created automatically with no interaction from the user.
    The fix was what you see, in "Automatically add to investment transactions lists" mode it never creates placeholders.

    Now that they have the settings above of each account, then maybe the right thing to do would be to follow that setting in this mode too, but clearly they have never changed it for that.  Why?  I think it is simple most people don't want placeholders and as such never miss them if they don't show up, and so no one complained to get this changed.

    I do want to mention there are sometimes when placeholders are automatically added.  There are a couple of action types (like adjust share balances) that don't have enough information in them so that Quicken can't compute the cost basis and as such they always generate placeholders.  Another way they happen is when you are setting up the account if you put any holdings in this dialog (probably does the adjust shares transactions in the background):


    Also when creating a new account and not all the security history is there you will get placeholders.

    This works the same whether Automatically add to investment transactions lists" mode is on or off.
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  • Wayne Cole
    Wayne Cole Member ✭✭
    Tom Young - SuperUser

    >>From the way you describe things it appears that you are using Quicken to "do your accounting for you" instead of using Quicken to "help YOU do your accounting."<<

    I have no idea what that means - whatev...

    The point you seem to miss is this: Quicken downloaded the statements, somehow didn't (want to?) process the initial swap from a variable to fixed-index annuity, created two place holder "Adjust Share Balance" transactions in the register The first deleted the shares of the variable annuity from which I was switching, with no cash amount or other cash changes as seemed appropriate for a transfer like this. Then a year later when I merged two brokerage accounts, the merging account contained another one of these contracts, another "Adjust Share Balance" transaction added" the second contract to the target account in the merge. In both cases the place holders adding the fixed-index annuities in the register used the purchase price as the number of shares. There are no shares reported for these annuity contracts either from the brokerage account or on separate statements from the annuity company.

    The second point you missed was that the "Holdings" window entries for these two identically named annuities (which, in reality are two separate contracts, with separate numbers etc.) lumps them into one security (understandable), but the drill-down for its "history" shows only the first placeholder transaction repeated twice. That is a Quicken bug - it should AT LEAST show the two placeholder transactions as they are recorded in the account register with their proper dates and same number of "shares" shown in each placeholder. This is not the first time I've had to jump through ridiculous hoops to get the "Holdings" window and register for an account to match share balance and market value when compared to the register (which, BTW, agrees with paper statements for all other securities whereas "Holdings" don't seem to get its info from the same data set).

    >>You simply can't do that because that you're at the mercy of whatever information your broker sends to you and sometimes that information doesn't create correct accounting entries within the context of how Quicken works.<<

    Now you are just repeating what I stated in the original post: Quicken does not seem to be able to handle FI annuities, or other instruments that do not report ticker, nor can be described as a number of something with a price per unit of that something. With the creation of all these different investment instruments (all the variations on the basic annuity or whole life policy) you might think a program such as Quicken would provide a way to enter a cost-basis and to update market value - even if it needs to be done manually - for such "odd-ball" investment instruments that can be held in a brokerage account.

    As to how to fix this, "Adjust Share Balance" is the type of transaction that Quicken chose for the placeholders. There is no place to enter money, just shares (of which there are none).

    The "Add Shares" transaction, again, only allows you to enter shares, not money as in a cost basis (important in annuities, don't you think, since taxes and death benefits are calculated based on this number) or market value.

    And THIS IS THE POINT: I find no way in Quicken to do the manual "help YOU do your accounting" activity that will set a market value as reported by the brokerage firm (which, because of the way they handle these contracts, reports the initial investment amount as the market value on monthly statements.) In order for me to manually record the changes in these contract values from the annuity company quarterly statements, I have to have a way of setting their initial values, and figure out how to update those values for the gain / loss within these contracts as reported over time when they have NO SHARES, NO SHARE VALUE but simple post gains / losses based on an algorithm seeded by a particular index. Hopefully this better explains my dilemma.

    SUMMARY: Quicken set up "ADJUST SHARE BALANCE" placeholders using purchase price as shares with a $0 (i.e. "Enter Cost" link) for "Inv. Amt.", but that "Enter Cost" link, if I try to enter a "cost", DELETES ALL THE INFORMATION IN THE ACTION, SECURITY, DESCRIPTION, SHARE BAL., INV. AMT COLUMNS OF THE REGISTER. (Thankfully the "Repair" restores these data even though the repair logs shows the account was not in need of repair (?).) So I am looking for guidance on how to replace the placeholders with transactions that allow me to have / show market value and initial cost (basis) for these contracts.

    >>(I have no idea how you handled the "swap" within your Quicken file.)<< Well, again, I did not "handle" anything - I'm trying to fix what Quicken handled: in this case, they entered a place holder that put the shares of the variable annuity I switched from (which did show shares trackable by ticker/CUSIP) at zero which seemed just fine as an "Adjust Share Balance" with no cost recorded or change in cash amounts or balances. The problem arises from the "Adjust Share Balance" which added the new annuity with a share balance = purchase price, but no market value. I need to get these in the register with a market value WITHOUT screwing up the cash balances (as these agree with my statements) so the total account value is not so far off in Quicken compared to the statements.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited May 2021
    You'll notice that your entire post is written in the passive voice - Quicken did this, Quicken didn't do that, Quicken seemingly didn't "want" to do something else.  You've sketched your role in all this is as a passive viewer -I did not 'handle' anything" - observing what accounting entries "Quicken" is making FOR YOU, puzzling over what you're seeing, and not taking any active role in making sure YOUR accounting is correct.  That's a textbook example of trying to having Quicken do your accounting for you.  
    You are the Chief Accounting Officer for whatever entity's activity you're accounting for in your Quicken file - maybe your family's finances - and the only actor in the whole downloading/accounting entries process that actually has a brain between their ears.  Everything else involved in the process is "programming."  So you frequently need to step in and make fixes and corrections to downloaded information if transactions don't accurately reflect reality.  I expect you do this to some extent when you download "spending" information, perhaps changing Categories Quicken has proposed for various transactions, why wouldn't you expect to have to step in for downloaded "investing" transactions?
    I pointed out that you're at the mercy of whatever your broker sends you and that very often what gets sent simply isn't correct from an accounting standpoint. There's a logical series of accounting entries that probably should have been made here but the broker, in the initial download, apparently sent information that Quicken interpreted as "this security is no longer here"  - and that security magically disappeared -  and information that "there's a new security here in the account" - and that security magically appeared.
    I can't tell you chapter and verse what accounting entries are needed.  I just don't have the information in front of me, but you do.  Clearly what you need here is a "security" or "securities" for these FIAs, securities that have no ticker symbol.  Quicken's programing is such that each security needs some number of "units", a basis cost per unit, and a per unit "quote" in order to correctly show your position in Holdings.  So using the purchase price as the number of shares at a cost basis of $1 per share at the time of purchase is one way of presenting this but equally valid, mathematically, is one share at a cost basis of the entire upfront purchase price.  Since I don't know what sort of transactions come into play for FIAs after the initial purchase I can't tell you which way is "better."  (I'd probably opt for the $1/share way of going as that gives you lots of flexibility for handling future transactions.)
    "The 'Add Shares' transaction, again, only allows you to enter shares, not money as in a cost basis (important in annuities, don't you think, since taxes and death benefits are calculated based on this number) or market value."
    I've used the Add Shares action many times and it certain does allow for a "money" amount.  The Add Shares action is the same in every way, shape and form as a "Buy" action, except you don't see cash entries:

    "So I am looking for guidance on how to replace the placeholders with transactions that allow me to have / show market value and initial cost (basis) for these contracts."
    I thought I made that clear.  I advised deleting the downloaded information and entering transactions, maybe "Sells" or "Buys" or "Adds", even "Removes", that get you where you want to be.  You will need to create "securities", those securities must have "units", and you need to come up with "per unit" numbers that get your cost and the securities value correctly stated. 
    So, perhaps, the initial entry is a Sell transaction of the old annuity followed by a Buy of the new annuity for the same amount as the proceeds from the sale.  That would mean cash is unchanged in the Account after these two transactions, which is correct, your new annuity is correctly priced as to cost, and because you've selected some "units" to go with that security you can change the per unit "quote" figure from time to time. 
    A sell followed by a buy resets the holding period for the new annuity, and I have no idea if that's even relevant here, but if the holding period carries over from the old annuity you could do instead a Remove of the old annuity followed by an Add of the new annuity and within that Add you'd enter a Date acquired that's the same as the date acquired for the old annuity.  Or, if you did have the old annuity set up as a security with units, cost per unit and an acquisition date you could even to a "Corporate acquisition (stock for stock)."
    You'll have to figure out the best approach and transactions to use to get to where you want to be.  If the broker's reporting doesn't comport with how you have things set up you'll want to make sure downloaded transactions aren't automatically accepted.  That will allow you to look at them in the Downloaded Transactions window and either delete them and manually make an entry consistent with how you have things set up, or allow them into the transaction list and edit them to make them compatible.
    Good luck.
  • Wayne Cole
    Wayne Cole Member ✭✭
    FINALLY figured out how to fix this.

    The existing placeholders changed from what appeared to be an "Add Shares" placeholder to "Adjust Shares" as soon as I clicked on them. "Editing" those transactions disabled the pull-down where you select the type of transaction, therefore not allowing entry of any cost data.

    The solution was to delete the placeholders then create each annuity contract as a different security (I used the name Quicken "auto-assigned" with last three digits of contract number) while adding new "Add Shares" placeholders for "other" class securities with no ticker/CUSIP. For those transactions I entered the cost for the fixed indexed annuities (FIAs) in both number of shares and total cost which set the per-share price at 1.00. But then the holdings pane showed the "Price/Quote" and "Market Value" as 0 and the "Gain/Loss" as a loss in the amount of the annuity's value. This, of course, significantly depressed the value of the account in Quicken compared to the statements from the brokerage house. So it was ALSO NECESSARY TO SET THE "Quote/Price" VALUE IN THE HOLDINGS PANE TO 1.00 as well. This corrected the market value and Gain/Loss amounts in the holdings pane and the overall value of the account so that it matched the statements from the brokerage house.

    To get the periodic index payments into Quicken, I manually created "Reinvest Dividend" transactions, entering the amount paid by the annuity company into the contract as shares and, with an existing set price of 1.00, Quicken updated contract value accordingly. Now the holdings pane and the holding account value as well as the values of each FIA contract agree with statements from the brokerage house and annuity company.

    It will be interesting to see what happens on the next account auto download / update. Will it try to enter a share mismatch placeholder? We'll see.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited July 2021
    "It will be interesting to see what happens on the next account auto download / update. Will it try to enter a share mismatch placeholder? We'll see."
    Since you're unsure about how downloads will work going forwards I'd advise making sure that Quicken is not allowing transactions to be entered automatically into the transaction list.  That way, if the downloaded transaction doesn't comport with how you set up your accounting you can simply delete it, and make your own entry.  Quicken might suggest a placeholder after that, but you don't allow that place placeholder into your transaction list.
  • Chris_QPW
    Chris_QPW Member ✭✭✭✭
    Tom Young said:
    "
    It will be interesting to see what happens on the next account auto download / update. Will it try to enter a share mismatch placeholder? We'll see."
    Since you're unsure about how downloads will work going forwards I'd advise making sure that Quicken is not allowing transactions to be entered automatically into the transaction list.  That way, if the downloaded transaction doesn't comport with how you set up your accounting you can simply delete it, and make your own entry.  Quicken might suggest a placeholder after that, but you don't allow that place placeholder into your transaction list.
    In general I would probably recommend against having automatic transaction entry mode on for the investment accounts.  I believe that is the default even for new users/data files even though having it on for non investment accounts is the default.

    But I would like to point out that the way Quicken behaves if automatic transaction entry mode is on for investment accounts isn't the way most people think.

    When you have it on, Quicken will not create automatic placeholders like it might when you have it off.
    Yes that sounds the opposite of "automatic", but that is due to the history.

    There was a time where turning on automatic entry and having a mismatch of the security shares would cause a placeholder without the user getting a chance to prevent it.  It caused some much of a problem that user's lobbied to change that behavior, and they did change it.  What happens now is that the comparison that triggers the creating of placeholders, never fires off if you have automatic entry mode on.
    The user has to select the "Reconcile share" item from the menu to trigger it.

    In reality this probably should follow the setting in:
    Edit -> Preferences -> Downloaded transactions -> Compare account portfolio after download

    But this setting came after the above change, and since no one has ever complained at the lack of creating placeholders, it has never been changed.

    So if this doesn't cause such problems why do I recommend for most people not to have automatic transaction entry for investment accounts on?

    Because this mode has bugs in it.  There are times where Quicken needs to present a "question" to the user.  For instance you put in a buy and you get either the date or the number of shares slightly wrong.
    Quicken might see this as a "partial match".  What should happen at that point is that the Downloaded Transactions tab should pop open so that you can see the line that is basically asking to accept or reject this partial match.  Well that doesn't happen.  The user gets a blue dot on the account in the account bar meaning there is something to review in the register.  But when the user goes to the register they see nothing.  The user has to switch back to non automatic entry mode to see the transaction in the Downloaded Transactions tab.  I have reported this bug for years, but given that almost no one uses this mode they have never bothered to fix such problems.
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  • Wayne Cole
    Wayne Cole Member ✭✭
    > @Tom Young said:
    > "It will be interesting to see what happens on the next account auto download / update. Will it try to enter a share mismatch placeholder? We'll see."
    > Since you're unsure about how downloads will work going forwards I'd advise making sure that Quicken is not allowing transactions to be entered automatically into the transaction list.  That way, if the downloaded transaction doesn't comport with how you set up your accounting you can simply delete it, and make your own entry.  Quicken might suggest a placeholder after that, but you don't allow that place placeholder into your transaction list.

    I've always run with the two "Automatically add ..." transactions to banking and investment account registers disabled so that I get to see / 'validate' them before they get entered. Initially it was out of caution (way back when first using Quicken to download info instead of manual entry / reconcile from statements, receipts etc.) but then it became an easy way to "keep my head in the game" and have an ongoing sense of where income / expense was going.

    What this whole exercise confirms is that there is a bug / design flaw in Quicken. First, when I click on Quicken-created "add shares" placeholders they turn into "adjust shares" transactions and disabling the ability to change the transaction type to one where price info can be entered. The only solution is to delete the placeholder the recreate the transaction in another transaction type that allows one to enter all the necessary info so Quicken and paper statements agree on bottom-line holdings and values.

    Second, it appears that the investment account registers and holdings panes use different sources for their information (a database app "no-no"). The "Holdings" pane registers first off did not match the Quicken created place holders for the FIAs in question. Second, when I went back, deleted the placeholders, recreated the transactions with new "securities" (that have no CUSIP/ticker) to both separate the two annuity contracts and be able to add price/share amount info to fake out Quicken so it would allow me to enter the index payouts as increases in FIA contract value, the "Holdings" pane did not pick up my 1.00 share valuation. It kept it at 0, and thus deducted the values of each contract from the total investment account value as show in the "Accounts" pane at the left of Quicken's window. So I had to separately ALSO tell "Holdings", not just the transactions in the account register, that the "per share value" was 1.00. That to me is a bug. If I said it was 1.00 in the individual transactions, Holdings should use that value and not force me to separately enter the per-share value AGAIN for each of these transactions in the Holdings pane. Holdings simply is not following the transaction register as an accurate history keeper for the account.