Aren't you glad you placed your clients in VA's

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Oct 16, 2008 8:02 pm

given the terrible market conditions - im so happy my mutual fund clients are in VA's with guarantees.


i couldn't imagine having clients in wrap accounts that are down big for the quarter, then hitting them with a wrap fee.
 
while VA's get a lot of negative press; they are looking good now
Oct 16, 2008 8:39 pm

You do realize the average expenses in a VA are more than the expenses of the average wrap account, don't you?  Plus as an added bonus, if you added, say an income rider, the expenses go up as the market goes down.  Yippeee!!

Oct 16, 2008 11:27 pm
while VA's get a lot of negative press; they are looking good now
 
Well, if you're not too bright, they're a great product.
Oct 17, 2008 7:13 am

walking9, I think that they are a great product in the right circumstances.  I would greatly appreciate you telling me why they aren't a great product when used appropriately.  I'll give you an example and you tell me why this wasn't a great product.

 
My client is elderly, overweight, diabetic, etc.  Her goals were 1) make sure that she lives comfortably for the rest of her life and 2) leave as much behind for her kids as possible.  Goal #2 is equal in importance with Goal #1. 
 
It is very unlikely that she'll ever need the money in her VA.  It has a GMIB.  It also has an enhanced death benefit that makes the death benefit the higher of the current contract value or the highest contract value at a policy anniversary.  She contributed $200,000.  Her current contract value is $180,000.  The GMIB value is $250,000.  The death benefit is $300,000.
 
I'd love to hear reasons why this wasn't a good purchase for her and/or reasons why we should put the money elsewhere if this is a bad product.
Oct 17, 2008 7:29 am

My problem with VA's is how do we know your (and my) GMIB/Db will be there for our clients in 5/10/20 years? I have no confidence in insurance companies today.

Oct 17, 2008 8:32 am

no confidence in wall street either. you can't win.

Oct 17, 2008 9:18 am

My problem with VA's is how do we know your (and my) GMIB/Db will be there for our clients in 5/10/20 years? I have no confidence in insurance companies today.

 
I agree with you.  I've always been one that has believed that company strength matters.  Companies are in business to make money for their owners.  Their owners are usually the stock holders.  Stock holders demand profit now.  "Profit now" leads to too much risk taking.  If you read some older posts of mine, you'll see that I've argued that the living benefits have probably been underpriced.
 
It's not a coincidence that the top mutual companies are financially stronger companies than the stock companies.  My VA business is with a top mutual company with great ratings.  
 
Companies like Northwestern Mutual, New York Life, and MassMutual are not only as strong as any insurance company in the country, but they are probably financially as strong or stronger than virtually any company in any industry in the country.  If they can't pay claims, this country is finished.
Oct 17, 2008 11:57 am
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG.
 
If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.
Oct 17, 2008 2:30 pm
Borker Boy:
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG.
 
If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.
 
 
Can someone please give me the advantage of owning mutual funds inside a wrap account? Paying 1-1.5% for nothing doesn't make sense to me
Oct 17, 2008 2:48 pm
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG.
 
If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.
 
That's not my sales pitch.  It's not even something that I talk about.  That line had more to do with the fact that if the companies that I mentioned are in such bad financial shape that they can't pay claims, the country as a whole has issues that are much more severe than we've ever seen.
 
The issue for the insurance industry as a whole isn't going to be whether a company goes under.  Companies have gone under in the past and it will continue to happen.  The issue is whether all future death claims will continue to be paid as they have been in the past.  If AIG did/does go under, their death claims are still going to get paid.
Oct 17, 2008 4:42 pm
Vin Diesel:
Borker Boy:
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG.
 
If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.
 
 
Can someone please give me the advantage of owning mutual funds inside a wrap account? Paying 1-1.5% for nothing doesn't make sense to me



Yeah, no loads.  You can access cheaper institutional funds.  You also get another manager who can "hire/fire" underperforming fund managers.

Oct 17, 2008 4:48 pm

I agree with Anon.  I think that no insurance company will let another one go under.  It's bad for the industry in general.  The US gov't. just beat others to bailing out AIG.  Troubled Hartford got capital infusion from Allianz a few weeks ago.  Other insurance companies will honor a failing insurer's promise.   They have a fraternal relationship unlike banks, who aren't even trusting each other right now.  Besides, they should have enough cash reserves to honor their promises.   It's pretty much the stock holders who lose if and when an insurer tanks. 

Oct 17, 2008 5:01 pm

Wait a second.  I think that the insurance companies will let each other go under.  The just won't let the death claims go unpaid.

Oct 17, 2008 5:22 pm
Vin Diesel:
Borker Boy:
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG.
 
If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.
 
 
Can someone please give me the advantage of owning mutual funds inside a wrap account? Paying 1-1.5% for nothing doesn't make sense to me
 
You are right, if you get nothing but mutual fund ownership, the fee doesn't make any sense.  Although, there is a bit more involved.
Oct 17, 2008 5:44 pm

And if all you get is a bunch of torched mutual funds when you bought a 5 or 6% GMIB for a conservative client, watch out. I am told by our home office that the 7 year fixed annuity from Met is selling like hotcakes. What happens if Met (or whoever) goes under with a fixed? One would think there is less to guarantee.

Oct 17, 2008 5:51 pm

Yeah the 5 year on met is 5.8% fixed. It's crazy.  They must have bought some dirt cheap bonds to back those.  

Oct 17, 2008 6:10 pm

Well you figure it would cost them 15% (give or take) to raise money in the debt markets now so paying 5-6% on what amounts to a CD is cheap for them . At the end of the day (what a lovely saying by the way), nobody has a clue how this all going to shake out. Uncle Warren seemed pretty confident buying stocks with his Treasury bond money over the last week so that is reassuring.

Oct 17, 2008 6:20 pm
Gordon Gekko:

Well you figure it would cost them 15% (give or take) to raise money in the debt markets now so paying 5-6% on what amounts to a CD is cheap for them . At the end of the day (what a lovely saying by the way), nobody has a clue how this all going to shake out. Uncle Warren seemed pretty confident buying stocks with his Treasury bond money over the last week so that is reassuring.

 
Anyone figure he's probably been buying for quite a while now? If I had that kind of clout with the markets, I'd do a ton of buying and then announce that I was getting ready to buy.
Oct 17, 2008 6:41 pm

I have to agree with Borker on Warren.  He has been very selective in his purchases, but he has been buying more and more stocks as the market continues to tumble.  To him, this is heaven on wall street.  Great companies at big discounts.  

Oct 17, 2008 6:53 pm

Unkey Warren admitted that he was buying up until the rally yesterday afternoon. Think about it, who in your (or my book) was smart enough to be 100% Treasuries for the last 6 years and NOW pull those funds to buy stock? I don't have any!