L Share annuity vs. wrap fee

or Register to post new content in the forum

36 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Apr 17, 2007 4:35 pm

I've been doing some business in both, and I would like some input from the crowd. 


Obviously it depends on the fee you are charging, but it seems to me that if I charge 1.25-1.5% for wrap accounts, then I am basically charging the same as the M&E on an annuity, without the benefits of the annuity. 


Pros of wrap:  no surrender fee, better tax treatment (if not in IRA), possibly but not necessarily better fund choices, more loyalty to me if it does well.


Cons of wrap:  No annuity features (tax deferral and guarantees), more work for me, if I don't do well I can't blame AXA or Jackson Nat'l, it's my fault and I can't just switch to a different program.


I make about the same on the back end, but upfront get a little more on the annuity, not enough to matter that much though.


I feel like I'm missing something (and I'm sure many of you agree that I'm missing something) so educate me.


Thanks.

Apr 17, 2007 4:39 pm

Are you still with EDJ? Are you using Jackson National?

Apr 17, 2007 6:30 pm

Bobby,


Check out the signature line on my posts.  I have used a few companies, Jackson is one of them. 

Apr 17, 2007 7:15 pm
EDJ4now:

Bobby,


Check out the signature line on my posts.  I have used a few companies, Jackson is one of them. 



Sorry. I never read the sig lines.


I don't think you need much educating. I've used JNL for exactly 54 months now. The earliest clients have earned an average of 24%/year over that period, net of fees. For you kids, that means after the fees have been taken out. There's no way I would consider doing something different. The 4 year product pays 3.7% plus a 1% trail, starting in year two. That's not bad if that's the route you want to go. Much less messy than jumping through all the hoops of doing asset-based fees and the clients don't get a quarterly statment with a line items showing fees being deducted and paid to you.

Apr 17, 2007 7:53 pm

How can all these "money managers", with their wrap accounts, call VA guys crooks?  Wrap accounts will cost 1.0-1.5 for the advice, plus the funds fees....let's say total 2.5-3.0.  My VA will cost 1.25 M&E, 1.15 funds, and rider .25-.5....lets say total 2.5-3.0. 


Apples look like apples, but then I grab your hand and tell you how your going to sleep at night because my VA has a gauranty backed by a 140 year old insurer. I'm sure "money manager" will guaranty to feel your pain. 



Apr 17, 2007 7:55 pm

With a wrap, you should be able to buy institutional funds, which generally have lower annual fees than their subaccount counterparts.


I see what you're saying, but I think that the wrap is worth it (from the client's perspective anyway) in most cases.


It looks like all of the wrap cons have to do with the broker (more hassle to maintain, can't blame anyone but you, etc.), not the client.

Apr 17, 2007 9:45 pm

That’s a great question.  Managed Money advisors think they are at the top of the mountain.  The thing is that not one product fits every situation.   There will come a time soon that advisors will face an arbitration because they did not at least consider an annuity with a living benefit. 


<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 


If you add the “true cost" of ownership of a Mutual Fund vs. an annuity your looking at a difference of 20 bp.  True cost includes trading costs of the fund. 



But forget comparing them show me another hedge Strategy with guarantees for 2-3% all in.



For those interested Google “confessions of a VA critic” read the entire article



As far as VA firms, <?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Jackson has a great UIT strategy and ING has great living benefits

Apr 18, 2007 9:19 am

If you are charging 1.25-1.5 percent for a wrap account (I assume you mean per year) you better be making me like 24% a year ... funny that is what JNL annuities are doing ... and they don't cost that much ...


On the other hand, it depends on the client because many clients might need the liquidity ... but that is another topic on another board.

Apr 18, 2007 11:48 am

I use both.  It depends on the client and you just need to risk profile them.  I ask questions like, if you invested $500,000 with me and the first statement you received showed a value of $450,000, how would you react?  I've gotten answer from "I wouldn't sweat it...this is a long-term investment" to "I wouldn't sleep for a month!".  Usually after you ask a series of risk profiling questions, you have a pretty good idea where to put them.


As far as pros & cons go, on taxes, managed money gets some tax preference on dividends and LT gains, as well as step-up basis on estate taxes, but has some negatives on fee treatment and lack of tax deferral.  In my world, fee-based is a little cheaper, but clients who want protection don't care at all about a percent or two extra for the guarantees.  Investment alternatives are absolutely better in fee-based accounts because you have much more in the way of choices.  Sometimes that is a curse as you can feel paralyzed by the sheer volume of alternatives.  Obviously, JNL has some good alternatives, for annuity fans, even though the choices are by necessity, more limited.


JNL's payout is right in the middle of what I've seen...3.5%-4% up front and 1% in year 2.


EDJnomore, I don't thing you're really missing much...I see the alternatives much as you do...bottom line, it depends on the clients

Apr 18, 2007 11:50 am
Bobby Hull:

The 4 year product pays 3.7% plus a 1% trail, starting in year two. That's not bad if that's the route you want to go.


I'm curious, Bobby...have you done any of this business, or are you still on the "eat now" train?

Apr 18, 2007 1:45 pm
Indyone:
Bobby Hull:

The 4 year product pays 3.7% plus a 1% trail, starting in year two. That's not bad if that's the route you want to go.


I'm curious, Bobby...have you done any of this business, or are you still on the "eat now" train?



Not a heck of a lot. I know it's not rational, but I have this fear that some hack will get one of my clients to do an agent change and get paid for the work that I did. If I've gotten paid up front, I don't care about the agent change issue. In fact, it's kind of nice to get paid so much and then someone else has to do the work for me.

Apr 18, 2007 3:14 pm

lets not forget......you can always create your own trails.  Plan on taking all your income up front and then sit aside a portion of that in your favorite investment. 

Apr 18, 2007 7:53 pm

I use a mixture of both, probably 60% wrap, 20% VA's, 20% A/C Share MF's.

I use Lincoln National's American Legacy product quiet a bit for the income benefit.  How do Jackson National's products compare to Lincoln Financial? 

         

Apr 18, 2007 8:17 pm
ChrisB:

I use a mixture of both, probably 60% wrap, 20% VA's, 20% A/C Share MF's.

I use Lincoln National's American Legacy product quiet a bit for the income benefit.  How do Jackson National's products compare to Lincoln Financial? 

         


I don't know about the guarantees, but the performance is unbelievable. For the most part, the riders are incidental to why I use them.

Apr 18, 2007 8:25 pm

Even with the M&E, in a great many cases it's cheaper than owning a mutual

fund.



Best kept secret in the industry.

Apr 18, 2007 8:34 pm
Philo Kvetch:

Even with the M&E, in a great many cases it's cheaper than owning a mutual
fund.

Best kept secret in the industry.


Amen. The funny thing is that the critics, who happen to sell people mutual funds, don't even understand the true cost of owning a mutual fund. They thing that's it's just the expense ratio. Cracks me up. Stealing clients is so easy when you show them the true costs that their brokers "failed to disclose to you." It kills the trust they have for the incumbent and replaces it with trust for me, since I put all the costs in writing and they have to initial the form.

Apr 19, 2007 10:12 am

What is the website to check actual fees on mutual funds?

Apr 19, 2007 10:19 am
bspears:

What is the website to check actual fees on mutual funds?


personalfund dot com


I doubt if it's perfectly accurate, but it gives a good indication of the cost.

Apr 19, 2007 10:27 am

I was invited to the JH producers conference in Boston this past year, and the single best speaker was an Estate Lawyer from Chapel Hill NC (if I can remember correctly).


Anyway, he was as well versed in VA's as anyone I have ever met.  He laid out the true cost of VA's versus mutual funds, and truly, the cost is nearly identical, and sometimes the MF's are more expensive!


As far as taxation goes, it's very similar too.  People don't seem to think about turnover in portfolios creating short term capital gains (taxed at ordinary income), but it happens in all actively managed MF's.

Apr 19, 2007 10:36 am
BankFC:

I was invited to the JH producers conference in Boston this past year, and the single best speaker was an Estate Lawyer from Chapel Hill NC (if I can remember correctly).


Anyway, he was as well versed in VA's as anyone I have ever met.  He laid out the true cost of VA's versus mutual funds, and truly, the cost is nearly identical, and sometimes the MF's are more expensive!


As far as taxation goes, it's very similar too.  People don't seem to think about turnover in portfolios creating short term capital gains (taxed at ordinary income), but it happens in all actively managed MF's.



They also don't consider the transaction cost of that turnover.


When did you go smart on us, bankfc?