Unethical behavior and/or sales practices
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Rankstocks, I’m going to respond to your post to deekay because I think that you are holding some commonly held beliefs that simply aren’t true or make no logical sense.
1. Disclose, in bold font, commission paid to brokers on annuities that a client must sing off on. Does your supermarket tell you their mark up and profit on the stuff they sell? No, supermarkets don't. But you also don't hold an ear of corn for 7 years with CDSC's if you don't. There is a direct correlation of the level of commissions to returns on investment long term. The client should know what the commission is when agents say, "You don't pay me anything Mr and Mrs client, the insurance company pays me for finding them business." I can't think of any benefit to the client knowing the commission. It's useless information. If it's a fixed product, what matters is how interest is going to be credited. If it is a variable product, the expenses matter. Can you name one product in any field where the commission of the person selling the product is disclosed? I can't. Tell me about this direct correlation between commission paid and performance. If I sell a fixed product to someone, my commission will be 3-4 times as high as a wirehouse rep who has to put it through the grid. How will this change the results to the client? It won't. Insurance products often pay commissions exceeding 100%. Why do the products that pay no commissions underperform? Commissions are irrelevant. What matters is the expenses. The good products that pay bigger commissions have lower total expenses. Clients need to know the expenses that effect the performance of their products. How much of these expenses end up in my pocket doesn't matter. Not only doesn't it matter, but in selling thousands of products, I've never had a client ask me how much I made. They don't ask because they don't care. They just want to know what the expenses are. They would prefer that as much as these expenses end up in my pocket instead of somewhere else. 3. Disclose, in bold font, the probability that a fixed annuity bought from a bank or insurance agent with a great rate the first year will drop near the floor the next year and have the client sign off on it. So, you are suggesting insurance companies predict what future interest rates will be? Are you retarded? Please name an annuity that has not dropped substantially from the initial teaser rate? I would love to know of one, because I have seen a hundred that dropped, and NONE that have stayed the same or were raised. If it is a teaser rate, it usually will drop. The insurance company can't put odds on this. The fact that it is a teaser rate does need to be disclosed and it is disclosed. 6. Reduce the surrender period on all annuities to 5 years or less and reduce the CDSC. Why is liquidity a good thing for everybody? You give more liquidity, you lose guarantees. Simple as that. Your client already pays for these riders by tacking on BIP's to the overall contract cost. How would guarantees be effected if the client is already paying for them? If you are concerned with a client switching out of this annuity short term, maybe it isn't the best investment for them at the time you sell it to them? The client isn't paying for a guarantee in a fixed annuity any more than they are paying for a guarantee in a CD. What would pay a higher rate...a 1 day CD or a 10 year CD? It's the same thing with a fixed annuity. The longer the surrender charges, the higher the rate that the insurance company can guarantee. Let's look at this in the extreme. Company A sells annuities with no surrender charges. Company B sells annuities with a 20 year surrender charge. Who can offer a higher guaranteed rate? Obviously Company B. Why? The longer time horizon allows them to invest their money in a more aggressive way. Shorter surrender periods= lower guarantees. 7. Outlaw all "Senior Designations" as well as "scare tactic" seminars. Emotion gets a client to act. Logic does not. As far as designations go, there is no guarantee a CFP will be any more or less honest than one who has, say, a CSA. Nice try. Wow, if this is how you sell these products, maybe you need an ethics refresher course. If you are using emotion to get a client to purchase an investment, you will have even more success using information about the investment that is objective, show the client how it fits in their overall portfolio, and describe the benefits of the investment while pointing out there are a some weaknesses. Managing a clients expectations will always provide you with a much better long term client. Taking a weekend course to get a Senior designation so you can put it on a business card is very dishonest. Even though there is no guarantee of honesty, at least with the CFP there is substantial coursework, a 2-day supervised test, a background check, and CE. Designations don't buy integrity or take it away. Emotion sells. We're salespeople and we need to do everything in our power to get people to take action. The key is that the salesperson has integrity so that we are getting the clients to take the action that they should be taking. You spend all day, everyday, becoming an expert on financial matters. Do you really think that the client has a complete understanding of how it fits into their plans? Even to the extent that they do, they have no clue if it is the best for them. They buy because they trust you. For someone who seems to have been in the business for a while, you have no clue how it really works. Not that I'm shocked at all about it, but this boilerplate complaining has no real basis for discussion. If you still think I have no clue, read a few of my previous posts. It's obvious to me, as well as most of the participants on this forum that annuity slinging is your primary occupation. Just a suggestion, get your series 7 and study up on some different sales tactics. If it is obvious to you that deekay is an "annuity slinger", you need to re-read his posts. I doubt that you are going to get much agreement from anyone. It would not surprise me if deekay, like myself, has never sold an EIA, but he can recognize the B.S. in the anti-annuity crowd.This is my favorite crowd. They don't realize this is what clients want and sometimes need. The wirehouse guys especially miss the mark on this stuff. No worries, I'll take care of it.the anti-annuity crowd.
This is my favorite crowd. They don't realize this is what clients want and sometimes need. The wirehouse guys especially miss the mark on this stuff. No worries, I'll take care of it.[/quote][quote=anonymous]the anti-annuity crowd.
Let's not be fooled...If the non-independent brokers were paid 90% commish with NO haircut, they'd love annuities. They are pressured to charge people, based on a percentage of assets. They eventually make WAY more money by NOT doing the right thing and putting their clients into annuities. I think they should be forced to disclose THIS fact.
Thanks for the great response, anon. For the record, you are correct. I have never sold an EIA. I do not have a problem with them at all. The problem lies with those producers who use them inappropriately.
I've said it before, and I'll say it again. 99% of the arguments against EIAs and VAs have zero thought behind it. If they bothered to peel back some layers, they would find that annuities have their place, just like other products.The real problem is that too many people sit around, bemoaning what others are doing, and using that as an excuse for why they can’t compete in the marketplace.
You hate EIA’s? Great. How many people have EVER lost money in an EIA? None.
How many people are happy making 5-7% tax deferred? LOT AND LOTS. I’ll take the big EIA ticket and let you have the small brokerage account all day long.
Here’s the facts. With rare exception, fixed annuities with teaser rates, index annuities, and Variable annuities with exotic riders are nothing more than smoke an mirrors. Here’s a few reasons: 7-15 year CDSC’s, bait and switch rates, 80 BPs cost on a rider a client has no chance of using or coming out ahead on, limited investment choices in a Variable, floors of 3% on fixed rates that earn 3% from year 2 to 10, ticking tax time bombs to heirs, ordinary income rates on distributions instead of capital gains and dividend tax rates, penalties if you withdraw prior to 59 1/2, limited participation rates on index annuities, insurance company keeps the dividends on index annuities, overall returns capped on index annuities, high surrender penalties, 3% annual total cost in a variable, and so on.
If you really want to debate this issue, start a new thread and we'll see who comes out ahead.[quote=rankstocks]Here’s the facts. With rare exception, fixed annuities with teaser rates, index annuities, and Variable annuities with exotic riders are nothing more than smoke an mirrors. Here’s a few reasons: 7-15 year CDSC’s, bait and switch rates, 80 BPs cost on a rider a client has no chance of using or coming out ahead on, limited investment choices in a Variable, floors of 3% on fixed rates that earn 3% from year 2 to 10, ticking tax time bombs to heirs, ordinary income rates on distributions instead of capital gains and dividend tax rates, penalties if you withdraw prior to 59 1/2, limited participation rates on index annuities, insurance company keeps the dividends on index annuities, overall returns capped on index annuities, high surrender penalties, 3% annual total cost in a variable, and so on.
If you really want to debate this issue, start a new thread and we'll see who comes out ahead.[/quote]Do you have homeowners insurance? The reason you're losing accounts to annuities is that people WANT them and they aren't buying that "were on the same side of the table" crap that you're pushing.
Are you insane? Yeah and no one ever lost money in a bond right? Liquidity problems have caused many to take losses on these products. Don't be such an idiotThe real problem is that too many people sit around, bemoaning what others are doing, and using that as an excuse for why they can’t compete in the marketplace.
You hate EIA’s? Great. How many people have EVER lost money in an EIA? None.
How many people are happy making 5-7% tax deferred? LOT AND LOTS. I’ll take the big EIA ticket and let you have the small brokerage account all day long.
Some annuities work very well for some clients, and a portion of their investable assets. What’s amusing is the EIA salesmen masquerading as advisors, who pretend that everybody should have one. Frankly, were the commissions not outrageously high, they wouldn’t be sold at all. I’ve yet to hear of a single example where the EIA was the best investment.
But when all you sell is hammers, then every problem looks like a nail. And isn’t it funny how so many of these seminars all point the attendees in the same direction?
EIA’s are junk.
Back on topic, I believe that every dime of commission a broker will receive should be divulged to the client, both orally and in writing. I’m almost all fee-based, and my fees are stamped on the front page of every client statement, every quarter. It drives me absolutely nuts when I ask a prospect why he owns this mutual fund or that one, and I hear that since it’s a B- or a C-share, there were no sales charges or commissions involved. That should be a prosecutable offense, IMO.
I had a prospect last year who was considering rolling his entire $500k retirement plan into an EIA, because of the guarantees, and the bonus he would receive up front. I showed him the commission schedule on the annuity and asked him, “How is it possible for the insurance company to make money? After all, with the 10% commission, and the 12% upfront bonus, they’re already out 22%, and the markets haven’t even opened yet.” I answered my question by saying that this particular company was one of the richest in the world, and is profitable by locking up clients’ money for years and years.
Well, he did it anyhow. A fool and his money are lucky to get together in the first place, and EIAs is yet another instrument designed to remedy that.
EIA salesmen operate the financial services equivalent of a shoe store that only sells brown shoes.
Guess who's about to look good in brown...EVERYBODY!!Are you insane? Yeah and no one ever lost money in a bond right? Liquidity problems have caused many to take losses on these products. Don't be such an idiot[/quote][quote=Hobby Bull]The real problem is that too many people sit around, bemoaning what others are doing, and using that as an excuse for why they can’t compete in the marketplace.
You hate EIA’s? Great. How many people have EVER lost money in an EIA? None.
How many people are happy making 5-7% tax deferred? LOT AND LOTS. I’ll take the big EIA ticket and let you have the small brokerage account all day long.
WHo triggered the loss? The product or the client?
[quote=Bodysurf]Some annuities work very well for some clients, and a portion of their investable assets. What’s amusing is the EIA salesmen masquerading as advisors, who pretend that everybody should have one. Frankly, were the commissions not outrageously high, they wouldn’t be sold at all. I’ve yet to hear of a single example where the EIA was the best investment.
But when all you sell is hammers, then every problem looks like a nail. And isn’t it funny how so many of these seminars all point the attendees in the same direction?
EIA’s are junk.
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Would it help you to know that the EIA that I use has a 5 year surrender and a 5% commission? By the way…EIA’s are terrible investments, but they are great alternatives to CD’s and money market. That’s why the tickets are so big.
[quote=Bodysurf]Back on topic, I believe that every dime of commission a broker will receive should be divulged to the client, both orally and in writing. I’m almost all fee-based, and my fees are stamped on the front page of every client statement, every quarter. It drives me absolutely nuts when I ask a prospect why he owns this mutual fund or that one, and I hear that since it’s a B- or a C-share, there were no sales charges or commissions involved. That should be a prosecutable offense, IMO.
I had a prospect last year who was considering rolling his entire $500k retirement plan into an EIA, because of the guarantees, and the bonus he would receive up front. I showed him the commission schedule on the annuity and asked him, “How is it possible for the insurance company to make money? After all, with the 10% commission, and the 12% upfront bonus, they’re already out 22%, and the markets haven’t even opened yet.” I answered my question by saying that this particular company was one of the richest in the world, and is profitable by locking up clients’ money for years and years.
Well, he did it anyhow. A fool and his money are lucky to get together in the first place, and EIAs is yet another instrument designed to remedy that.
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You lied to the client about having to PAY the bonus? Sounds unethical to me. If the agent gets paid an average of 1%/year, how is he making an outrageous amount of money compared to what you will charge him?
My point was that the agent was getting paid 10%, and the client was getting a “bonus” of 12%. Both of those came from the insurance company. So how could it be a profitable transaction to the insurer, if they (the insurance company) is already down 22% on the day the contract is signed?
By locking up the money is how. Which is why there is such a big difference between surrender value and the so-called “contract value”–which takes forever to get. And the money I charge the client is to manage their money on a day-to-day basis. Pray tell–just what does an EIA salesman do, besides get a big commission from the insurance company to lock up clients’ funds for years?
[quote=Bodysurf]My point was that the agent was getting paid 10%, and the client was getting a “bonus” of 12%. Both of those came from the insurance company. So how could it be a profitable transaction to the insurer, if they (the insurance company) is already down 22% on the day the contract is signed?
By locking up the money is how. Which is why there is such a big difference between surrender value and the so-called “contract value”–which takes forever to get. And the money I charge the client is to manage their money on a day-to-day basis. Pray tell–just what does an EIA salesman do, besides get a big commission from the insurance company to lock up clients’ funds for years?
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I can’t speak for everyone, but when you’re spending your time managing money, I’m either looking for more people who are tired of having their money “managed” to sell annuities to or I’m busting caps at the gun range.
Well, maybe that’s the difference. Obviously you see yourself as a salesman. No harm in that, probably.
[quote=Bodysurf]Well, maybe that’s the difference. Obviously you see yourself as a salesman. No harm in that, probably.
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Do you have a problem with salesmen?
I like your style. I like your moves.
I can’t speak for everyone, but when you’re spending your time managing money, I’m either looking for more people who are tired of having their money “managed” to sell annuities to or I’m busting caps at the gun range.
Nope. Ultimately I’m a salesman myself. In my case, the product and service is me.