What do we do in a worst case scenario?

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Nov 13, 2008 9:44 am

Economist Nouriel Roubini predicts a grim picture in a Fortune Magazine article -- the worst recession since WW2, rising government deficits, deflation, zero percent Fed interest rates, falling earnings combined with falling market PE rations driving the S&P 500 down another 20 to 40 percent.

From our perspective, that would certainly change investor behavior for a long time, especially for the mom and pop, middle class investors I chase.
Do you see new types of solutions for their investing/retirement income needs? Do you see that we should take a new approach?
More insurance? More active management of accounts?
I've always thought that good stocks and patience are the answer to most cases, but do you think we can sell that to people if the market goes sideways for five years.
I also suspect that I should be sitting down with prospects and giving them the worst case scenario -- and then a plan to deal with it. RIght now I'm telling them a variation of the sun will come up tomorrow, but what if it doesn't come out for five years.
 
 
 
 
Nov 13, 2008 10:24 am

Variable and Fixed annuities. 

Nov 13, 2008 10:49 am

Buyandhold- I feel your pain.  I'm not sure we haven't destroyed our pool of potential prospects for years.  If stocks do go sideways for another five, couple that with the last 10 of zero growth, is the theory that we base our advice on flawed?  AAAAAHHHHH.  What to do?

 
As for selling variable annuities, I say do so at your own peril.  No, no, I am not an annuity basher.  They are the majority of my accounts.  Right now the annuity seems like an easy sell.  "Mr prospect we can invest in the stock market and I can give you a gurantee.  I bet you wished you have had this guarantee the last year."  However, what if you sell an annuity from a compnay that does not make it through this crisis?  What if the guarantee is no good?  It seems like slam dunk litigation to me.  "Mr broker you sold my client on a guarantee from an insurance company when AIG, ING, and Hartford, some of the most reputable insurance companies, were having financial difficulties.  Wouldn't prudent planning avoid such investments in such volatile times."  To me, if the gurantee isn't any good, then you sold the client an expensive mutual fund, which is probably what they were running from.        
Nov 13, 2008 11:25 am
the word:

Buyandhold- I feel your pain.  I'm not sure we haven't destroyed our pool of potential prospects for years.  If stocks do go sideways for another five, couple that with the last 10 of zero growth, is the theory that we base our advice on flawed?  AAAAAHHHHH.  What to do?

 
As for selling variable annuities, I say do so at your own peril.  No, no, I am not an annuity basher.  They are the majority of my accounts.  Right now the annuity seems like an easy sell.  "Mr prospect we can invest in the stock market and I can give you a gurantee.  I bet you wished you have had this guarantee the last year."  However, what if you sell an annuity from a compnay that does not make it through this crisis?  What if the guarantee is no good?  It seems like slam dunk litigation to me.  "Mr broker you sold my client on a guarantee from an insurance company when AIG, ING, and Hartford, some of the most reputable insurance companies, were having financial difficulties.  Wouldn't prudent planning avoid such investments in such volatile times."  To me, if the gurantee isn't any good, then you sold the client an expensive mutual fund, which is probably what they were running from.        



If you really believe what you're saying, why aren't you getting your clients OUT of their annuities?

Nov 13, 2008 11:33 am
I will not pull the clients out b/c why detroy benefits that have been created b/c something may happen?  All that i am saying is that selling an anuity in the current environment seems a bit risky to me.  I'm sure most of the companies will make it, but don't be suprised if 1 or 2 don't.  Also, I didn't sell those annuities in the curent environment and my main provider is not in the news.
Nov 13, 2008 11:38 am
the word:
I will not pull the clients out b/c why detroy benefits that have been created b/c something may happen?  All that i am saying is that selling an anuity in the current environment seems a bit risky to me.  I'm sure most of the companies will make it, but don't be suprised if 1 or 2 don't.  Also, I didn't sell those annuities in the curent environment and my main provider is not in the news.



What are you selling, now that you're no longer using those risky annuities?

Nov 13, 2008 11:43 am

Selling a little bit of Life Insurance.

Buying some individual stocks for clients who have money to play with.
 
Really nothing to bring in any revenue.
Nov 13, 2008 12:03 pm
the word:

Selling a little bit of Life Insurance.

Buying some individual stocks for clients who have money to play with.
 
Really nothing to bring in any revenue.




Things are pretty weird out there, aren't they? Thank God for life insurance.

Nov 13, 2008 12:15 pm

Yeah, I'm the same way about annuities.

 
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s).
 
 
Nov 13, 2008 12:34 pm

The conversations that I have with clients are pretty easy when i can point to a guarantee that will help them realize their goals.  I couldn't imagine how I would feel if I were selling funds.  Not to bash what you do, just stating that those calls must be rough and keeping you up at night. 

 
We will sell annuities again.  We just need to let the dust settle first.  And yeah it is strange times.  I'm realizing that LI has got to become a larger part of my business model.
Nov 13, 2008 12:49 pm

For those who haven't spent some time investigating annuities, and finding one or two you are comfortable with, I would really recommend it.  It will help your business model, it will help you sleep, and it will help your clients sleep.  

Nov 13, 2008 1:51 pm
Borker Boy:

Yeah, I'm the same way about annuities.

 
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s).
 
 



Either you put them into annuities or someone else will.

Nov 13, 2008 2:39 pm
Hank Moody:
Borker Boy:

Yeah, I'm the same way about annuities.

 
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s).
 
 



Either you put them into annuities or someone else will.

 
And that right there is why potential investors have little to no faith in advisors.  Ignore everything about the current environment and push that product to make a comission.  Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me. 
 
 
Nov 13, 2008 3:02 pm
the word:
Hank Moody:
Borker Boy:

Yeah, I'm the same way about annuities.

 
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s).
 
 



Either you put them into annuities or someone else will.

 
And that right there is why potential investors have little to no faith in advisors.  Ignore everything about the current environment and push that product to make a comission.  Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me. 
 
 



You're right. This guaranteed 10% cash flow, on the client's original investment, as a worst case scenario, really fails to address the current environment. Who would want that when the can only lose all of their money with someone like you?

Nov 13, 2008 3:18 pm
Hank Moody:
the word:
Hank Moody:
Borker Boy:

Yeah, I'm the same way about annuities.

 
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s).
 
 



Either you put them into annuities or someone else will.

 
And that right there is why potential investors have little to no faith in advisors.  Ignore everything about the current environment and push that product to make a comission.  Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me. 
 
 



You're right. This guaranteed 10% cash flow, on the client's original investment, as a worst case scenario, really fails to address the current environment. Who would want that when the can only lose all of their money with someone like you?

 
Guranteed 10% cash flow?  By all means please enlighten us as to which annuity that is. 
Fixed  or Variable?  I don't even know whether to take you seriously anymore.  And yes you are correct, the alledged 10% cash flow does nothing to address the current environment.  
 
 
Nov 13, 2008 3:31 pm
the word:
Hank Moody:
the word:
Hank Moody:
Borker Boy:

Yeah, I'm the same way about annuities.

 
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s).
 
 



Either you put them into annuities or someone else will.

 
And that right there is why potential investors have little to no faith in advisors.  Ignore everything about the current environment and push that product to make a comission.  Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me. 
 
 



You're right. This guaranteed 10% cash flow, on the client's original investment, as a worst case scenario, really fails to address the current environment. Who would want that when the can only lose all of their money with someone like you?

 
Guranteed 10% cash flow?  By all means please enlighten us as to which annuity that is. 
Fixed  or Variable?  I don't even know whether to take you seriously anymore.  And yes you are correct, the alledged 10% cash flow does nothing to address the current environment.  
 
 



You're the expert on annuities. You should already know about the guaranteed 10% cash flow. And of course this guarantee wouldn't be interesting to anyone trying to stay invested in this current environment. How could I have missed that?

Nov 13, 2008 3:54 pm

Never claimed to be an expert on annuities. 

 
Unless your annuity is fixed, and haven't seen any reputable companies offering 10% fixed, its garbage.  I hoped you looked into those annuitization rates b/c its coming.  10% cash flow+2% fees+ 30% down market = annuitization.  
 
Jeseus christ this has got to be a joke. 
Nov 13, 2008 4:03 pm
the word:

Never claimed to be an expert on annuities. 

 
Unless your annuity is fixed, and haven't seen any reputable companies offering 10% fixed, its garbage.  I hoped you looked into those annuitization rates b/c its coming.  10% cash flow+2% fees+ 30% down market = annuitization.  
 
Jeseus christ this has got to be a joke. 



No joke, son. It's for real. 10% cash flow on original investment amount - worst case. Net of all fees and no annuitization. Of course, since you're wearing blinders, you can't see it.

Nov 13, 2008 4:07 pm

Dude, balls up and name the product.  I'll take my blinders off and still be able to see it is crap.  If it is not crap I will gladly admit as much.


Do you wonder how the ins. co. is able to pay that cash flow?


Nov 13, 2008 4:08 pm

What up Word, it's no joke.  It's all about how you look at numbers.

 
Here's the thing with the VA's.  Despite what some people think, they are for guaranteed income.  If you have purchased a VA, you have to be fully committed to using it as an income producing bucket.  Here's why:
 
If things continue to be this bad or worse, the VA's will raise the fees.  Currently, your rider might be 60 or 70 bps, but they could go as high as say, 1.25%.  This is a good thing.  Remember, you bought this for the income you will get...guaranteed. 
 
The other hedging strategies that are employed, such as options or moving to a fixed bucket, or whatever else it might be, are also used to mitigate the risk of a big disparity between account value and income base.
 
The insurance companies must keep in reserve what they guarantee.  They must physically have this.  When they go to pay out, they aren't going to pay everyone out at the same time, so that shouldn't be too bad.
 
As has been discussed, if the insurance company sells its annuity division, the new company must honor its guarantees.
 
The fact is, I feel safer being in a VA than not being in a VA.  Some of my biggest clients are down 30-40% easy.  If they weren't with me, they probably wouldn't have any money in VA's.  But in late 2007/early 2008, 1/3 - 1/2 of their money was put into VA's.  Their income bases will increase by 7% over the year.  Their mutual funds are still down 35% with no guarantees.
 
What up Hank.  You make me feel good.