Insurance and Annuities access

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Dec 18, 2008 11:21 pm

Prospective fee-only advisor looking for advice on how to access Insurance and annuity products.   Would primarily be looking for Fixed Deferred annuities, fixed income annuities, and term/permanent life insurance.


1)  Do you contact insurance companies directly to get on their "platform"?


2) I have seen ads for places like "Low Load Life Insurance".   Any insight on these types of companies?


3)  Suggestions on companies with diverse product lines?  or more success using multiple companies that may specialize in certain products?


4)  How does compensation work?
 
5)  where do you go to see Fixed deferred rates and CDSCs?
 
I appreciate any insight.  Thanks
Dec 19, 2008 6:17 am

As a fee-only advisor, you are screwed when it comes to insurance.  The low load life insurance products aren't competetive.  There isn't such a thing as no-load/low load disability insurance or long term care insurance.  All clients working with you will also have to buy commissioned products from an insurance agent.  The insurance agent who gets the business will do lots less work than you and possibly make more money.

 
With variable annuities, the products that have living benefit guarantees all pay commissions.  There are fixed annuities in which there aren't any commissions, but they don't perform any better.  If they do, once you factor in your fee, the client is doing worse.
 
Also, understand that going the fee-only route, despite popular opinion, increases your conflicts of interest (assumes that you charge AUM fees).
 
Ex. You charge 1% a year.  The client is retired and has $1,000,000.  He needs $4,000/month.  A $500,000 SPIA gives him his needed income.  If you have him put $500,000 into a SPIA, you lower your income by $5000/year. 
 
I'm not trying to talk you out of becoming fee-only.  I just want you to be aware that it doesn't work on the insurance side of the business.  All clients need a commissioned insurance salesperson. 
 
I'm fine with fee-only as a compensation model for those that want to go that route as a business decision.  My issue is that too many fee-only planners think that they somehow have taken a ethically superior route with this compensation model.
Dec 19, 2008 9:03 am
anonymous:

As a fee-only advisor, you are screwed when it comes to insurance.  The low load life insurance products aren't competetive.  There isn't such a thing as no-load/low load disability insurance or long term care insurance.  All clients working with you will also have to buy commissioned products from an insurance agent.  The insurance agent who gets the business will do lots less work than you and possibly make more money.

 
With variable annuities, the products that have living benefit guarantees all pay commissions.  There are fixed annuities in which there aren't any commissions, but they don't perform any better.  If they do, once you factor in your fee, the client is doing worse.
 
Also, understand that going the fee-only route, despite popular opinion, increases your conflicts of interest (assumes that you charge AUM fees).
 
Ex. You charge 1% a year.  The client is retired and has $1,000,000.  He needs $4,000/month.  A $500,000 SPIA gives him his needed income.  If you have him put $500,000 into a SPIA, you lower your income by $5000/year. 
 
I'm not trying to talk you out of becoming fee-only.  I just want you to be aware that it doesn't work on the insurance side of the business.  All clients need a commissioned insurance salesperson. 
 
I'm fine with fee-only as a compensation model for those that want to go that route as a business decision.  My issue is that too many fee-only planners think that they somehow have taken a ethically superior route with this compensation model.




You're not aware that MANY variable annuities have an advisor class? No commission, no surrender charge. I guess, as a captive agent, you only know what you know, not what you think you know.

Dec 19, 2008 9:43 am

I'm not a captive agent.   It's time for me to learn something new.   Do you happen to have an idea of the difference in the expense ratios of the advisor class products?  I've never seen a client with an advisor share VA.  The VA that I usually use does not have an advisor share.

Dec 19, 2008 10:07 am
anonymous:

I'm not a captive agent.   It's time for me to learn something new.   Do you happen to have an idea of the difference in the expense ratios of the advisor class products?  I've never seen a client with an advisor share VA.  The VA that I usually use does not have an advisor share.



M&E in Jackson National is 40bps higher with the advisor product. Like most things, liquidity comes at a price.

Dec 19, 2008 11:10 am

Hank,

The advisor class isn't that great of an option.  If client really needs the liquidity, I usually won't do a VA.  And as for Jackson, I'm not a huge fan of their GMIB.

There are many carriers that provide a level load commission option, with very reasonable surrender periods, and relatively inexpensive M&Es, so it is possible not to cannibalize your practice. 

Dec 19, 2008 2:08 pm

For a fee based advisor, I would put a stipulation in that allows charging a commission for insurance products (i.e. life/ltc/disability/medicare suppliment).  This way, you can be above board and the client is made fully aware.   Second option  is deduct the commissions from the annual fee.

Dec 19, 2008 2:42 pm
gvf:

Hank,

The advisor class isn't that great of an option.  If client really needs the liquidity, I usually won't do a VA.  And as for Jackson, I'm not a huge fan of their GMIB.

There are many carriers that provide a level load commission option, with very reasonable surrender periods, and relatively inexpensive M&Es, so it is possible not to cannibalize your practice. 




You're telling ME?

Dec 19, 2008 3:11 pm

"For a fee based advisor, I would put a stipulation in that allows charging a commission for insurance products (i.e. life/ltc/disability/medicare suppliment).  This way, you can be above board and the client is made fully aware.   Second option  is deduct the commissions from the annual fee. "

 
In other words, one can't be a fee-only advisor and do insurance.