Prudential HD6 Variable Annuity...professional opinions?

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Aug 1, 2010 6:57 pm

https://www.retirementredzone.com/retirementredzone/protect/?src=PaidSearch_MSN&ProspectID=D674A4698D6A4F9B8FB38A720A3618CE

I don't have enough experience with variable annuities to judge this one well.  It sounds good, but I'd like some professional opinions.

Aug 1, 2010 10:51 pm

It's a good annuity for Pru to wrap the money up and keep it for themselves.  Seriously if you choose the living benefit it is basically dead money since the living benefit is probably going to be significantly above the contract value.  Having said that if a high guaranteed income is the main goal of the client and they don't need income for a few years this will probably get them the highest income.

Aug 2, 2010 10:10 am

Why are you responding to the DIYer? 

Go talk to a couple of local FAs, and get their opinions on HD6. 

Aug 2, 2010 10:18 am

"Why are you responding to the DIYer? 

Go talk to a couple of local FAs, and get their opinions on HD6"

I'm a FA trainee, and I'd like some objective opinions.  I don't want to hear the office BS.  Thank you. 

Aug 2, 2010 3:01 pm

Wow, that is one byzantine product.  How many buyers of this thing do you think actually understand it?  A fraction of 1%?  How many sellers actually understand it, maybe 10%? 

A 6% annual return sounds good until you realize you're paying 1/2 that every year in fees.

So it's a poor investment that few mortals can understand.  Other than that it's great.

I can hardly believe it's legal to sell this.  What the insurance industry can get away with...

Aug 4, 2010 1:15 pm

I like it for an annuity. Is it right for everyone? No. If you know someone is worried about running out of money before they die, and is looking for a guaranteed income stream then this makes sense. I stress two things when talking about it:
1- it is expensive. The company has to make money to guarantee that you will always have money. The fee comes out of the separate account. So if you NEVER plan on taking this money out, other than the stream of income, the fees do not make a difference.
2- this might make sense for a PORTION of your retirement savings. I would not suggest using this for all your money because of the costs associated with it and the unknown of what you might need as a lump sum should something happen in the future.
I stress the capitalized words.
Annuities are not for everyone and not for all their money. If they are worried about outliving their money, and have little/no interest in leaving money to people when they die, than an annuity makes sense to me.

Aug 4, 2010 7:48 pm

[quote=Hacksaw]I like it for an annuity. Is it right for everyone? No. If you know someone is worried about running out of money before they die, and is looking for a guaranteed income stream then this makes sense. I stress two things when talking about it: 1- it is expensive. The company has to make money to guarantee that you will always have money. The fee comes out of the separate account. So if you NEVER plan on taking this money out, other than the stream of income, the fees do not make a difference. 2- this might make sense for a PORTION of your retirement savings. I would not suggest using this for all your money because of the costs associated with it and the unknown of what you might need as a lump sum should something happen in the future. I stress the capitalized words. Annuities are not for everyone and not for all their money. If they are worried about outliving their money, and have little/no interest in leaving money to people when they die, than an annuity makes sense to me.[/quote]

Well said!

Aug 4, 2010 7:49 pm

[quote=loneMADman]

Wow, that is one byzantine product.  How many buyers of this thing do you think actually understand it?  A fraction of 1%?  How many sellers actually understand it, maybe 10%? 

A 6% annual return sounds good until you realize you're paying 1/2 that every year in fees.

So it's a poor investment that few mortals can understand.  Other than that it's great.

I can hardly believe it's legal to sell this.  What the insurance industry can get away with...

[/quote]

You don't know what you are talking about!  You don't understand annuities.

Aug 4, 2010 10:39 pm

[quote=loneMADman]

Wow, that is one byzantine product.  How many buyers of this thing do you think actually understand it?  A fraction of 1%?  How many sellers actually understand it, maybe 10%? 

A 6% annual return sounds good until you realize you're paying 1/2 that every year in fees.

So it's a poor investment that few mortals can understand.  Other than that it's great.

I can hardly believe it's legal to sell this.  What the insurance industry can get away with...

[/quote]

It isn't that hard of a product to understand, but you obviously don't.  6% is not an annual return, it is an increase in benefit base, and the costs are not netted against the benefit base, they are netted against the contract value.  That isn't a Prudential concept, that is how all (that I have seen) GMIB/GMWB riders work.  Get the basics down before you bash.

I don't like to use this product, personally, because I don't like the possibility that my client could go to 90% bonds, permanently. 

Aug 6, 2010 5:18 pm

Wow, you insurance salesmen sure are condescending when challenged.  The basics of annuities are simple - that's why YOU can sell them. (There, we're even.)  It's the details that are killers.  On the 6% annual return I was referring to how Pru markets this itself and how most clients would think of it.  The fact that the specifics are VERY different is exactly my point!

Thanks for the confirmation.

Aug 6, 2010 7:01 pm

The contract value could go down drastically (through fees and market decline), while the benefit amount would continue to accrue at 6% annually?  If the client needed the money before retirement for some unforseen expense and chose to withdraw it, would they be withdrawing it from the contract value, whatever it was at the time?

Aug 6, 2010 9:09 pm

Mad you are an idiot it seems. I think someone else said it right, you just don't understand it. Educate yourself about it before speaking about it. I too did not like them; that was until I educated myself on them. Oh and I am an FA on a team at a wirehouse, not an insurance salesman.
Pink - yes you are correct. This is why I stress the NEVER and the fact that you do not put all your money into it, just a portion (if you are looking for something to give you a guranteed amount per year until the day you die).

Aug 6, 2010 9:51 pm

[/quote]

It isn't that hard of a product to understand, but you obviously don't.  6% is not an annual return, it is an increase in benefit base, and the costs are not netted against the benefit base, they are netted against the contract value.  That isn't a Prudential concept, that is how all (that I have seen) GMIB/GMWB riders work.  Get the basics down before you bash.

I don't like to use this product, personally, because I don't like the possibility that my client could go to 90% bonds, permanently. 

[/quote]

What would be the issue with this product going into 90% bonds permanently?  If I understand correctly, that wouldn't affect the income side.  Or would it?  Would that keep the income side from ever rising above 6% from that point on? 

If the market is performing poorly, it'll go to bonds for safety.  But why would it stay in bonds permanently? 

I sincerely thank those of you who've taken the time to answer my questions.  I've asked several of my co-workers about it and I haven't gotten real answers, just a bunch of gimmicky-salesy drivel and no training. 

Aug 7, 2010 12:39 am

HACK,

So you work at a WIREHOUSE?!?!?  LOL.  Let me know when you become a real boy.

Look at Pink's experience with the people who are supposed to be the experts in this product and it makes my point with perfect clarity.

Aug 9, 2010 9:00 pm

Mad my point was that I am not an "insurance salesman". I'm sure you're better and smarter than me.
Pink- the issue is that if you go to 90% bonds than you lessen your chance of out performing the 6%. And there is a chance that it stays 90% bonds because of a continuously bad market but not likely. However they are reactionary to the market where as we should be proactive as FAs. A lot of issues with annuities and a lot of headaches from a legal standpoint if they are not sold correctly. Just educate yourself and ask LOTS of questions before ever talking about one with a client.

Aug 12, 2010 10:58 am

Ok with all the pissing matches aside, its a good product if you have a client who wants guarantees no matter what. I sell it maybe 30 percent of the time, but I too believe its too expensive.

However, if you have to use an annuity it does have a few advantages. If a client does not take any income or money out, the protected value is guaranted to double in 10yrs. Meaning, you put 100k and leave it alone for 10yrs, you can take 5 percent out for life based on 200k protected value regardless of actual value. After 20yrs, its 400 percent of original value. Problem is, not
many people wait 20 or 10yrs to touch this stuff, so once you take a withdrawl the daily lock in ends.

Vs other annuities that take an annual lock in approach, its definetely more advantageous because if you had someone who saw a high peak on their acct value inbetween anniversaries, and had the acct value drop right before the next lock in they would not have wasted a year. With the pru product, you can lock all of that in.

Also, to protect the actual acct value, there is a built in system to exchange between stocks and bonds automatically depending on how the market moves. I noticed that it helps to retain about 15 percent more compared to accts without this feature.
Personally I would say stay away from annuities, but if you have to use one, might as well be one with a good lock in mechanism.

I am not in any shape or form advertising this product, lord knows I hate my company, but its worth a look if you have to use an annuity.

Aug 12, 2010 11:08 am

Btw, as for fees, its 1.75 m/e assessed on the acct value, with another .85 assessed on the protected value. That's right, the protection fee grows every year since the protected value grows every year at 6 percent. Its expensive.

Oct 2, 2010 6:53 am

I have appreciated this discussion. I have been on the cusp of jumping into a Variable Annuity for a few months, looking at American Equity's and Northwestern Mutual offerings, then Prudential yesterday.  I'd follow Clark Howard's advice to stay away from Variable Annuities because of their expense if I had enough confidence that the market was not heading for potential major issues in the 10-15 years left before I retire.

Question please Fox or Mad - the expense seems to be the only issue (along with company stability and outlook), if lifetime income guarantees are what you're seeking (I am).  For $100k, it seems I'll be paying around $200 per month expense.  I see this as an "insurance fee", and its lower than Whole Life policy.  Is this wrong thinking?

Oct 2, 2010 4:44 pm

Wise, excellent question.  Fees are a big part of the complaint, but not the only one.  As for fees, you need to consider the front end sales load you will be paying in addition to the monthly expenses.  Also, variable annuities come with lots of different fees.  Make sure that 2% isn't just the funds management fee, but includes all of the administrative and insurance fees (the latter depending on your policy type).  Another issue I have is the surrender penalties.  People almost always underestimate the value of flexibility.  What happens if your circumstances change in 5 years and you need that money?  You will have been set back significantly for load, expenses and surrender charges.  Another issue is the lack of investment options.  We already discussed how these are usually very expensive options, but you will also likely suffer limited choice, which could impact investment performance diversification or both.  Also, check whether and how your future payouts can be changed by the insurance company.  Lastly (I think) is that your insurance is only as good as the insurance company's guarantee.  And we know from the financial meltdown that seemingly great, bulletproof companies can indeed go down.

Given all that, and the fact that a good financial advisor can essentially replicate the benefits of the annuity with varying combinations of munis, government bonds, equities and term insurance, I don't see why you'd want to take on all of the annuity baggage.

Oct 3, 2010 6:25 pm

[quote=loneMADman]

Given all that, and the fact that a good financial advisor can essentially replicate the benefits of the annuity with varying combinations of munis, government bonds, equities and term insurance, I don't see why you'd want to take on all of the annuity baggage. 

[/quote]

Not saying I doubt you, because I know how annuities are structured, but can you elaborate on how you can replicate the annuity referenced in the OP with the above options you listed?