400k, 67 years old, wants 24k, minimal risk

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Dec 1, 2009 7:03 pm

What would you do question.
Guy has 400k coming in a qualified lump sum. Hates stocks - railed about Bernie Madoff and bonuses for Wall Street fat cats. You know the type.
Anyway, he wants to generate 24k per year in income and leave the 400k to heirs. Coming back for a followup.
How do you approach it?

Note: I am NOT asking because I don't what to do, just curious as to how others would handle.


Dec 1, 2009 7:08 pm

If that walked into the firm I worked for, I would advise NOT to take them on as a client.  If they take them, then get ready for the lawsuit.  But that may just be my "protect the firm" mentality.

Dec 1, 2009 7:57 pm

Single life SPIA should pay around $30k, have the client kick in the extra $6k plus the difference into a GUL policy.

Dec 1, 2009 8:10 pm
buyandhold:

What would you do question.
Guy has 400k coming in a qualified lump sum. Hates stocks - railed about Bernie Madoff and bonuses for Wall Street fat cats. You know the type.
Anyway, he wants to generate 24k per year in income and leave the 400k to heirs. Coming back for a followup.
How do you approach it?

Note: I am NOT asking because I don't what to do, just curious as to how others would handle.




He can't come anywhere close to doing what he wants to do.  This is especially true if the 24K is after tax and even more so if it needs to keep up with inflation.   A GUL/SPIA combination will take him the closest to where he wants to be if he's healthy, but it still won't get him there.


 
The way that I would have approached it would have been to immediately told him that his goal wasn't attainable.  When I get back together with a client, I want it to be because I have the recommendations that will work to help him achieve his goals.  If his goals aren't realistic, I want it to be said immediately.
Dec 1, 2009 8:11 pm
Wet_Blanket:

If that walked into the firm I worked for, I would advise NOT to take them on as a client.  If they take them, then get ready for the lawsuit.  But that may just be my "protect the firm" mentality.


I'm curious at to why you think that this is a lawsuit ready to happen. 
 
Plenty of people have goals that can't be attained.  We just have to be honest with them and let them know this from the beginning.   Managing expectations is a pretty important part of our job.
Dec 1, 2009 8:17 pm
anonymous:
Wet_Blanket:

If that walked into the firm I worked for, I would advise NOT to take them on as a client.  If they take them, then get ready for the lawsuit.  But that may just be my "protect the firm" mentality.


I'm curious at to why you think that this is a lawsuit ready to happen. 
 
Plenty of people have goals that can't be attained.  We just have to be honest with them and let them know this from the beginning.   Managing expectations is a pretty important part of our job.
 
I say it is a lawsuit waiting to happen because (and I'm not saying that it is a 100% chance of it happening) in my experience a "client" with unattainable goals and a negative opinion of investment professionals is not a good combination.  Either one by itself is okay, but the two?  No thanks.
 
If you can manage his expectations and turn his frown upside down, then great - but I think hardly worth the pain in the ass he will surely become.
 
This is also my perspective talking, going off of the complaints I've had to handle in the past and present.
 
Would you take Meletio as a client?
Dec 1, 2009 8:19 pm

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.

Dec 1, 2009 8:20 pm

Thanks for the response.   I'd agree if he was complaining about his advisor.  Instead, he just has a negative view about the market.  Lots of people are like this.  A person like this simply has to be kept out of the market.  Plenty of people belong in fixed instruments.  He's one of them.

Dec 1, 2009 8:22 pm
Wet_Blanket:

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.


 
Become a good annuity person!  A SPIA/life insurance combo for someone like this is a $15,000+ commission.
Dec 1, 2009 8:28 pm
anonymous:
Wet_Blanket:

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.


 
Become a good annuity person!  A SPIA/life insurance combo for someone like this is a $15,000+ commission.
 
If I can convince the CCO of my firm that it IS a good idea for the compliance manager to have a side annuity business, one in which I would refer the firm's clients to instead of doing business with the firm, then I would be the best salesman ever.
 
On a serious note, how close would a SPIA/life insurance combo get him (if good health)?
Dec 1, 2009 8:48 pm

One of my carriers, $400k qualified SPIA, life only gives him $29,963 per year.  $400k GUL runs just shy of $13k per year.  $6k will get him just shy of $200k of GUL at standard non-tobacco rates.  YMMV with other GUL providers.

Dec 1, 2009 8:50 pm
anonymous:
Wet_Blanket:

If that walked into the firm I worked for, I would advise NOT to take them on as a client.  If they take them, then get ready for the lawsuit.  But that may just be my "protect the firm" mentality.


I'm curious at to why you think that this is a lawsuit ready to happen. 
 
Plenty of people have goals that can't be attained.  We just have to be honest with them and let them know this from the beginning.   Managing expectations is a pretty important part of our job.
 
I agree.  Document, document, document.  Don't "guarantee" that $24,000 will be attained. 
 
With that said, put the money into a WP Carey CPA REIT.  You're getting 6.5% right now, the REIT has increased dividends in 88% of quarters, and it invests in a conservative real estate portfolio so the liklihood of it being one that loses share value is VERY slim.  And tell the compliance people that this $400,000 is less than 10% of his net worth.  Wow...if you follow that advice then you will DEFINITELY be losing that future lawsuit, even if it does get the client what they want.
Dec 1, 2009 8:56 pm
Wet_Blanket:
anonymous:
Wet_Blanket:

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.


 
Become a good annuity person!  A SPIA/life insurance combo for someone like this is a $15,000+ commission.
 
If I can convince the CCO of my firm that it IS a good idea for the compliance manager to have a side annuity business, one in which I would refer the firm's clients to instead of doing business with the firm, then I would be the best salesman ever.
 
On a serious note, how close would a SPIA/life insurance combo get him (if good health)?
 
Why would they have a problem with diversifying their revenue streams and more completely serving their clients?
Dec 1, 2009 8:58 pm
3rdyrp2:
anonymous:
Wet_Blanket:

If that walked into the firm I worked for, I would advise NOT to take them on as a client.  If they take them, then get ready for the lawsuit.  But that may just be my "protect the firm" mentality.


I'm curious at to why you think that this is a lawsuit ready to happen. 
 
Plenty of people have goals that can't be attained.  We just have to be honest with them and let them know this from the beginning.   Managing expectations is a pretty important part of our job.
 
I agree.  Document, document, document.  Don't "guarantee" that $24,000 will be attained. 
 
With that said, put the money into a WP Carey CPA REIT.  You're getting 6.5% right now, the REIT has increased dividends in 88% of quarters, and it invests in a conservative real estate portfolio so the liklihood of it being one that loses share value is VERY slim.  And tell the compliance people that this $400,000 is less than 10% of his net worth.  Wow...if you follow that advice then you will DEFINITELY be losing that future lawsuit, even if it does get the client what they want.
 
But ironically, that probably has the best chance of working.....
Dec 1, 2009 9:25 pm
deekay:
Wet_Blanket:
anonymous:
Wet_Blanket:

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.


 
Become a good annuity person!  A SPIA/life insurance combo for someone like this is a $15,000+ commission.
 
If I can convince the CCO of my firm that it IS a good idea for the compliance manager to have a side annuity business, one in which I would refer the firm's clients to instead of doing business with the firm, then I would be the best salesman ever.
 
On a serious note, how close would a SPIA/life insurance combo get him (if good health)?
 
Why would they have a problem with diversifying their revenue streams and more completely serving their clients?
 
I'm sure your being sarcastic, but this is how it would work.
 
During my suitability review, I decide that what we offer isn't suitable for the client.  So I personally sell him an annuity and make $15,000.  Seems like a conflict to me.
 
If I did enough annuity business to actually be considered "diversifying" the firm's revenue stream, then I would not need my day job.  How much business would I have to do to diversify the revenue stream of a firm with $5B AUM?
Dec 1, 2009 9:45 pm
Wet_Blanket:
deekay:
Wet_Blanket:
anonymous:
Wet_Blanket:

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.


 
Become a good annuity person!  A SPIA/life insurance combo for someone like this is a $15,000+ commission.
 
If I can convince the CCO of my firm that it IS a good idea for the compliance manager to have a side annuity business, one in which I would refer the firm's clients to instead of doing business with the firm, then I would be the best salesman ever.
 
On a serious note, how close would a SPIA/life insurance combo get him (if good health)?
 
Why would they have a problem with diversifying their revenue streams and more completely serving their clients?
 
I'm sure your being sarcastic, but this is how it would work.
 
During my suitability review, I decide that what we offer isn't suitable for the client.  So I personally sell him an annuity and make $15,000.  Seems like a conflict to me.
 
If I did enough annuity business to actually be considered "diversifying" the firm's revenue stream, then I would not need my day job.  How much business would I have to do to diversify the revenue stream of a firm with $5B AUM?
 
Wait, I'm confused.  Your sales reps can't sell annuities or life insurance?  I guess I didn't make the connection initally you are a compliance person.
Dec 2, 2009 8:11 am
deekay:
Wet_Blanket:
deekay:
Wet_Blanket:
anonymous:
Wet_Blanket:

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.


 
Become a good annuity person!  A SPIA/life insurance combo for someone like this is a $15,000+ commission.
 
If I can convince the CCO of my firm that it IS a good idea for the compliance manager to have a side annuity business, one in which I would refer the firm's clients to instead of doing business with the firm, then I would be the best salesman ever.
 
On a serious note, how close would a SPIA/life insurance combo get him (if good health)?
 
Why would they have a problem with diversifying their revenue streams and more completely serving their clients?
 
I'm sure your being sarcastic, but this is how it would work.
 
During my suitability review, I decide that what we offer isn't suitable for the client.  So I personally sell him an annuity and make $15,000.  Seems like a conflict to me.
 
If I did enough annuity business to actually be considered "diversifying" the firm's revenue stream, then I would not need my day job.  How much business would I have to do to diversify the revenue stream of a firm with $5B AUM?
 
Wait, I'm confused.  Your sales reps can't sell annuities or life insurance?  I guess I didn't make the connection initally you are a compliance person.
 
No, we are an institutional money manager that takes wrap clients and direct clients.  I'm talking about the direct business here.
Dec 2, 2009 8:13 am
iceco1d:
Wet_Blanket:
deekay:
Wet_Blanket:
anonymous:
Wet_Blanket:

Honestly, when client like this cross my path - I really want to push them onto a good annuity person.


 
Become a good annuity person!  A SPIA/life insurance combo for someone like this is a $15,000+ commission.
 
If I can convince the CCO of my firm that it IS a good idea for the compliance manager to have a side annuity business, one in which I would refer the firm's clients to instead of doing business with the firm, then I would be the best salesman ever.
 
On a serious note, how close would a SPIA/life insurance combo get him (if good health)?
 
Why would they have a problem with diversifying their revenue streams and more completely serving their clients?
 
I'm sure your being sarcastic, but this is how it would work.
 
During my suitability review, I decide that what we offer isn't suitable for the client.  So I personally sell him an annuity and make $15,000.  Seems like a conflict to me.
 
If I did enough annuity business to actually be considered "diversifying" the firm's revenue stream, then I would not need my day job.  How much business would I have to do to diversify the revenue stream of a firm with $5B AUM?



I'm beginning to worry not only that you are a compliance officer...but perhaps a compliance officer at MY FIRM...

 
Don't worry.  I would shoot myself in the face before doing B/D compliance.
Dec 4, 2009 7:39 am

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Dec 4, 2009 5:27 pm

BAB UIT is 5.75% coupon; pretty close