Annuity Alternatives?

or Register to post new content in the forum

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Feb 13, 2007 4:48 pm

We have an indy across town who sells the crap out of bonus annuities with heavy use of "guaranteed," "tax-deferred," and "opportunity for steady growth." He puts every person who walks into his office into an annuity and, as we all know, they're only appropriate for a small percentage of people.


I've used some annuities in the past, but I don't like the high fees associated with them. Is there something else that I could offer clients to compete with him that has similar features/benefits of an annuity?

Feb 13, 2007 8:14 pm

You need to find out why the clients are buying the annuities so you can compete with similar features and the truth. 


If they are looking for tax deferral.  I would suggest tax free investments because the real rate (adjusted for taxes) on tax free investments in this current low interest rate market is going to beat the pants off of a fixed annuity that is 100% taxed on the gains.


If they are looking for wealth transfer. I would show them a single premium life product (depending on their age and health)  You can then show them how the remainder of their money is free to be invested in other things with more liquidity.


If they are looking for growth tied to the stock market with non of the downside of the market, the traditional EIA pitch,.... The main thing this guy is probably doing is first)downplaying the surrender period and the fees.  Second) if it is EIAs he is also downplaying the lack of full participation in the growth of the market.  Some of these EIAs today pay about the same as or less than current bonds. 


Think about it this way: for EIAs you are getting a only a percentage of the growth in the market.  The market is at an all time high.  The amount of points it needs to go up to give XX percentage would be XXXX.  If the clients think that the market IS going to go up, why not take the full growth and buy SPY and put the rest into short term bond ladders.  This way they can participate in the growth and have liquidity.  Something they don't have in an annuity.


Run some hypos and illustrations showing the after tax effect on the fixed annuity gains vs tax free investments.   Run some hypos of SPY over the last 10 years or an Indexed fund and see if you can get a EIA wholesaler to run a similar time frame on an indexed annuity.  Be sure to use these last few years as well as the nasty 2000-2001 stretch.

Feb 13, 2007 10:51 pm
Borker Boy:

We have an indy across town who sells the crap out of bonus annuities with heavy use of "guaranteed," "tax-deferred," and "opportunity for steady growth." He puts every person who walks into his office into an annuity and, as we all know, they're only appropriate for a small percentage of people.


I've used some annuities in the past, but I don't like the high fees associated with them. Is there something else that I could offer clients to compete with him that has similar features/benefits of an annuity?



You're a loser. If you want to compete, you need to learn how to prospect, sell and close. Just because you are a loser doesn't mean that the winners are hurting people to win. Take responsibility for your failure.

Feb 14, 2007 2:16 am

babbling looney has some good points.


When going against an EIA, try this pitch....for a client with 100k, buy around 60k of a AAA insured muni zero maturing in 10 years which will give them their full principal back in that time frame.  Take the other 40k and invest in SPY for 100% participation in the market.  This strategy will be around 97% tax efficient, with a high probability of beating the vast majority of EIA's.

Feb 14, 2007 2:48 am
rankstocks:

babbling looney has some good points.


When going against an EIA, try this pitch....for a client with 100k,
buy around 60k of a AAA insured muni zero maturing in 10 years which
will give them their full principal back in that time frame.  Take
the other 40k and invest in SPY for 100% participation in the
market.  This strategy will be around 97% tax efficient, with a
high probability of beating the vast majority of EIA's.





Very good idea. If it wasn't for the phantom income issue, a STRIP'ed
zero coupon TIPS would also be an interesting vehicle to try this with.

Feb 14, 2007 9:59 am

Have you looked at some of the lower cost annuities?  You may be able to beat him on price.

Feb 14, 2007 9:38 pm
vbrainy:

Have you looked at some of the lower cost annuities?  You may be able to beat him on price.



You're making the naive assumption that people use logic when making financial decisions.