Prospecting CPA's Using Your Clients
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anonymous, you’re right. Don’t you think it’s counterproductive for insurance companies to price the riders (gmib and gmwb) the way they do? When the fees climb and in turn they are deducting more money from the cash value, are they not simply draining down the contract value even more thus creating a potential liability for themselves?
Get paid now, bank it for future liabilities, worry about it later.anonymous, you’re right. Don’t you think it’s counterproductive for insurance companies to price the riders (gmib and gmwb) the way they do? When the fees climb and in turn they are deducting more money from the cash value, are they not simply draining down the contract value even more thus creating a potential liability for themselves?
[quote=snaggletooth][quote=Milyunair]
Fine, I'm still waiting for someone to post a case study on here, either fixed annuity or using all of the bells and whistles, where I can learn about how the new annuities would be appropriate for my clients. I have the license and have to do the continuing education, please, show me the light with real examples, not feel good stuff. I understand annuitization, and feel that certain pension plans end up paying out a reasonable revenue stream. Other than that, where's the beef?[/quote] Why should someone on here have to take the time to teach you ALL that? Not trying to be rude or anything. I go to luncheons put on by my annuity reps and it amazes me that there are still advisors that don't know how this stuff works. I mean, don't you feel your clients deserve to have an advisor that at least knows something about them and how/when they are appropriate? Anything you would learn in a continuing education class is not something that you would really do. The regulators are still stuck on not putting annuities in IRA's, so I'm sure their continuing ed material is just as useful. When was the last time you met with an annuity wholesaler? [/quote] Not being lazy here. Please name a specific product and I'll read the online prospectus. Let's make this discussion real.[quote=Milyunair]
Not being lazy here. Please name a specific product and I'll read the online prospectus. Let's make this discussion real. [/quote] Ok, I will discuss by answering any questions. Here is the 410 page prospectus for the Prudential variable annuity I use: http://www.annuities.prudential.com/media/managed/documents/ams_investor/ASCombProspectus.pdf?siteID=25 I add the HD6 Plus and Spousal HD6 Plus living benefits on it.If you structure it for the client such that it's ONLY being used for income purposes, I don't CARE what the account balance is. For VA's with living benefits, just focus on the worst case scenario, as in many circumstances, that's what you'll get. When the LB riders were guaranteeing 7% per year for 10 (or a double in 10), and that's the WORST you could do for an income base, how many people that need good. guaranteed income are going to balk at that? Yes, the ratchets have come down a bit the past year, but still, 5-6% is still pretty good. And on top of that, you get some potential for market upside if the market errupts. BUT, I ONLY use it for the income piece. I never talk about getting out (I will mention that it's a possibility if the stars all line up).anonymous, you’re right. Don’t you think it’s counterproductive for insurance companies to price the riders (gmib and gmwb) the way they do? When the fees climb and in turn they are deducting more money from the cash value, are they not simply draining down the contract value even more thus creating a potential liability for themselves?
[quote=snaggletooth][quote=Milyunair]
Not being lazy here. Please name a specific product and I'll read the online prospectus. Let's make this discussion real. [/quote] Ok, I will discuss by answering any questions. Here is the 410 page prospectus for the Prudential variable annuity I use: http://www.annuities.prudential.com/media/managed/documents/ams_investor/ASCombProspectus.pdf?siteID=25 I add the HD6 Plus and Spousal HD6 Plus living benefits on it. Thanks, looks like I have my homework cut out for me. [/quote][quote=Mike Damone]anonymous, you’re right. Don’t you think it’s counterproductive for insurance companies to price the riders (gmib and gmwb) the way they do? When the fees climb and in turn they are deducting more money from the cash value, are they not simply draining down the contract value even more thus creating a potential liability for themselves?[/quote]
These are very dangerous products for insurance companies. They have been big money losers with the possibility of serious financial implications. Here’s a quick exaggerated example so that people can see the possibility of the danger:
XYZ Insurance company has a GMWB rider and the cost is 10% of the rider value. The client invests $100,000. It is a 5% GMWB so the client is guaranteed $5,000 a year for the rest of his life. In the first year, the client takes his $5,000, the insurance company collects $10,000 in fees and the market crashes and his contract value drops to $40,000. The next year, the insurance company takes $10,000 in fees again and the client gets his $5,000. The market continues to go up and down and in year 6 the account value is now $0.
Result: The insurance company collects $60,000 in fees, but must pay out $5,000/year for the rest of the person’s life.
If you structure it for the client such that it's ONLY being used for income purposes, I don't CARE what the account balance is. For VA's with living benefits, just focus on the worst case scenario, as in many circumstances, that's what you'll get. When the LB riders were guaranteeing 7% per year for 10 (or a double in 10), and that's the WORST you could do for an income base, how many people that need good. guaranteed income are going to balk at that? Yes, the ratchets have come down a bit the past year, but still, 5-6% is still pretty good. And on top of that, you get some potential for market upside if the market errupts. BUT, I ONLY use it for the income piece. I never talk about getting out (I will mention that it's a possibility if the stars all line up).[/quote][quote=Mike Damone]anonymous, you’re right. Don’t you think it’s counterproductive for insurance companies to price the riders (gmib and gmwb) the way they do? When the fees climb and in turn they are deducting more money from the cash value, are they not simply draining down the contract value even more thus creating a potential liability for themselves?
The problem is that they don't do a very good job of providing income. In almost any realistic scenario, there are better options. If the money is needed now, a SPIA will usually be better. If the money is for the future, a GMAB combined with a SPIA will usually be better and in most cases be much better.
Ice, PM me if you want the specific product. I’m not a fan of talking specifics.
There is no B.S. in the product. It is basically a one day only guarantee. Ex. Client invests $300,000. On the tenth anniversary, if the value is less than $300,000, the insurance company makes up the difference. There is no guarantee in year 9, day 364 and there is no guarantee in year 10 day 2. On every anniversary, the client has the ability to restart the clock. Ex. At the 4th anniversary, the value of the contract is $500,000. The client can leave things as they are and be guaranteed $300,000 in year 10 or they can reset the clock and be guaranteed $500,000 in year 15. The company also offers a 20 year GMAB. It works the same as the 10 year, but without the ability to reset. This one doubles the value. Ex. The client invests $300,000. On the 20th anniversary, if the account value is less than $600,000, the insurance company makes up the difference. There is no B.S. involved at all. It is strictly cash and carry. In other words, the client doesn't have to annuitize or do anything. Since the rider has no value except for one day, the cost will always be based upon the contract value. I can't remember of of the top of my head. It's right around .5%. The 10 year and 20 year are identical in price. M&E + Admin expenses combine to equal 1.15%. Total cost around 1.65% + fund expenses. What you won't like is that there are some investment limitations. They aren't too bad. 80% of the money can be in equities. You will be stuck with 20% fixed income. I use it almost exclusively for qualified money. It is seldom that I use a VA for unqualified money due to the tax laws. This product has been phenomenal for my practice. When the market crashed, none of these clients panicked. How great is to invest $250,000 and then have the market crash bringing the account value down to $150,000 knowing that the account value is GUARANTEED to go back up? The great thing about using this is that it positively impacts investor behavior. Conservative clients can invest more aggressively. If this more aggressive behavior pays off for them, we can then revert to investing based upon their risk tolerance. Ex. Client invests $250,000. Market crashes. There is no reason for the client to do anything other than keep investing aggressively. Ex. Client invests $250,000. Market does well. Account is now worth $400,000. He doesn't want to push the guarantee out another 10 years and he wouldn't be happy with just getting $250,000. If the product is still within its surrender period, we'll change the investment options to be in line with his risk tolerance. If this is real conservative, we'll remove the GMAB rider and save the .5% a year in expenses. If we're out of surrender, we may move the money somewhere else altogether giving him a cheaper/better alternative and creating more income for me.Welcome to the dark side!!! Lots of people are doing that.2. I’m thinking of using VAs that don’t have investment limitations (like JNL), and adding a GMWB or GMAB, and ONLY running equities within it. Then running my fixed income outside of the VA - with the thought that there is no point in running fixed income in a portfolio costing 3%+ potentially, simply for a guarantee that you’ll most certainly NOT need in fixed income.
Anyone doing something like this?