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Mar 21, 2007 12:32 am

Recently I have been selling a lot of VA's. My customers are all between 60 and 73, and they all have the need to take income from the accounts in the very near future. I've been using the AXA product - 6% GMIB & a GDB that gives the beneficiary at least the original principal back if the annuitant dies before 85.



When I talk about these w/ other reps in my firm I find that some just love them because it allows us to get clients into investments that will give them the best chance to have income for life(& a higher equity position) & some that hate them because the contracts have a 2.25 - 2.5% cost before portfolio management costs. The argument here is that there's no way for us to grow the money, and that we won't keep up with inflation.



I find truth on both sides. Love your comments.



Thanks!

Mar 21, 2007 7:05 am

Uhoh.  Do you realize that the 6% GMIB really is the equivalent of a around 3%?  Do you also realize that the GMIB is useless for someone who needs the money in a very short time period?


I like these types of annuities... when they are used appropriately.  Unfortunately, this is often not the case.  The % of the GMIB should NEVER be mentioned to the client because it is VERY misleading. 

Mar 21, 2007 8:24 am

Ashland, there are better VA's out there then the AXA product.

Mar 22, 2007 3:13 pm

Do they know they must annuitize to get that amount? Linclon will let you get to principle after starting the annuitization. But I am certain they are skrewd with AXA. Be honest did you tell them they would have to annuitize and the implications of annuitizing?


 This is when CSI Miami's Horatio Caine says, "This is a Crime Scene".

Mar 22, 2007 4:22 pm

Let us spend one day as deliberately as nature, and not be thrown off the track by every nutshell and mosquito's wing that falls on the rails.

- Henry David Thoreau


HDT also believes in simplicity, simplicity, simplicity. Not a dirty book.

Mar 22, 2007 11:08 pm
anonymous:

Uhoh.  Do you realize that the 6% GMIB really is the equivalent of a around 3%?  Do you also realize that the GMIB is useless for someone who needs the money in a very short time period?


I like these types of annuities... when they are used appropriately.  Unfortunately, this is often not the case.  The % of the GMIB should NEVER be mentioned to the client because it is VERY misleading. 



Do YOU realize that the GMIB is a worst case scenario and not the strategy? It's much better than losing half your money in the market.  

Mar 22, 2007 11:24 pm

Do YOU realize that the GMIB is a worst case scenario and not the strategy? It's much better than losing half your money in the market.  


It is a tired insurance debate. Look at a decent balanced fund, like Dodge and Cox. Stocks, which are just ownership, are not going away. Bonds and lending will be around as long as folks have to wake up and go to work. Annuity contracts will always be around too - just be careful about how many mouths you have to feed when you sign on the dotted line.


Think about it - immediate annuitization is 90% of what is important when it comes time to take a gamble with an insurance company. Potentially longer term benefits are basically sucked out by the actuaries ( who don't work for cheap).

Mar 22, 2007 11:35 pm
silouette:

Do YOU realize that the GMIB is a worst case scenario and not the strategy? It's much better than losing half your money in the market.  


It is a tired insurance debate. Look at a decent balanced fund, like Dodge and Cox. Stocks, which are just ownership, are not going away. Bonds and lending will be around as long as folks have to wake up and go to work. Annuity contracts will always be around too - just be careful about how many mouths you have to feed when you sign on the dotted line.


Think about it - immediate annuitization is 90% of what is important when it comes time to take a gamble with an insurance company. Potentially longer term benefits are basically sucked out by the actuaries ( who don't work for cheap).



Mutual funds are mutual funds and VA's are VA's. You sound stupid comparing two things that do different things. VA's are great if you want what a VA does. MF's are great if you want what MF's do. I like what VA's do and I like to sell them. I sell them to people who like what VA's do, also. Pretty neat, eh?

Mar 23, 2007 12:00 am
silouette:

Do YOU realize that the GMIB is a worst case scenario and not the strategy? It's much better than losing half your money in the market.  


It is a tired insurance debate. Look at a decent balanced fund, like Dodge and Cox. Stocks, which are just ownership, are not going away. Bonds and lending will be around as long as folks have to wake up and go to work. Annuity contracts will always be around too - just be careful about how many mouths you have to feed when you sign on the dotted line.


Think about it - immediate annuitization is 90% of what is important when it comes time to take a gamble with an insurance company. Potentially longer term benefits are basically sucked out by the actuaries ( who don't work for cheap).



It may be a tired argument to you, but not to the client who bought that annuity with the 6% guaranteed growth.  When the term is up and the actual contract market value is down or not up even as much as the 6% guarantee, they are going to want to kiss your feet because they can annuitize if they want to and have a decent income stream.   They won't care that they could have hypothetically earned a few points more by being in mutual funds.  That doesn't mean squat....hypothetically.


I just had a client who has a VA contract that reached the end of its surrender period.   NOTE: I didn't sell them this contract.  When I became agent of record in 2003 the contract was negative by over 30% from the start.  Down by about 42,000.  Since then it has recovered.  We moved the money out of the annuity now that the contract is up (1035 to fixed annuity to keep deferring the gains because the contract had already been 1035 transferred before)  They made practically no money in 8 years.  If the contract had come with a guarantee of an annual 6% compounding GMIB, they would have been better off by far. 


You can't make a direct comparison to mutual funds and VAs.  The peace of mind that the benefits buy and the costs of the benefits is worth it to some people.

Mar 23, 2007 12:24 am

I agree - it seems these contracts will become more important to the boomers, and should become more competitive and appropriate under certain cirmcumstances. Part of being an open-minded professional and a good leader is to help clients make the right decision.


That is partly why I remain a registered representative and insurance licensed. If you can't offer these products as boomers age and the products evolve to transfer risk and serve the need of boomers, you can't be objective.


Thanks for bringing up the point and the specific example. Obviously you have a big tool kit and take each case individually, as can be seen in the great list of questions for the annuity owner that you posted recently.


Peace of mind for some is # one, and that is at first a financial planning consideration, products are always second.

Mar 23, 2007 12:32 am

Bobby, I may sound stupid, but I have been in this game a long time. There have been plenty of abuses with annuity contracts, and you are free to discover for yourself and your clients what works for most people over a long period of time.


Part of your job as a registered representative, CFP, experienced investor, and so on - is to bring perspective and education to bear on on financial planning problems, not just sell what you like, or what your clients think they like after you spend a little time with them.


A great joy over time is to see how it all fits together, the beauty of simplicity and the basic idea of stocks, bonds, cash, real estate, certificates - much of the beauty and efficiency gets obscured by the time frames and needs of everyone but the client.


That doesn't mean that annuities are not appropriate sometimes, fact is, they are way overused, and you have to pay your dues, or at least be stable with your business, I would say, before you gain a qualified perspective.


Mar 23, 2007 8:54 am
silouette:

Bobby, I may sound stupid, but I have been in this game a long time. There have been plenty of abuses with annuity contracts, and you are free to discover for yourself and your clients what works for most people over a long period of time.


Part of your job as a registered representative, CFP, experienced investor, and so on - is to bring perspective and education to bear on on financial planning problems, not just sell what you like, or what your clients think they like after you spend a little time with them.


A great joy over time is to see how it all fits together, the beauty of simplicity and the basic idea of stocks, bonds, cash, real estate, certificates - much of the beauty and efficiency gets obscured by the time frames and needs of everyone but the client.


That doesn't mean that annuities are not appropriate sometimes, fact is, they are way overused, and you have to pay your dues, or at least be stable with your business, I would say, before you gain a qualified perspective.




You've got me confused with someone who likes to do financial planning. I"m sure it's noble work, but I don't want to take the cut in pay.

Mar 23, 2007 11:11 am

In college, my Korean religious studies professor said,


" After big sumptuous Sunday meal, all have eaten the big chicken dinner and strawberry shortcake, and had a lot of laughs, and everyone sits around and feels full and happy, and then, slowly, shi**y feeling start to creep in. This is the beginning of religious studies."


If you ever start to feel like a used car salesman, that will be your potential foundation for building a professional financial planning career in this industry.


Mar 23, 2007 11:17 am
silouette:

In college, my Korean religious studies professor said,


" After big sumptuous Sunday meal, all have eaten the big chicken dinner and strawberry shortcake, and had a lot of laughs, and everyone sits around and feels full and happy, and then, slowly, shi**y feeling start to creep in. This is the beginning of religious studies."


If you ever start to feel like a used car salesman, that will be your potential foundation for building a professional financial planning career in this industry.




In my college, a Business professor told me to figure out what people want to buy and sell it to them.

Mar 23, 2007 11:46 am

Take both ideas and you have the world in a grain of sand.


I have been unwrapping your type of financial sales for many, many years. Once educated, they almost never choose to go back to your type of "planning".


I admire you for being focused and motivated. Just watch for that little voice in your head, that says, " Maybe I should be doing something different for this person. " It's okay to make real planners look good, too.

Mar 23, 2007 2:35 pm
Bobby Hull:

Mutual funds are mutual funds and VA's are VA's. You sound stupid comparing two things that do different things. VA's are great if you want what a VA does. MF's are great if you want what MF's do. I like what VA's do and I like to sell them. I sell them to people who like what VA's do, also. Pretty neat, eh?




Help me out here. 

1.) What does a VA do that you like? (besides give you high commissions) 

2.) What does a VA do that your clients like?

Mar 23, 2007 3:34 pm

Managed, since you didn't ask the question of me, I'll still answer it.


I actually don't like the commission on the VA's that I sell.  From a commission standpoint, I'd much rather have my clients in an account that is paying me 1% annually.  Also, almost all of my variable annuity business is qualified money because I don't like the tax treatment of non-qualified annuities.


The thing that I like (and my clients like) about the VA is simply that their money can be invested 100% aggressively in equities and they can't lose money provided that they are willing to leave their money in the account for a specific period of time.  Despite the additional fees involved (typically 2.25% including m&e, guarantees, and fund expenses), my VA clients have done better than my other clients.  The only reason is that the VA clients have been able to invest in a way that is greater than their risk tolerance.


Mar 23, 2007 5:21 pm
ManagedMoney:
Bobby Hull:

Mutual funds are mutual funds and VA's are VA's. You sound stupid comparing two things that do different things. VA's are great if you want what a VA does. MF's are great if you want what MF's do. I like what VA's do and I like to sell them. I sell them to people who like what VA's do, also. Pretty neat, eh?





Help me out here. 

1.) What does a VA do that you like? (besides give you high commissions) 

2.) What does a VA do that your clients like?


Why would a guy named "managed money" want to know about VA's?

Mar 23, 2007 5:50 pm

I'm sorry but you people who keep saying "You have to annuitize the AXA to get the 6%" are wrong.


The way the contract works is that you have essentially two towers of capital, the front one is your your investment account, and the back one is your insurance policy. Giggles we'll say that the two towers start off at one million dollars each. 


Your front one will do what it is going to do based on what the market and the fees do to it. For sake of the discussion, let's say that it does net 0%.


It's now 12 years on....


Tower one is still worth 1MM, tower two has a theoretical value of 2MM.


Mr. Jones says. I'm 65years old, I want income NOW! FA says, OK, here is a 6% income stream from your annuity contract, $120,000.


"120M, Wait, I gave you 1MM and it did squat, 6% is 60,000!"


"Yes, but the insurance side grew by 6% per year and in 12 years it doubled."


The 120M is coming from the initial 1MM in the investment side (which means that there is no tax on the money because it's all principal) which has now dropped from 1MM to 880M.


Mr Client can keep taking this 120M for 8 years. Let's continue to assume that the investment does net 0%. At the end of 8 years, the investment account is worth 40M and so poor mr client has to annuitize the contract. He's now 72, lets assume they're giving him 0% on the annuitized portion. They assume that he has about 15 years till dirt nap. He'll get about $133,333/year for the rest of his life. If he lives past 87 he has a total return on his million dollars of more that 3,000,000 in benefits.


Point is, he doesn't HAVE to annuitize until his initial investment has crapsed out.


Maybe that's good maybe that's bad, maybe there's better maybe there's not (and maybe I'm wrong, won't be the first time). But From what I have been able to determine from the contract this is how it works and so the knee jerk "you gotta annutitze" is PO wrong.


BTW I think that John Hancock is coming out with a 6% product in NY soon too, and JH has a AAA to go along with it. That's worth looking at. 


Mar 23, 2007 6:12 pm
Whomitmayconcer:

I'm sorry but you people who keep saying "You have to annuitize the AXA to get the 6%" are wrong.


The way the contract works is that you have essentially two towers of capital, the front one is your your investment account, and the back one is your insurance policy. Giggles we'll say that the two towers start off at one million dollars each. 


Your front one will do what it is going to do based on what the market and the fees do to it. For sake of the discussion, let's say that it does net 0%.


It's now 12 years on....


Tower one is still worth 1MM, tower two has a theoretical value of 2MM.


Mr. Jones says. I'm 65years old, I want income NOW! FA says, OK, here is a 6% income stream from your annuity contract, $120,000.


"120M, Wait, I gave you 1MM and it did squat, 6% is 60,000!"


"Yes, but the insurance side grew by 6% per year and in 12 years it doubled."


The 120M is coming from the initial 1MM in the investment side (which means that there is no tax on the money because it's all principal) which has now dropped from 1MM to 880M.


Mr Client can keep taking this 120M for 8 years. Let's continue to assume that the investment does net 0%. At the end of 8 years, the investment account is worth 40M and so poor mr client has to annuitize the contract. He's now 72, lets assume they're giving him 0% on the annuitized portion. They assume that he has about 15 years till dirt nap. He'll get about $133,333/year for the rest of his life. If he lives past 87 he has a total return on his million dollars of more that 3,000,000 in benefits.


Point is, he doesn't HAVE to annuitize until his initial investment has crapsed out.


Maybe that's good maybe that's bad, maybe there's better maybe there's not (and maybe I'm wrong, won't be the first time). But From what I have been able to determine from the contract this is how it works and so the knee jerk "you gotta annutitze" is PO wrong.


BTW I think that John Hancock is coming out with a 6% product in NY soon too, and JH has a AAA to go along with it. That's worth looking at. 




Can't you do that if you lose money in mutual funds or managed money?