Equity Indexed fixed annuities?

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Jan 14, 2006 8:51 am

What do you think about these equity indexed annuities? Are these equity indexed annuities too good to be true?

Jan 14, 2006 8:53 am

what's it matter you can't sell them if you're a jones ir

Jan 14, 2006 8:57 am

Just asking an easy question, EZ. Please don't respond if you are going to answer in that fashion in the future.

Jan 14, 2006 9:22 am

Too good to be true? No. A really good thing for people? Hell yes.


If you have a client who is happy with an average annual return of 6 to 8%, tax deferred, with all of their principal guaranteed, it's great. If you want an alternative to bonds or CD's, it's great.


A lot of money is going into these products because most people are happy with those types of returns. It's so easy to close on these deals because you KNOW the worst case scenario up front.


I like them because I get paid a 10% commission with a 100% payout. That's right bank brokers...If I sell a $100.000 Index Annuity, $10,000 gets directly deposited into my personal checking account.

Jan 14, 2006 9:42 am

thanks for the post, Dirk. Can a client really expect that rate on those annuities? The one I was lookin at the other day had a cap of like 7%. Participation rates of like 75% too...are they all like that?

Jan 14, 2006 9:47 am

Dirk show me an index annuity that will average 6-8%.  I have done due diligence and I can't find one.  The Allianz Masterdex 10 yr monthly avg was 6.38% 5yr. 3.8, but if you took out 1 year that was off the chart your returns look more like 4 to 5%.


Dirk I don't think anyone is jealous of your payout.  After all, if I wanted to be independent it's not exactly hard to do.  I believe if you call LPL they fly you out first class, put you up in the Ritz and shuttle you around in a limo, then sell you why 100% is better than 40%.  100% of nothing is still 0. 


I have a friend whose bank payout is 22% at first glance everyone says that sucks, however, he has about 15 people under him and gets paid 22% on all of their business.  Monthly his team does between 70-150K in production, not to bad at 22%.


Jan 14, 2006 9:53 am

No JonesIR you cannot achieve those returns here is why.  Say you get a 5yr. annuity and 1 of the years is negative.  Every other year the market is up 12% and as you said caps are around 7%.  That is an average of 5.6%. 


Also I have never seen an index annuity whose cap rate is guaranteed, typically the insurance company gives you 7% the first year, 6% the second, 5.5% the third the 5% might be the minimum cap. in this scenario your returns are likely to be between 4-5% with very little liquidity.

Jan 14, 2006 10:01 am

DD-


Tell us exactly how you describe the surrender charge. And what about the M&E? Oh did your clients receive 6-8% last year with the S&P earning 3%. I had an 84 year old in my office last week with 200K (out of 450K total) in two different EIA's from Jefferson Pilot, a good/strong insurance company. If we took the money out now he would be penalized 20K after having the damn thing for 7.5 years. He received 65% (I believe its called participation rate) of the index. 1 yr CD's paid much better.


The most disturbing sentence in your statement was the last. "I like them because I get paid 10% commission with a 100% payout." DD...I am no sage wise man, but I have been in this biz since 94. I was reared in the insurance world and got the hell out. These products are not in your client"s best interest. Just yours. And the company.


With an attitude like yours, the rest of us pay dearly. For the record EIA's are coming under tremendous scrutiny by the regulators. If you expect to be in this business for the duration, I would stay away from this investment. Or at the very least, increase your liability coverage.

Jan 14, 2006 10:01 am
bankrep1:

Dirk show me an index annuity that will average 6-8%.  I have done due diligence and I can't find one.  The Allianz Masterdex 10 yr monthly avg was 6.38% 5yr. 3.8, but if you took out 1 year that was off the chart your returns look more like 4 to 5%.


MasterDex 10 sucks. You have to annuitize to get your earned interest. In ten years, it's gonna bite a lot of brokers in the ass when clients find out the truth.


You have to go ten years to get between 6-8%. I'm not going to call you an idiot for comparing a 5 year average with a 10 year average.


Dirk I don't think anyone is jealous of your payout.  After all, if I wanted to be independent it's not exactly hard to do.  I believe if you call LPL they fly you out first class, put you up in the Ritz and shuttle you around in a limo, then sell you why 100% is better than 40%.  100% of nothing is still 0. 


I'm not going to call you a retard for thinking that they payout at LPL is 100%. Commissions on outside business, like insurance products, are paid at 100%. I'm surprised your ER hasn't told you about this.


I have a friend whose bank payout is 22% at first glance everyone says that sucks, however, he has about 15 people under him and gets paid 22% on all of their business.  Monthly his team does between 70-150K in production, not to bad at 22%.


I'm not going to call you an absolute imbecile for thinking that 22% of $150,000 is higher than 90% of $150,000.


Jan 14, 2006 10:08 am
bankrep1:

No JonesIR you cannot achieve those returns here is why.  Say you get a 5yr. annuity and 1 of the years is negative.  Every other year the market is up 12% and as you said caps are around 7%.  That is an average of 5.6%. 


I don't use an annuity with caps and I don't use 5 year products. Using your analysis, there's TON'S of people who would be happy with 5.6% over 5 years with a guarantee on their principal.


Also I have never seen an index annuity whose cap rate is guaranteed,


Wrong. I'd explain, but based on your current level of misunderstanding and the fact that you can't sell them anyway, it would be futile.


typically the insurance company gives you 7% the first year, 6% the second, 5.5% the third the 5% might be the minimum cap. in this scenario your returns are likely to be between 4-5% with very little liquidity.

Jan 14, 2006 10:11 am

DD-


What about your liquidity?

Jan 14, 2006 10:23 am
7yrvet:

DD-


Tell us exactly how you describe the surrender charge.


Accurately.


And what about the M&E?


There is no M&E. You should know that, smart guy.


Oh did your clients receive 6-8% last year with the S&P earning 3%.


I just got on the bandwagon in June. Interest is credited every year at the end of the contract year, not the calendar year. I'll let you know in June. My VA's earned between 15% and 25%, though.


I had an 84 year old in my office last week with 200K (out of 450K total) in two different EIA's from Jefferson Pilot, a good/strong insurance company. If we took the money out now he would be penalized 20K after having the damn thing for 7.5 years. He received 65% (I believe its called participation rate) of the index. 1 yr CD's paid much better.


Why are you adivising him to get out? Do you want to make some money off of him?


The most disturbing sentence in your statement was the last. "I like them because I get paid 10% commission with a 100% payout." DD...I am no sage wise man, but I have been in this biz since 94. I was reared in the insurance world and got the hell out. These products are not in your client"s best interest. Just yours. And the company.


You know nothing about me or my clients. I am in business to make money. You're right. You are not a wise man. If you were, and you were reared in the insurance world, you would not have asked me a stupid question about M&E charges in an EIA.


With an attitude like yours, the rest of us pay dearly.


Given a choice, I would rather me make money than you. I'm sorry you can't compete with me.


For the record EIA's are coming under tremendous scrutiny by the regulators.


I'm ok with that. My business can withstand any level of scrutiny possible. I use my own disclosure forms, which are much more thorough and comprehensive than any compliance officer has come up with. I think the biggest reason that I close a lot of business is that I'm not afraid to show all of the pimples. People don't want the best of all worlds, they just want to know what they're getting into.


If you expect to be in this business for the duration, I would stay away from this investment. Or at the very least, increase your liability coverage.


Noone has ever lost money in an EIA who stayed the course. Period.

Jan 14, 2006 10:34 am

It is obvious that those that are naysayers at least on this forum are not really knowledgable about how the EIAs work. Sounds like there a lot of junky ones out there though. Dirk, which ones are you familiar with?

Jan 14, 2006 10:38 am
JonesIR:

It is obvious that those that are naysayers at least on this forum are not really knowledgable about how the EIAs work. Sounds like there a lot of junky ones out there though. Dirk, which ones are you familiar with?


Send me a pm and I'll tell you.

Jan 14, 2006 10:40 am
7yrvet:

DD-


What about your liquidity?



My liquidity? I'm very liquid. I make more than I spend. How's yours?

Jan 14, 2006 10:49 am

I use my own disclosure forms, which are much more thorough and comprehensive than any compliance officer has come up with.


Holy Crap!!!!!  You make this stuff up as you go along don't you?  At least I hope so.


My VA's earned between 15% and 25%, though


So what? I have mutual funds in my own portfolio that have an annual returns of  25% to 38%.  This is not a valid comparison to an EIA.


Noone has ever lost money in an EIA who stayed the course. Period.


This is true.  It is also true that they gave up the possiblity to earn more outside of the indexed annuity and without the downside capital gains being taxed as ordinary income.  


Disclaimer: I have sold EIAs.....not many.... they can be appropriate in certain circumstances and they are very difficult to explain to the average client.

Jan 14, 2006 11:05 am
babbling looney:

I use my own disclosure forms, which are much more thorough and comprehensive than any compliance officer has come up with.


Holy Crap!!!!!  You make this stuff up as you go along don't you?  At least I hope so. Only when I'm trying to close a deal with a woman, if you know what I mean.


My VA's earned between 15% and 25%, though


So what? I have mutual funds in my own portfolio that have an annual returns of  25% to 38%.  This is not a valid comparison to an EIA.


I think the word "though" makes it clear that I'm not comparing VA's to EIA's. If you weren't a woman, you could follow a line of logic.


Noone has ever lost money in an EIA who stayed the course. Period.


This is true.  It is also true that they gave up the possiblity to earn more outside of the indexed annuity and without the downside capital gains being taxed as ordinary income.  


When your husband bought your car, he gave up the opportunity to make money with your money. When your husband bought the house, he gave up the opportunity to make money in the bond market. I'm sure you have a point, but it is well hidden by your hair.


Any man knows that the money made is interest and not capital gains. Interest income is taxed as interest income. Nothing new there.


Disclaimer: I have sold EIAs.....not many.... they can be appropriate in certain circumstances and they are very difficult to explain to the average client.


You would probably be able to explain them, if you understood them better.

Jan 14, 2006 11:36 am

the money made is interest and not capital gains. Interest income is taxed as interest income. Nothing new there


Right you are in the EIA, interest only, taxed as ordinary income deferred until withdrawn.


When your husband bought your car, he gave up the opportunity to make money with your money. When your husband bought the house, he gave up the opportunity to make money in the bond market. I'm sure you have a point, but it is well hidden by your hair.


You are so cute when you try to be sexist.   The point is that by putting money into an EIA the clients get the feeling that they are participating in the market but are actually foregoing the real opportunity to earn more.  They are doing so with the knowledge that they will not lose any money either.  Nothing wrong with that at all.  We all make trade offs in life. 


The problem arises when the clients don't understand the crediting methods and that sometimes those "bonus" annuities (EIA and VA) require annuitization.   That is how EIAs get a bad rep.  BTW: for 7yr vet.  Not all EIAs are tied to the S&P.  There are DJIA and other indexes used as well as a fixed income bucket for the super conservative scairdy cat customer.


I don't buy cars that lose money.  I consider my vehicles as investments and my cars/trucks appreciate in value so that I make a profit when I sell them, with the exception of my daily driver which I lease. 

Jan 14, 2006 11:50 am
Dirk Diggler:
bankrep1:

No JonesIR you cannot achieve those returns here is why.  Say you get a 5yr. annuity and 1 of the years is negative.  Every other year the market is up 12% and as you said caps are around 7%.  That is an average of 5.6%. 


I don't use an annuity with caps and I don't use 5 year products. Using your analysis, there's TON'S of people who would be happy with 5.6% over 5 years with a guarantee on their principal.


I like how you split my words 5.6% would be great but it is not possible because the insurance company lowers the caps.


Also I have never seen an index annuity whose cap rate is guaranteed,


Wrong. I'd explain, but based on your current level of misunderstanding and the fact that you can't sell them anyway, it would be futile.


Why can't I sell them?  I can sell anything you can Dirk.  I am very familiar with EIA's.  Name one product (the one you use) that has a guaranteed cap and participation rate for the entire surrender period..  (I know this question will be repsonded to with....YOu would understand give your a CFP/banker etc.) rookie


typically the insurance company gives you 7% the first year, 6% the second, 5.5% the third the 5% might be the minimum cap. in this scenario your returns are likely to be between 4-5% with very little liquidity.


No insurance company would ever do this....

Jan 14, 2006 11:59 am
Dirk Diggler:
bankrep1:

Dirk show me an index annuity that will average 6-8%.  I have done due diligence and I can't find one.  The Allianz Masterdex 10 yr monthly avg was 6.38% 5yr. 3.8, but if you took out 1 year that was off the chart your returns look more like 4 to 5%.


MasterDex 10 sucks. You have to annuitize to get your earned interest. In ten years, it's gonna bite a lot of brokers in the ass when clients find out the truth.


You have to go ten years to get between 6-8%. I'm not going to call you an idiot for comparing a 5 year average with a 10 year average.


This was the highest return I saw in any EIA I did due diligence on.  The only reason it was 6.38% is because in 1994 or 1995 the S&P rose 2% or more each month for all 12 months.  This hasn't happened any other time in last 20 years so it's unlikely to happen again.  It's an anomoly.


Dirk I don't think anyone is jealous of your payout.  After all, if I wanted to be independent it's not exactly hard to do.  I believe if you call LPL they fly you out first class, put you up in the Ritz and shuttle you around in a limo, then sell you why 100% is better than 40%.  100% of nothing is still 0. 


I'm not going to call you a retard for thinking that they payout at LPL is 100%. Commissions on outside business, like insurance products, are paid at 100%. I'm surprised your ER hasn't told you about this. 


I know how it works 80/90/100 deoending on what you sell.  They have an ad on every other page of every magazine I get. 


I have a friend whose bank payout is 22% at first glance everyone says that sucks, however, he has about 15 people under him and gets paid 22% on all of their business.  Monthly his team does between 70-150K in production, not to bad at 22%.


I'm not going to call you an absolute imbecile for thinking that 22% of $150,000 is higher than 90% of $150,000.


Tell me how many independents are doing 150,000 a month there 2nd year in production?