Aren't you glad you placed your clients in VA's
given the terrible market conditions - im so happy my mutual fund clients are in VA's with guarantees.
i couldn't imagine having clients in wrap accounts that are down big for the quarter, then hitting them with a wrap fee. while VA's get a lot of negative press; they are looking good nowYou do realize the average expenses in a VA are more than the expenses of the average wrap account, don’t you? Plus as an added bonus, if you added, say an income rider, the expenses go up as the market goes down. Yippeee!!
walking9, I think that they are a great product in the right circumstances. I would greatly appreciate you telling me why they aren’t a great product when used appropriately. I’ll give you an example and you tell me why this wasn’t a great product.
My client is elderly, overweight, diabetic, etc. Her goals were 1) make sure that she lives comfortably for the rest of her life and 2) leave as much behind for her kids as possible. Goal #2 is equal in importance with Goal #1. It is very unlikely that she'll ever need the money in her VA. It has a GMIB. It also has an enhanced death benefit that makes the death benefit the higher of the current contract value or the highest contract value at a policy anniversary. She contributed $200,000. Her current contract value is $180,000. The GMIB value is $250,000. The death benefit is $300,000. I'd love to hear reasons why this wasn't a good purchase for her and/or reasons why we should put the money elsewhere if this is a bad product.My problem with VA’s is how do we know your (and my) GMIB/Db will be there for our clients in 5/10/20 years? I have no confidence in insurance companies today.
no confidence in wall street either. you can’t win.
My problem with VA’s is how do we know your (and my) GMIB/Db will be there for our clients in 5/10/20 years? I have no confidence in insurance companies today.
I agree with you. I've always been one that has believed that company strength matters. Companies are in business to make money for their owners. Their owners are usually the stock holders. Stock holders demand profit now. "Profit now" leads to too much risk taking. If you read some older posts of mine, you'll see that I've argued that the living benefits have probably been underpriced. It's not a coincidence that the top mutual companies are financially stronger companies than the stock companies. My VA business is with a top mutual company with great ratings. Companies like Northwestern Mutual, New York Life, and MassMutual are not only as strong as any insurance company in the country, but they are probably financially as strong or stronger than virtually any company in any industry in the country. If they can't pay claims, this country is finished.[quote=Borker Boy]
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG. If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.[/quote] Can someone please give me the advantage of owning mutual funds inside a wrap account? Paying 1-1.5% for nothing doesn't make sense to me[quote=Vin Diesel][quote=Borker Boy]
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG. If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.[/quote] Can someone please give me the advantage of owning mutual funds inside a wrap account? Paying 1-1.5% for nothing doesn't make sense to me[/quote]Yeah, no loads. You can access cheaper institutional funds. You also get another manager who can "hire/fire" underperforming fund managers.
I agree with Anon. I think that no insurance company will let another one go under. It’s bad for the industry in general. The US gov’t. just beat others to bailing out AIG. Troubled Hartford got capital infusion from Allianz a few weeks ago. Other insurance companies will honor a failing insurer’s promise. They have a fraternal relationship unlike banks, who aren’t even trusting each other right now. Besides, they should have enough cash reserves to honor their promises. It’s pretty much the stock holders who lose if and when an insurer tanks.
Wait a second. I think that the insurance companies will let each other go under. The just won't let the death claims go unpaid.
[quote=Vin Diesel][quote=Borker Boy]
"If they can't pay claims, this country is finished." That's quite the sales pitch and I'm sure it has been very effective for you in selling VAs; however, we almost saw an insurance company that couldn't pay its claims--the largest insurance company in the world, AIG. If a person buys a VA and the company goes under, the sub accounts are safe, but the guarantees may go down the drain. Then you're just a proud owner of some very expensive mutual funds.[/quote] Can someone please give me the advantage of owning mutual funds inside a wrap account? Paying 1-1.5% for nothing doesn't make sense to me[/quote] You are right, if you get nothing but mutual fund ownership, the fee doesn't make any sense. Although, there is a bit more involved.And if all you get is a bunch of torched mutual funds when you bought a 5 or 6% GMIB for a conservative client, watch out. I am told by our home office that the 7 year fixed annuity from Met is selling like hotcakes. What happens if Met (or whoever) goes under with a fixed? One would think there is less to guarantee.
Yeah the 5 year on met is 5.8% fixed. It’s crazy. They must have bought some dirt cheap bonds to back those.
Well you figure it would cost them 15% (give or take) to raise money in the debt markets now so paying 5-6% on what amounts to a CD is cheap for them . At the end of the day (what a lovely saying by the way), nobody has a clue how this all going to shake out. Uncle Warren seemed pretty confident buying stocks with his Treasury bond money over the last week so that is reassuring.
[quote=Gordon Gekko]
Well you figure it would cost them 15% (give or take) to raise money in the debt markets now so paying 5-6% on what amounts to a CD is cheap for them . At the end of the day (what a lovely saying by the way), nobody has a clue how this all going to shake out. Uncle Warren seemed pretty confident buying stocks with his Treasury bond money over the last week so that is reassuring.
[/quote] Anyone figure he's probably been buying for quite a while now? If I had that kind of clout with the markets, I'd do a ton of buying and then announce that I was getting ready to buy.I have to agree with Borker on Warren. He has been very selective in his purchases, but he has been buying more and more stocks as the market continues to tumble. To him, this is heaven on wall street. Great companies at big discounts.
Unkey Warren admitted that he was buying up until the rally yesterday afternoon. Think about it, who in your (or my book) was smart enough to be 100% Treasuries for the last 6 years and NOW pull those funds to buy stock? I don't have any!
Warren would win the Presidential election if he entered. Why doesn’t he?
Oh yeah, it's a thankless job...Anyone here think now that stock brokers may be on the rise again as more people try to mimic Warren Buffet? I mean, with mutual funds, you don’t know what holdings they have. With stocks, you get to pick the companies - at a bargain right now - and actually see how each are doing.
I don’t think stock brokers are coming back – but for clients who need large cap stocks in their portfolio, I think a mix of 10 to 20 blue chips would be better for them than a mutual fund.
One thing I"ve noticed in the crash is that my stock holders feel better than the mutual fund holders.
Unless they owned WM, LEH, BSC, FNM, FRE…
[quote=Vin Diesel]
given the terrible market conditions - im so happy my mutual fund clients are in VA's with guarantees.
i couldn't imagine having clients in wrap accounts that are down big for the quarter, then hitting them with a wrap fee. while VA's get a lot of negative press; they are looking good now [/quote] Not really, they'll see at the year-end statement their income riders fees just went up 20%-30%.If the client owns a GMAB, why would they care? They know the worst case senario is they get their money back.
CV, you are a broken record. If you have something to add to the VA discussion besides 'high fees', then by all means, let us know. Otherwise, what would you recommend these days? FWIW, I doubt you have clients. But please correct me if I'm wrong.
He’s an internal wholesaler for a VA company!
So... which company is it that's raising their rider fees? Care to share what YOUR company seems to be doing? Hmmm?[quote=Ominous]He’s an internal wholesaler for a VA company!
So... which company is it that's raising their rider fees? Care to share what YOUR company seems to be doing? Hmmm?[/quote] If you have an income rider, the expense is calculated on the rider, not the account value. Example. .50% GMIB. $100m started a year ago (since VA guys love to use the worst possible scenario), account value today $60m, GMIB based on $100m plus 6% step up so $106m= $503 divided by $60m account value=.84%. Since VA guys love talking about equity armegeddon, imagine what % the fees will represent if equities continue to fall. They will put the VA in a position of having such a fee anchor on it, it may never come back. This is assuming that the VA company does not raise it's fees, which of course they can do at any time.Bravo, Primo. I'm always entertained by the armegeddon scenarios the VA wholesalers contrive.
Someone please tell me about the GMAB. I've seen a few people mention that they prefer it over the GMIB. I've yet to hear about it at Jones.
GMAB = Guaranteed Minimum Asset Balance
It's typically the CHEAPEST rider with just a "return of original premium" option. If your account lost principle value over 10 years, you get all your original investment back. Metlife and MassMutual have similar variations of it. I think Pac Life has a GMAB rider too. Allianz has one that's a little different in their "High 5" VA (but watch out on how they allocate the portfolio - they sell low and buy high systematically). Since it's not one of the sexy income riders, that's probably why you haven't heard of it from your wholesalers.If the client owns a GMAB, why would they care? They know the worst case senario is they get their money back.
They should care if the cost of the rider goes up. It's true that their worst case scenario remains the same, but every other scenario gets worse if the price of the rider increases. GMAB is a Guaranteed Minimum Accumulation Benefit. I like it because it's honest. It is a one day guarantee. Ex. Joe invests $100,000 into a VA with a 10 year GMAB on January 1, 2008. On January 1, 2018, Joe is guaranteed to have $100,000, so the insurance company will make up any shortfall. There is no guarantee on December 31, 2017. There is no guaranatee January 2, 2018. I sometimes use a 20 year GMAB. It works the same way, but the value is guaranteed to double. Joe would be guaranteed to have $200,000 on January 1, 2028.I love how people take what the media feeds them and assume it's true. In the midst of this bailout frenzy HIG went way down. Allianz, with a wad of cash in their pocket, sees that, knows that Hartford is a great buy at the price and does so. It wasn't a "capital infusion", it was a company making a big play on another. Similar to Buffet buying GS or GE. I agree with the original poster, only to the extent that I can have the conversation with my VA with income rider clients that even though the downturn is hurting their account value, their income is perfectly safe. The downside is that it's going to take a while before there are any market step ups in those products. And if they start taking income right now, we increase the possibilities of actually running out of contract value. Not a big deal for their income stream, but they're certainly not going to like it.I agree with Anon. I think that no insurance company will let another one go under. It’s bad for the industry in general. The US gov’t. just beat others to bailing out AIG. Troubled Hartford got capital infusion from Allianz a few weeks ago. Other insurance companies will honor a failing insurer’s promise. They have a fraternal relationship unlike banks, who aren’t even trusting each other right now. Besides, they should have enough cash reserves to honor their promises. It’s pretty much the stock holders who lose if and when an insurer tanks.
Yes. My VA clients are mostly IRAs and 401K rollover accounts with at least 7 to 10 years to being 501/2 and able to withdraw. This is long term money that they are not planning to take large lump sums from. The intention of these accounts is to have a supplimental income stream at retirement.
I called all of them and discussed their statements and account values which are down dramatically to mildly from inception depending on how long ago we invested. This was a perfect time to remind them about the GRIB 7% annual step up on the income pool. The product is doing what we intended it to do. Protect the client's future income stream despite a down market.Do we want the actual value of the product to be MORE than the income pool? Of course. And given that these people have many years to go before they are ready to withdraw, that may happen. However, if it doesn't happen that we are able to recover, they will have an income stream. GMAB didn't exist on the product I use, when these contracts were issued.
[quote=babbling looney]Yes. My VA clients are mostly IRAs and 401K rollover accounts with at least 7 to 10 years to being 501/2 and able to withdraw. This is long term money that they are not planning to take large lump sums from. The intention of these accounts is to have a supplimental income stream at retirement.
I called all of them and discussed their statements and account values which are down dramatically to mildly from inception depending on how long ago we invested. This was a perfect time to remind them about the GRIB 7% annual step up on the income pool. The product is doing what we intended it to do. Protect the client's future income stream despite a down market.Do we want the actual value of the product to be MORE than the income pool? Of course. And given that these people have many years to go before they are ready to withdraw, that may happen. However, if it doesn't happen that we are able to recover, they will have an income stream. Exactly! and thats my point. isn't this a better client conversation to have than...mr. client you're down X% and there is going to X$'s for your quarterly fee, but don't worry the market will come back. I love having and showing those VA guarantees GMAB didn't exist on the product I use, when these contracts were issued. [/quote]
[quote=Vin Diesel][quote=babbling looney]Yes. My VA clients are mostly IRAs and 401K rollover accounts with at least 7 to 10 years to being 501/2 and able to withdraw. This is long term money that they are not planning to take large lump sums from. The intention of these accounts is to have a supplimental income stream at retirement.
I called all of them and discussed their statements and account values which are down dramatically to mildly from inception depending on how long ago we invested. This was a perfect time to remind them about the GRIB 7% annual step up on the income pool. The product is doing what we intended it to do. Protect the client's future income stream despite a down market.Do we want the actual value of the product to be MORE than the income pool? Of course. And given that these people have many years to go before they are ready to withdraw, that may happen. However, if it doesn't happen that we are able to recover, they will have an income stream. Exactly! and thats my point. isn't this a better client conversation to have than...mr. client you're down X% and there is going to X$'s for your quarterly fee, but don't worry the market will come back. I love having and showing those VA guarantees GMAB didn't exist on the product I use, when these contracts were issued. [/quote] [/quote] Yes, as long as the damn insurance company stays in business. Seeing the news on ING wasn't too heartwarming...but it will probably be better that way.
[quote=Ominous]GMAB = Guaranteed Minimum Asset Balance
It's typically the CHEAPEST rider with just a "return of original premium" option. If your account lost principle value over 10 years, you get all your original investment back. Metlife and MassMutual have similar variations of it. I think Pac Life has a GMAB rider too. Allianz has one that's a little different in their "High 5" VA (but watch out on how they allocate the portfolio - they sell low and buy high systematically). Since it's not one of the sexy income riders, that's probably why you haven't heard of it from your wholesalers.[/quote]Some GMIB's have this feature. On Metlife's GMIB Plus rider, the client gets the principal back if the account value is lower than the net investments (within first 120 days only) on the 10th year. So, the client chooses the to receive income or have the principal restored and cashed out on year 10. It's not so good for retirement accounts where additional contributions are made after 120 days of contract effectivity, because these subsequent investments do not get added to the principal base that would be restored. Another downside is the cost of the GMIB Plus rider, which is 80 bps. I believe.
Gotta side with Vin and company. Right now these annuites are looking pretty damn smart. With the market’s performance having a safety net, even an expensive one, is money well spent in the eyes of many people.
As long as the guarantees are understood and the expenses fully disclosed there is no reason not to like these annuities for the plus 50 crowd. As for the companies staying in biz, most are now going beyond standard disclosure to show their exposure to the current situation and are restating their superior financial strength. For example a Hancock wholesaler dropped by with some info showing that their total exposure to high risk debt is 4/10 of a percent. I think Hancock can survive a 4bp hit. Most likely the same story for most top end insurers.Right now these annuites are looking pretty damn smart. With the market’s performance having a safety net, even an expensive one, is money well spent in the eyes of many people.
There's nothing like being able to sleep at night. Still, a year or two or ten down the road, it will be interesting to see how these contracts pan out in terms of total return. Insurers don't go out of business, they just get bought or they could just stand in line behind all of the other social guarantees that Americans will be paying for (forever). I guess that's why some folks are pulling their money out, and buying land, sheep and guns and such.I am relooking at Hancock as they are one of the few AAA rated insurers in our system. Do they have a GMIB+ similar to Met Life? I am familar with Met’s, that is why I ask.
I have a bunch of Hancock contracts who by the way recently had their AAA rating verified. They do have a GMIB in “Principal Plus” benefit which cost 40-60 bps I think.
Only for high tax bracket, taxable accounts why not buy a 10 year AAA muni. Net after tax return over 6%, and money is guaranteed, net out the door. Plus client has the ability to take any of it, not some 5% speed limit for life.
Although this strategy doesn't pay brokers as well and not available at most banks so probably off the radar.[quote=Gordon Gekko]I am relooking at Hancock as they are one of the few AAA rated insurers in our system. Do they have a GMIB+ similar to Met Life? I am familar with Met’s, that is why I ask. [/quote]
Yes, JH does have a GMIB.
My VA clients are mostly happy but I’ve found it’s important to stay in touch with them and ensure they understand the difference between the account value they’re seeing on their statements and the guaranteed GMIB of the VA’s.
I am finding that clients are even more skiddish of the VA's with the recent bailout talk. Most likely they will be ok but locking someone into a 4-7 year product doesn't really appeal to me right now.
[quote=GoingIndy???]
Only for high tax bracket, taxable accounts why not buy a 10 year AAA muni. Net after tax return over 6%, and money is guaranteed, net out the door. Plus client has the ability to take any of it, not some 5% speed limit for life.
Although this strategy doesn't pay brokers as well and not available at most banks so probably off the radar. [/quote] Tax free bonds and tax free zeros could provide solutions to the majority of people who are being sold EIAs and other fixed annuity products for their non-qualified money. Unfortunately, for the investors, the YTB is far too low in tax free investments to entice the annuity slingers to do the right thing.[quote=Borker Boy][quote=GoingIndy???]
Only for high tax bracket, taxable accounts why not buy a 10 year AAA muni. Net after tax return over 6%, and money is guaranteed, net out the door. Plus client has the ability to take any of it, not some 5% speed limit for life.
Although this strategy doesn't pay brokers as well and not available at most banks so probably off the radar. [/quote] Tax free bonds and tax free zeros could provide solutions to the majority of people who are being sold EIAs and other fixed annuity products for their non-qualified money. Unfortunately, for the investors, the YTB is far too low in tax free investments to entice the annuity slingers to do the right thing.[/quote] what about qualified accounts, do you use tax free bonds?Absolutely. Tax free bonds in qualified accounts provide quintuple tax deferral.
I’ve actually come across an IRA account that had tax free Maryland fund in it. The guy never lived there.
Honestly, because you might have a clue how they work and you sell your client on a “6% guarantee” or whatever rider is hot these days. In actuality, your client has no clue what they own. They think they own something better than a CD when it’s nothing close to a CD.
You are going the path of least resistance/highest yield-to-broker. That's how it can be, IMHO.Would it have made a difference if the client had lived in MD?I’ve actually come across an IRA account that had tax free Maryland fund in it. The guy never lived there.
What the market giveth with one hand, it takes away with the other. While you may be enjoying yourself, have you considered that all the VA's you sold during the bull cannot be 1035'd ethically because they are so far under the DB? Had a prospect the other day tell me they were also talking to the local annuity pimp, said that they got the full court press on the gaurantee. I asked them if this was an insurance policy or an investment. They said an investment. I asked how much the investment part was talked about. It wasn't. I asked when they bought their house, did they make the decision based on the house or the available insurance. ACAT signed.You know what’s funny? You guys find all sorts of things wrong with VA’s and I keep selling them like hotcakes. How can that be? If you don’t have the courage to sell them, go sell your little, cheap unprotected mf’s and stock accounts.
Boy, that’s a dishonest comparison, Primo. That’s pretty shocking.
Really, an annuity is not an investment vehicle? Let me reconsider my life. Done. It is an investment vehicle, yet is sold on a singular feature, the insurance. It is kind of like selling Vanguard funds based on the expense ratio, without taking into account the investment.
Does insurance have it's place. Absolutely. Are annuities appropriate for some investors? Absolutely. Are annuities sold to many people based strictly on fear and emotion. Absolutely. Are we supposed to prevent clients from making emotional decisions, as emotional decisions are often the wrong decisions? Absolutely. Act accordingly. How do you find my analogy dishonest?[quote=Primo]Really, an annuity is not an investment vehicle? Let me reconsider my life. Done. It is an investment vehicle, yet is sold on a singular feature, the insurance. It is kind of like selling Vanguard funds based on the expense ratio, without taking into account the investment.
Not once did i say a VA is not an investment vehicle. So cut the snarky crap. VA's are sold based on the insurance it provides. Shocking. That normally happens when discussing AN INSURANCE CONTRACT. And yet, when I've sold VAs, we've also discussed the investment options within said contract. Actually, I don't know how you would be able to sell a VA without at least touching on the subaccounts. Do you? Does insurance have it's place. Absolutely. Are annuities appropriate for some investors? Absolutely. Are annuities sold to many people based strictly on fear and emotion. Absolutely. Are we supposed to prevent clients from making emotional decisions, as emotional decisions are often the wrong decisions? Absolutely. Part of our role is to help clients avoid making bad decisions when their emotions are getting in the way. Another part of our job is to appeal to a client's emotions when logically there is a sound financial decision that should be implemented. If you don't think people can make good decisions based on emotions, you're sorely mistaken. Act accordingly. How do you find my analogy dishonest?[/quote] Primo, your analogy is flawed. By your logic, the insurance behind the VA doesn't amount to anything. That it shouldn't be the primary reason to buy a VA. If the insurance isn't a key component of buying a VA, don't buy the VA. You may be better off investing in some other vehicle. Of course people buy the house first instead of the homeowner's insurance. Tell me, though. How many of your clients don't carry homeowner's insurance?[quote=deekay][quote=Primo]Really, an annuity is not an investment vehicle? Let me reconsider my life. Done. It is an investment vehicle, yet is sold on a singular feature, the insurance. It is kind of like selling Vanguard funds based on the expense ratio, without taking into account the investment.
Not once did i say a VA is not an investment vehicle. So cut the snarky crap. VA's are sold based on the insurance it provides. Shocking. That normally happens when discussing AN INSURANCE CONTRACT. And yet, when I've sold VAs, we've also discussed the investment options within said contract. Actually, I don't know how you would be able to sell a VA without at least touching on the subaccounts. Do you? Does insurance have it's place. Absolutely. Are annuities appropriate for some investors? Absolutely. Are annuities sold to many people based strictly on fear and emotion. Absolutely. Are we supposed to prevent clients from making emotional decisions, as emotional decisions are often the wrong decisions? Absolutely. Part of our role is to help clients avoid making bad decisions when their emotions are getting in the way. Another part of our job is to appeal to a client's emotions when logically there is a sound financial decision that should be implemented. If you don't think people can make good decisions based on emotions, you're sorely mistaken. Act accordingly. How do you find my analogy dishonest?[/quote] Primo, your analogy is flawed. By your logic, the insurance behind the VA doesn't amount to anything. That it shouldn't be the primary reason to buy a VA. If the insurance isn't a key component of buying a VA, don't buy the VA. You may be better off investing in some other vehicle. Of course people buy the house first instead of the homeowner's insurance. Tell me, though. How many of your clients don't carry homeowner's insurance?[/quote] I agree that the investment/subaccounts are a very important part of the discussion. I couldn't imagine presenting a VA without talking about the mutual funds inside...in fact that is usually as big of a benefit as the guarantees.[quote=SonnyClips] [quote=Primo] [quote=SonnyClips]You know what’s funny? You guys find all sorts of things wrong with VA’s and I keep selling them like hotcakes. How can that be? If you don’t have the courage to sell them, go sell your little, cheap unprotected mf’s and stock accounts. [/quote]
What the market giveth with one hand, it takes away with the other. While you may be enjoying yourself, have you considered that all the VA's you sold during the bull cannot be 1035'd ethically because they are so far under the DB?
Had a prospect the other day tell me they were also talking to the local annuity pimp, said that they got the full court press on the gaurantee. I asked them if this was an insurance policy or an investment. They said an investment. I asked how much the investment part was talked about. It wasn't. I asked when they bought their house, did they make the decision based on the house or the available insurance. ACAT signed.[/quote]
Sooooo.....what did you recommend that they do with their money? Be specific, please.[/quote] Avoid Bobby Hull, and specifically EIA's.
[quote=deekay][quote=Primo]Really, an annuity is not an investment vehicle? Let me reconsider my life. Done. It is an investment vehicle, yet is sold on a singular feature, the insurance. It is kind of like selling Vanguard funds based on the expense ratio, without taking into account the investment.
Not once did i say a VA is not an investment vehicle. So cut the snarky crap. VA's are sold based on the insurance it provides. Shocking. That normally happens when discussing AN INSURANCE CONTRACT. And yet, when I've sold VAs, we've also discussed the investment options within said contract. Actually, I don't know how you would be able to sell a VA without at least touching on the subaccounts. Do you? Does insurance have it's place. Absolutely. Are annuities appropriate for some investors? Absolutely. Are annuities sold to many people based strictly on fear and emotion. Absolutely. Are we supposed to prevent clients from making emotional decisions, as emotional decisions are often the wrong decisions? Absolutely. Part of our role is to help clients avoid making bad decisions when their emotions are getting in the way. Another part of our job is to appeal to a client's emotions when logically there is a sound financial decision that should be implemented. If you don't think people can make good decisions based on emotions, you're sorely mistaken. Act accordingly. How do you find my analogy dishonest?[/quote] Primo, your analogy is flawed. By your logic, the insurance behind the VA doesn't amount to anything. That it shouldn't be the primary reason to buy a VA. If the insurance isn't a key component of buying a VA, don't buy the VA. You may be better off investing in some other vehicle. Of course people buy the house first instead of the homeowner's insurance. Tell me, though. How many of your clients don't carry homeowner's insurance?[/quote] Flawed is a far cry from dishonest. I do not sell annuities as accumulation vehicles. I use them as distribution vehicles. I do not feel the insurance is worth the cost during the accumulation phase. That is simply how I do business. Prospect that came in was still in the accumulation phase. The other broker talked solely about the gaurantees of the contract he was trying to sell. VA's are investment vehicles with insurance overlayed, not the other way around in my opinion. The other broker preyed on fear and emotion to close a deal, I didn't and got the deal. I am failing to see how this is offensive to you.“I do not sell annuities as accumulation vehicles. I use them as distribution vehicles. I do not feel the insurance is worth the cost during the accumulation phase.”
Can you elaborate, please. I'm asking because I think that VA's make great accumulation vehicles (in the right circumstances and the insurance is absolutely worth it in these circumstances), but lousy distribution vehicles.I do not like annuities for accumulation vehicles for two reasons:
1. The investment choices do not allow me the flexibility to do what I do. Not going to go into that again, it is posted already. 2. I feel the cost of the insurance is prohibitive, and to this point, I have been able to deliver results to my clients where the insurance would not come into play. For the distribution phase, I typically use VA's with a GMIB to cover necessary expenses while giving the client a shot at outpacing inflation, limiting the risk of losing a certain lifestyle.Thanks, Primo. In my opinion, the insurance doesn’t have to come into play to have value.
I sell lots of term insurance. I've never paid a death claim on a term policy, therefore, it has no value. Obviousy, that is nonsense. I think that the same thing can be said for the guarantees on a VA. Someone doesn't have to collect on the guarantee for it to have value. It has to simpy impact the behavior of the investor. Earlier this year, a client of mine died. She was risk averse, but needed growth to achieve her goals. We invested the bulk of her money in a VA in an aggressive manner. Outside of the VA, we woud have had to invest in a more conservative manner. The guarantees of the VA ended up meaning that her beneficiaries received over $100,000 more than they otherwise woud have received. Yet, the guarantee never kicked in because it was lower than the contract value. The simple act of having the guarantee impacted the investor in a positive manner. The cost of insurance during accumulation is certainly a drag on performance, but it's not prohibitive if it impacts investor performance. On the other hand, during distribution, I believe that it is prohibitive. Ex. Client has $100,000 and has a 6% GMIB. The insurance company charges .85% for this rider. The client takes $6000 out of the market. The investments go down 25%. The client still has a GMIB value of $100,000. The value of the contract is now $69,000. The cost of the GMIB rider is now 1.23% because it's still the same $850. If someone is trying to take 6% out of an investment that has costs in the neighborhood of 3%, the great likelihood is that the contract value will decrease. With GMIB when the contract value decreases the expense ratio increases which further increases the odds that the contract value will decrease. The reality is that there is a very real chance that the contract value will hit zero. If the client is older, a SPIA will probably give them more income. If the client is younger, buying CD's for a few years and living off of that interest and then annuitizing will probably give them more income. The expenses of the VA make them inappropriate income vehicles.[quote=anonymous]Thanks, Primo. In my opinion, the insurance doesn’t have to come into play to have value. I agree completely.
I sell lots of term insurance. I've never paid a death claim on a term policy, therefore, it has no value. Obviousy, that is nonsense. I think that the same thing can be said for the guarantees on a VA. Someone doesn't have to collect on the guarantee for it to have value. It has to simpy impact the behavior of the investor. Again we agree, I have been successful in most instances impacting client behaviour through other means without insurance. Therefore the insurance is unnecessary for most of my clients in the accumulation phase. Earlier this year, a client of mine died. She was risk averse, but needed growth to achieve her goals. We invested the bulk of her money in a VA in an aggressive manner. I work in a wirehouse, this is not allowed. Subaccounts must match the risk tolerence of the investor. I can't say that I disagree with this policy. Outside of the VA, we woud have had to invest in a more conservative manner. The guarantees of the VA ended up meaning that her beneficiaries received over $100,000 more than they otherwise woud have received. I think it is great that you achieved a positive results for your client. I can give you many similar stories. I think we use different tools to achieve these results. Yet, the guarantee never kicked in because it was lower than the contract value. The simple act of having the guarantee impacted the investor in a positive manner. The cost of insurance during accumulation is certainly a drag on performance, but it's not prohibitive if it impacts investor performance. Again I agree, but if you can impact performance without the insurance, it certainly is better for the client, yes? On the other hand, during distribution, I believe that it is prohibitive. Ex. Client has $100,000 and has a 6% GMIB. The insurance company charges .85% for this rider. The client takes $6000 out of the market. The investments go down 25%. The client still has a GMIB value of $100,000. The value of the contract is now $69,000. The cost of the GMIB rider is now 1.23% because it's still the same $850. If someone is trying to take 6% out of an investment that has costs in the neighborhood of 3%, the great likelihood is that the contract value will decrease. With GMIB when the contract value decreases the expense ratio increases which further increases the odds that the contract value will decrease. The reality is that there is a very real chance that the contract value will hit zero. This is all true. Client has $1mm. Monthly expenses of $2m. I put $400m into a VA with a GMIB. Tell the client, this money is gone, it is put away to cover basic expenses for the rest of their life. Take the remaining $600m and put into whatever the clients risk tolerance dictates. If the VA does poorly and the account value drops too low, we can take from the $600m. If an unexpected expense comes up, we can take from the $600m. So on and so forth. Point is, markets don't always go down. There is an opportunity for the VA to increase, and leave a death benefit. If the client is older, a SPIA will probably give them more income. If the client is younger, buying CD's for a few years and living off of that interest and then annuitizing will probably give them more income. I abhor annuitizing, although I am aware VA's with a GMIB will likely be annuitized. The expenses of the VA make them inappropriate income vehicles. In this case, the client not having to worry about the known (as know as they can be) expenses makes the cost worth it to me. [/quote]“I work in a wirehouse, this is not allowed. Subaccounts must match the risk tolerence of the investor. I can’t say that I disagree with this policy.”
This explains a lot because it forces your hand. If I had to follow this rule, I also would not use VA's for accumulation. It's much tougher for a VA to influence investor behavior if a conservative investor still has to invest in a conservative manner. The major value to me of the guarantee is the ability for someone to invest above their tolerance for risk because the guarantee takes away a large portion of the risk. Here's a typical example of how I might use a VA. The client has an existing IRA or old retirement account. In order to achieve their retirement goal, they need an 8% return for the next 10 years. Their tolerance for risk is low. What are our choices in this scenario? 1) Invest according to their risk tolerance. 2) Invest above their risk tolerance. 3)Invest above their risk tolerance but have a guarantee. 4) Tell them that they can't achieve their goal. Results: 1) Choice 1: They'll be guaranteed to not achieve their goal. 2) Choice 2: Probably can't get the sale through compliance. If we do, we need to be prepared to be sued. If the market goes down, they will sell and be in a worse position than putting the money in their matress. 3) Choice 3: If the market does really well, they will achieve their goal. If the market doesn't do well, they won't achieve it. However, the guarantee should make the sale suitable (except with your BD). If the market goes down, they won't get out because of the guarantee. No matter how bad things get, they know the worst case scenario. 4) Without investing aggressive, it sure seems like this is what has to be done along with choice #1. Primo, how specifically do you deal with a conservative client who can't reach their goal by investing in a conservative manner? Why do you abhor annuitization? It's not always appropriate, but a guaranteed stream of income makes sense in lots of situations (using competetive SPIA rates and not the BS rates that are used in the VA contracts).I sent you a PM.
If you sold VA's with Income or Accumulation Riders in the last 2 years, You are looking like a Hero!
[quote=Vin Diesel]
If you sold VA's with Income or Accumulation Riders in the last 2 years, You are looking like a Hero!
[/quote] Agreed. I just hope my annuity carriers will be able to pay the claims.[quote=Vin Diesel]
If you sold VA's with Income or Accumulation Riders in the last 2 years, You are looking like a Hero!
[/quote] Unless they have a need for liquidity or their insurance carrier goes under. Allstate just fired their entire VA sales force and is no longer offering them.yes, but allstate is still around and honoring existing contracts. in fact , aig is still around.
all im saying is clients recieving statements that show *guaranteed value* are much happier than wrap account clients with NO Guarantees and Fully Transparent FeesSource URL:https://www.wealthmanagement.com/forums/clients/arent-you-glad-you-placed-your-clients-vas