401K's

Jun 9, 2007 4:39 am

Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?

Jun 9, 2007 4:40 am

I’m not sure if I understand the question…what do you want to know?

Jun 9, 2007 4:48 am

Couple of things:



1 - Is a non-hardship, inservice withdrawal available? If so, it often makes sense to self-manage it.



2 - If not available, I include it in any overall allocation plan trying to pick the best asset classes in the 401k, and building around it.



I want to be the ‘money guy’ for my clients and feel it’s important to take into account what will eventually be 60 - 80% of their financial assets at retiremet even if I can’t currently get paid on it.

Jun 9, 2007 4:55 am

Ashland, Do you put 401(k) recommendations in writing?

Jun 9, 2007 12:37 pm

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]

You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

Jun 9, 2007 12:43 pm
anonymous:

Ashland, Do you put 401(k) recommendations in writing?



Yes, I use Principia for most recommendations.
Jun 9, 2007 3:32 pm

[quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]



You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

[/quote]



Bobby I do and I know you’re jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is “debating”, had I not given her advice she wouldn’t of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%
Jun 9, 2007 3:44 pm

[quote=bankrep1] [quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]


You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

[/quote]

Bobby I do and I know you're jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%[/quote]

Show her how to make a large portion of the 401k tax free.  Right now the entire 401k balance is taxable.  You have to provide a workable suggestion for her to access the funds largely tax free.  In addition you must educate her of the benefits of doing this on HER schedule as opposed to waiting until 70 1/2 and letting the government tel her how to do it.

If she waits until 70 1/2 her RMD will force her to completely liquidate everything whether she wants to or not.  As such, it is in her best interest to employ a strategy that will either:

1)  Make 90% of her 401k completely tax free (immediately).

2)  Make a large portion of her 401k tax free while employing a partial Roth conversion strategy that will grow back the entire principal amount tax free.

These methods are out there.  You must simply educate yourself on how to construct these plans.

Jun 9, 2007 3:53 pm

[quote=bankrep1] [quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]


You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

[/quote]

Bobby I do and I know you're jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%[/quote]

Thanks for the silly, predictable explanation. Just what I predicted.

Jun 9, 2007 4:39 pm

My question is how long can she keep the money in the 401K?  Some firms allow you to stay there indefinitely, others have a drop dead time for the client to move the money.  You might want to clarify that with her.

Jun 9, 2007 4:41 pm

I asked for the rollover and she is “debating”, had I not given her advice she wouldn’t of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%



How are you adding value? What is the fee for? What does it give her that she wouldn’t have otherwise? If it’s because your sub-advisor gets to pick the best mutual funds for the changing times it’s probably not enough. If it’s because you do retirement, income, and estate planning then you have the rollover.

Jun 9, 2007 6:13 pm

I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25% "

Really??? That 401K company must be philanthropic at heart- to provide such a service for FREE !!!

Jun 9, 2007 6:48 pm

Ashland, are you legally allowed to give recommendations on her 401(k)?

Jun 9, 2007 7:09 pm

[quote=Ashland] I asked for the rollover and she is “debating”, had I not given her advice she wouldn’t of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%



How are you adding value? What is the fee for? What does it give her that she wouldn’t have otherwise? If it’s because your sub-advisor gets to pick the best mutual funds for the changing times it’s probably not enough. If it’s because you do retirement, income, and estate planning then you have the rollover.[/quote]



Ashland I do comprehensive planning. The thing is I think she expects me to continue to counsel her since I have her other money. She is not forced to leave the paln.



Blarm, my fees will cost more than the 401K’s management fees because there is simply more valued added from the planning side.

Jun 9, 2007 7:59 pm

[quote=bankrep1] [quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]


You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

[/quote]

Bobby I do and I know you're jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%[/quote]

WTF do you mean there are NO FEES in a 401k???

There are fees in EVERY investment.  Typical 401k fees are about 2% per year. 

Study this and learn something young padawan learner.  And get a mentor who can help you learn how to attract more rollover assets.

Jun 9, 2007 8:00 pm

[quote=bankrep1] [quote=Ashland] I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%

How are you adding value? What is the fee for? What does it give her that she wouldn't have otherwise? If it's because your sub-advisor gets to pick the best mutual funds for the changing times it's probably not enough. If it's because you do retirement, income, and estate planning then you have the rollover.[/quote]

Ashland I do comprehensive planning. The thing is I think she expects me to continue to counsel her since I have her other money. She is not forced to leave the paln.

Blarm, my fees will cost more than the 401K's management fees because there is simply more valued added from the planning side.[/quote]

I don't see the value you add if you don't know that 401k plans charge fees.

Read The Wedge.  Learn how to sell yourself.

Jun 9, 2007 8:04 pm

[quote=skippy] [quote=bankrep1] [quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]



You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.



[/quote] Bobby I do and I know you’re jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is “debating”, had I not given her advice she wouldn’t of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%[/quote]



WTF do you mean there are NO FEES in a 401k???



There are fees in EVERY investment. Typical 401k fees are about 2% per year.



Study this and learn something young padawan learner. And get a mentor who can help you learn how to attract more rollover assets.

[/quote]



I believe you are misguided by my post I understand Mutual fund expenses and the SAI. I refuse tocompete on what is has lowest cost, that is a loser’s battle.
Jun 9, 2007 8:04 pm
anonymous:

Ashland, are you legally allowed to give recommendations on her 401(k)?



Am I legally prohibited to do so?
Jun 9, 2007 8:05 pm

What value are you giving her?

Are you illegally giving her investment advice on her 401(k)?

My clients always move their 401(k) money to me.  More to the point, it always gets done before we talk about specific investments or fees.  How do I do this?  I talk about all of the advantages of an IRA and a Roth IRA over a 401(k).  If they understand this, you can get them to rollover the money to a money market account inside of the IRA with the promise to talk specific investments once the money is transferred.  Can you put together a long list of reasons why she would be better off in an IRA/Roth IRA instead of a 401(k)?

Jun 9, 2007 8:07 pm

Am I legally prohibited to do so?

I don't know your business setup, but the answer is probably "yes".

Jun 9, 2007 8:13 pm

I refuse to compete on what is has lowest cost, that is a loser’s battle. [/quote]



Yeah, you’re worth more than the $2000/yr to the grid that you’re getting paid for on this one, and you know it… How do you help her see that?



I’m sure that I’ll be dealing w/ this is a couple of years myself. I’d love to know the outcome.

Jun 9, 2007 8:18 pm

[quote=anonymous]

Am I legally prohibited to do so?



I don’t know your business setup, but the answer is probably “yes”.

[/quote]



How do you handle this, anon?
Jun 9, 2007 8:27 pm

401(k) conversations are never documented.  401(k) recommendations are never in writing. 

Jun 9, 2007 8:33 pm
anonymous:

401(k) conversations are never documented. 401(k) recommendations are never in writing.



Well, letter of caution & notice of fine here I come!
Jun 9, 2007 8:39 pm

[quote=anonymous]

What value are you giving her?



Are you illegally giving her investment advice on her 401(k)?



My clients always move their 401(k) money to me. More to the point, it always gets done before we talk about specific investments or fees. How do I do this? I talk about all of the advantages of an IRA and a Roth IRA over a 401(k). If they understand this, you can get them to rollover the money to a money market account inside of the IRA with the promise to talk specific investments once the money is transferred. Can you put together a long list of reasons why she would be better off in an IRA/Roth IRA instead of a 401(k)?

[/quote]



SHe is not a new prospect she is a current client. I am not getting the answers I thought I would get so I am going to drop this thread and seek advice elsewhere.
Jun 9, 2007 9:01 pm

[quote=Ashland] [quote=anonymous] Ashland, are you legally allowed to give recommendations on her 401(k)?[/quote]

Am I legally prohibited to do so?[/quote]

Yes. Unless you have a series 66/65 and are affiliated with a RIA you are just a broker representative and are not allowed to give financial planning advice that isn't associated with an investment that you are offering.   Counseling someone on how to allocate their 401K when you are not the rep is not legal.

Jun 9, 2007 9:02 pm

Read my post again.  I gave you great advice.  They client has to see the benefit to moving the money.  All that you need to do is get them to see the advantages of an IRA/Roth IRA over the 401(k).  

The fact that she is a current client is what makes this so easy.  If she wasn't a current client, you would have to get her to understand the reasons for working with you and you might have to talk more specifically about investments. 

Jun 9, 2007 9:04 pm

[quote=Dust Bunny]

[quote=Ashland] [quote=anonymous] Ashland, are you legally allowed to give recommendations on her 401(k)?[/quote] Am I legally prohibited to do so?[/quote]



Yes. Unless you have a series 66/65 and are affiliated with a RIA you are just a broker representative and are not allowed to give financial planning advice that isn’t associated with an investment that you are offering. Counseling someone on how to allocate their 401K when you are not the rep is not legal.

[/quote]



Then I’m OK. I just have to set up IAR files for each of my 401k req’s.
Jun 9, 2007 9:06 pm

Dust Bunny, having a 65/66 and being affilliated with an RIA still isn’t good enough to give investment advice.  One must still have an advisory agreement with the client.  Additionally, when it comes to qualified plans, there are additional regulations, and quite frankly, I have no idea what is legit or not.

Jun 9, 2007 9:10 pm

Thats true, I thought that was understood with the RIA business model.  The client has to be an advisory client before you can give them advice on a 401K that you aren't the actual rep on. 

I guess, I don't understand what the question that Bankrep was asking in the first place.

Jun 9, 2007 9:37 pm
anonymous:

Dust Bunny, having a 65/66 and being affilliated with an RIA still isn’t good enough to give investment advice. One must still have an advisory agreement with the client. Additionally, when it comes to qualified plans, there are additional regulations, and quite frankly, I have no idea what is legit or not.


============

Yeah, you’re right. I’m a Investment Advisor Representative, but I don’t represent the firm who has fiduciary responsibility for the plan.



However, when I do an aggregated asset allocation plan I find it very hard to miss 50%+ of client’s financial assets.



This is a risk I choose to take.

Jun 9, 2007 9:55 pm

[quote=Ashland] [quote=anonymous] Dust Bunny, having a 65/66 and being affilliated with an RIA still isn't good enough to give investment advice.  One must still have an advisory agreement with the client.  Additionally, when it comes to qualified plans, there are additional regulations, and quite frankly, I have no idea what is legit or not.[/quote]
============
Yeah, you're right. I'm a Investment Advisor Representative, but I don't represent the firm who has fiduciary responsibility for the plan.

However, when I do an aggregated asset allocation plan I find it very hard to miss 50%+ of client's financial assets.

This is a risk I choose to take.[/quote]

There is nothing against putting the 401K assets in an overall report.  You just can't give any advice on the positioning of those assets.

I know....it's a very fine line and clients don't understand why you can't tell them what to do with their 401K when you are already giving them advice on the assets you have under management.

Jun 9, 2007 9:56 pm

So do you dust bunny tell them you can’t help them with that portion of their assets?

Jun 9, 2007 9:58 pm

Ashland, if you put it in writing, it is a stupid risk because it is one that can cost you your career.

Jun 9, 2007 10:10 pm

[quote=bankrep1]So do you dust bunny tell them you can't help them with that portion of their assets?[/quote]

Pretty much.

I tell them that because those funds are in a 401K and may be different from fund outside the 401K or are proprietary funds I don't have enough information to be able to advise them on the individual funds.   Also I am not the representative on that plan so I am not supposed to do so......HOWEVER, I do go over a total asset allocation plan for them (% international, % domestic, large cap, small cap, bonds, reits etc) discuss where they are allocated with me and elsewhere and try to suggest/guess what allocations they have in the 401K.  Most of them get the idea without me telling them take X fund in the 401K and change it to XX fund in the 401K.

It has never been a problem.  Since I don't have my IAR status yet, I can only broadly hint.   Later I will be able to have them sign an advisory agreement and then be able to give information...legally instead of trying to do backdoor advice.

Its a stupid rule.

Jun 10, 2007 1:19 am

Specific advice on 401K plans gets into ERISA laws. I would NEVER put 401K recommendations in writing.  Now, if you want to verbally tell the client...

Jones used to be big on telling IRs to give clients advice on their 401Ks as a way to talk to prospects, I would use PORTFOLIO (the Jones software) to actually lay out my recommendations.  It wasn't until I joined LPL that I learned that we (as financial advisors) are not able to do anything like that without opening up some serious liability possibilities.

Supposedly, the Pension Protection Act will allow you to become a legal plan fiduciary, which will allow you to give specific 401K advice. It's just not clear yet how or what being a plan "fiduciary" means, or how you get that designation.

Jun 10, 2007 1:54 am

[quote=anonymous]

Read my post again.  I gave you great advice.  They client has to see the benefit to moving the money.  All that you need to do is get them to see the advantages of an IRA/Roth IRA over the 401(k).  

The fact that she is a current client is what makes this so easy.  If she wasn't a current client, you would have to get her to understand the reasons for working with you and you might have to talk more specifically about investments. 

[/quote]

Care to share a few gems from your list, anon?
Jun 10, 2007 4:34 am

There’s lots of them, but high up on my list is the subject of some of this thread.  When the money is in a 401(k), the client is getting no advice from the broker making money on the plan and his personal advisor (you) are unable to give him advice.  Therefore, it makes sense to roll over the money even if no investment changes will be made. 

Jun 10, 2007 2:32 pm

bankrep1,

What are you trying to do?  I thought you were trying to get her to bring her 401k assets to you into the wrap account at 1.25%.

What is the client "debating"?  Are they debating whether to do the rollover in the first place, or are you competing against another advisor?

Until you are clear in what your situation is, you will continue to get unclear answers.

Selling is EMOTIONAL.  I have YET to have clients sign a SWITCH letter saying that the reasons for the change were more "logical" as their primary reason for changing investments.  (There must be logic to back it up, but it IS more emotional.)

You MUST have the client's emotional buy-in.  Until you do, you are competing on price, and the client's past experience with you.  If those are not the driving factors, and you don't have a bonded relationship with the client, you will (most likely) not get the deal.

You must know what you bring to the table.  But you must also know what makes your client's tick.  When there's a match, that's when you'll get the deal.

Jun 10, 2007 2:40 pm

[quote=bankrep1] [quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]


You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

[/quote]

Bobby I do and I know you're jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%[/quote]

Someone else is talking to her about rolling her 401k and he's looking better than you are. Selfishly, she's probably considering a guaranteed variable annuity, as opposed to something that guarantees YOU 1.25%/year. More than likely, she's already moved it and doesn't want to hurt the feelings of "that boy at the bank."

Jun 10, 2007 4:31 pm

[quote=Bobby Hull][quote=bankrep1] [quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]


You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

[/quote]

Bobby I do and I know you're jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%[/quote]

Someone else is talking to her about rolling her 401k and he's looking better than you are. Selfishly, she's probably considering a guaranteed variable annuity, as opposed to something that guarantees YOU 1.25%/year. More than likely, she's already moved it and doesn't want to hurt the feelings of "that boy at the bank."

[/quote]

Bobby is probably right.  In addition many 401K plans are already in a group variable annuity format so the switch is from something familiar to something familiar.  People don't like change........especially old people.

Jun 10, 2007 6:11 pm

[quote=Dust Bunny]

It has never been a problem.  Since I don’t
have my IAR status yet, I can only broadly hint.   Later I
will be able to have them sign an advisory agreement and then be able
to give information…legally instead of trying to do backdoor advice.

[/quote]



What I’d do is say that the bank, has a policy that you cannot make
specific comments about outside accounts, including 401(k). That’s not
to say that as a valued client, I won’t look over your 401k, and make
comments.



Keep it general, and focus on how the 401(k) assets fit into general
allocations. And how its better to have all accounts consolidated so
you don’t forget about assets etc.



If your worried about annuity sharks tell them the Truth.


[quote]Mrs Client, while I can’t comment specificly about your 401(k),
Its my experience that people like your self often targeted by annuity
salesmen. These annuities are many times innapropriate and always
expensive. The most important thing you should know about annuities is
that they pay a 6% commision to the broker.



On a $500K account such as yours, that’s a $30,000 payday. So you
should be aware that annuity salesmen are highly motivated. I’d take
everything they say with big grain of salt. If you ever need a second
opinion on any major financial transaction,you know that I’m always
here. [quote]

Jun 10, 2007 7:40 pm

[quote=AllREIT] [quote=Dust Bunny]

It has never been a problem.  Since I don't have my IAR status yet, I can only broadly hint.   Later I will be able to have them sign an advisory agreement and then be able to give information...legally instead of trying to do backdoor advice.

[/quote]

What I'd do is say that the bank, has a policy that you cannot make specific comments about outside accounts, including 401(k). That's not to say that as a valued client, I won't look over your 401k, and make comments.

Keep it general, and focus on how the 401(k) assets fit into general allocations. And how its better to have all accounts consolidated so you don't forget about assets etc.

If your worried about annuity sharks tell them the Truth.

[quote]Mrs Client, while I can't comment specificly about your 401(k), Its my experience that people like your self often targeted by annuity salesmen. These annuities are many times innapropriate and always expensive. The most important thing you should know about annuities is that they pay a 6% commision to the broker.

On a $500K account such as yours, that's a $30,000 payday. So you should be aware that annuity salesmen are highly motivated. I'd take everything they say with big grain of salt. If you ever need a second opinion on any major financial transaction,you know that I'm always here. [quote][/quote]

I think the difference between people like you and me is that you think that people aren't as smart as they really are. When someone like you sends the message that they are too stupid to think for themselves, you lose the prospect. I know because when I was a rookie, I made the same mistakes.

Jun 10, 2007 7:54 pm

In addition many 401K plans are already in a group variable annuity format so the switch is from something familiar to something familiar. 

This is true except that the participants tend not to know that they own a group variable annuity.  They think that they own mutual funds.

ALLREIT, live by sword, die by the sword.  The "annuity shark" can easily show that the person putting them into a fee based account will earn much more than if they bought an annuity.

The best "annuity sharks" are people like me who give their client choices.  "This is the advantage and disadvantage of the annuity.  This is the advantage and disadvantage of the UIT.  This is the advantage and disadvantage of the mutual fund, etc."  We know that we'll makde money regardless of the choice that the client makes.  The key to giving the client choices is that they are making choices between investments instead of the choice of whether to work with me or someone else. 

Jun 10, 2007 8:43 pm

[quote=anonymous]ALLREIT, live by sword, die by the sword.  The
"annuity shark" can easily show that the person putting them into a fee
based account will earn much more than if they bought an annuity.
[/quote]



In my experience clients just “glow” when they learn how much money brokers make on annuity sales. All you need are a few drops of doubt to spoil the soup and immunize clients from annuity salesmen.



If your goal is to sour clients on annuities, then you do what I said.
If your goal is to try and later sell them an annuity yourself, then
you can’t tell clients the truth about annuities.



Like I showed before, the total economic cost of a variable annuity is
probably twice that of a managed account, since the initial 6% has to
come from somewhere, the embedded insurance has to be paid for, and the
investments have to be managed.



Out of all the elements of a VA contract, the embedded insurance is the only part worth paying for. The 6% GDC doesn’t add anything for the client. And I tell clients that.



As for my own practice, it is monoline. I tell clients I’m in the
investment buisness. I manage money for people. I don’t sell life
insurance, don’t sell annuities, don’t sell mortgages etc.

[quote]The key to giving the client choices is that they are making choices between investments instead of the choice of whether to work with me or someone else. 

[/quote]

For myself, I think the value I add is helping clients make good choices, not from presenting them with many choices, some of them bad. I'm not a used car dealer.

Has this cost me clients? Maybe, but at least in my biased sample, clients appreciate the fact that I focus on investments only.

Jun 10, 2007 8:45 pm

[quote=AllREIT][quote=anonymous]ALLREIT, live by sword, die by the sword.  The “annuity shark” can easily show that the person putting them into a fee based account will earn much more than if they bought an annuity. [/quote]

In my experience clients just “glow” when they learn how much money brokers make on annuity sales. All you need are a few drops of doubt to spoil the soup and immunize clients from annuity salesmen.

If your goal is to sour clients on annuities, then you do what I said. If your goal is to try and later sell them an annuity yourself, then you can’t tell clients the truth about annuities.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account, since the initial 6% has to come from somewhere, the embedded insurance has to be paid for, and the investments have to be managed.

Out of all the elements of a VA contract, the embedded insurance is the only part worth paying for. The 6% GDC doesn’t add anything for the client. And I tell clients that.

As for my own practice, it is monoline. I tell clients I’m in the investment buisness. I manage money for people. I don’t sell life insurance, don’t sell annuities, don’t sell mortgages etc.

[quote]The key to giving the client choices is that they are making choices between investments instead of the choice of whether to work with me or someone else. 

[/quote]

For myself, I think the value I add is helping clients make good choices, not from presenting them with many choices, some of them bad. I'm not a used car dealer.

Has this cost me clients? Maybe, but at least in my biased sample, clients appreciate the fact that I focus on investments only.

[/quote]

I think the difference between people like you and me is that you think that people aren't as smart as they really are. When someone like you sends the message that they are too stupid to think for themselves, you lose the prospect. I know because when I was a rookie, I made the same mistakes.

Jun 10, 2007 9:21 pm

As for my own practice, it is monoline. I tell clients I'm in the investment buisness. I manage money for people. I don't sell life insurance, don't sell annuities, don't sell mortgages etc.

That's your business model and that's fine for you. It doesn't give you the high horse position to denigrate others who offer a more full service and varied product selection for their clients.  Frankly you sound like an elitist know it all snob.  I also don't go around dissing other advisors to my clients.  That is something I learned not to do since in high school. It just makes you look bad when you are whining and complaining about the competition.

Disclaimer: I do about 90% of my business in securites and very little in insurance products.  So don't go off ranting that I'm an "annuity shark".  I do have the occasional annuity and life sale when it is appropriate, but I don't have the closed mind that you seem to have.

To each his own.  I'll respect your business model if you respect mine and others.

Jun 10, 2007 10:42 pm

[quote=Dust Bunny]

As for my own practice, it is monoline. I tell clients I’m in the investment buisness. I manage money for people. I don’t sell life insurance, don’t sell annuities, don’t sell mortgages etc.



That’s your business model and that’s fine for you. It doesn’t give you the high horse position to denigrate others who offer a more full service and varied product selection for their clients. Frankly you sound like an elitist know it all snob. I also don’t go around dissing other advisors to my clients. That is something I learned not to do since in high school. It just makes you look bad when you are whining and complaining about the competition.



Disclaimer: I do about 90% of my business in securites and very little in insurance products. So don’t go off ranting that I’m an “annuity shark”. I do have the occasional annuity and life sale when it is appropriate, but I don’t have the closed mind that you seem to have.



To each his own. I’ll respect your business model if you respect mine and others.

[/quote]



YEAH!
Jun 11, 2007 12:29 am

To each his own.  I'll respect your business model if you respect mine and others.

I can respect any business model that is being run in an ethical manner.  Allreit can certainly not sell annuities if he so chooses.   The problem is that based upon his anti-annuity posts, he is not doing it in an ethical manner.  For example, he talks about the amount of money that the annuity salesman makes without mentioning that he will make more money by putting the maoney into a managed account.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account

Actually, you made that assertion, but you failed miserably in trying to back it up.  You did succeed in letting us know that you don't understand VA's.   

Jun 11, 2007 2:50 am

[quote=anonymous]

To each his own.  I’ll respect your business model if you respect mine and others.

I can respect any business model that is being run in an ethical manner.  Allreit can certainly not sell annuities if he so chooses.   The problem is that based upon his anti-annuity posts, he is not doing it in an ethical manner.  For example, he talks about the amount of money that the annuity salesman makes without mentioning that he will make more money by putting the maoney into a managed account.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account

Actually, you made that assertion, but you failed miserably in trying to back it up.  You did succeed in letting us know that you don't understand VA's.   

[/quote]

Uhhhh no. I showed how the 6% cut comes right out of total return of the underlying investments. However several folks had a hard, very hard time understanding that.

You look at any insurance company that sells VA's and in the P&L there is a line for DAC (Deferred Aquisition Costs) which is an expense applied against gross earnings from annuities. Those gross earnings are the ongoing expenses of the annuity.

Annuity costs to the client come in three parts (GDC, embedded insurance, and invesment expenses), of which the 6% GDC is wholly useless to the client.



If you have a managed account @ 1% vs an annuity at 1.25% plus a 6% GDC being amortised over the life of the contract, the annuity is going to be more expensive.



Even if the annuity was going to have ongoing costs of 1%, it would
still be more expensive because of the amortisation of the 6% GDC.
Eitherway clients care about what will be cheaper and better for them.



You tell a client that they can have a fully liquid account @ 1%,
Annuity sharks will try to sell them an annuity @ 1.25 + 6% with
surrender charges and unfavorable tax treatment at withdrawral. I think thats a very ethical thing to tell clients.



Anyways, I’m done with talk about annuities. Bobby chimed in
about swooping in with an annuity, and I responded with how to make
clients very skeptical about annuities.



----

As for the main subject of the thread: if you can charge hourly. This problem of outside assets becomes very simple.



You simply charge hourly when talking/researching outside assets.



Otherwise the best policy is simply say that you can’t/don’t make specific recomendations about outside assets.












Jun 11, 2007 4:08 am

I’m glad were done talking about annuitties. Thanks for everyones comments.

Jun 11, 2007 10:34 am

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%. 

I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.

How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?

Jun 11, 2007 1:49 pm

[quote=AllREIT] [quote=anonymous]

To each his own.  I'll respect your business model if you respect mine and others.

I can respect any business model that is being run in an ethical manner.  Allreit can certainly not sell annuities if he so chooses.   The problem is that based upon his anti-annuity posts, he is not doing it in an ethical manner.  For example, he talks about the amount of money that the annuity salesman makes without mentioning that he will make more money by putting the maoney into a managed account.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account

Actually, you made that assertion, but you failed miserably in trying to back it up.  You did succeed in letting us know that you don't understand VA's.   

[/quote]

Uhhhh no. I showed how the 6% cut comes right out of total return of the underlying investments. However several folks had a hard, very hard time understanding that.

You look at any insurance company that sells VA's and in the P&L there is a line for DAC (Deferred Aquisition Costs) which is an expense applied against gross earnings from annuities. Those gross earnings are the ongoing expenses of the annuity.

Annuity costs to the client come in three parts (GDC, embedded insurance, and invesment expenses), of which the 6% GDC is wholly useless to the client.

If you have a managed account @ 1% vs an annuity at 1.25% plus a 6% GDC being amortised over the life of the contract, the annuity is going to be more expensive.

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC. Eitherway clients care about what will be cheaper and better for them.

You tell a client that they can have a fully liquid account @ 1%, Annuity sharks will try to sell them an annuity @ 1.25 + 6% with surrender charges and unfavorable tax treatment at withdrawral. I think thats a very ethical thing to tell clients.

Anyways, I'm done with talk about annuities. Bobby chimed in about swooping in with an annuity, and I responded with how to make clients very skeptical about annuities.

----
As for the main subject of the thread: if you can charge hourly. This problem of outside assets becomes very simple.

You simply charge hourly when talking/researching outside assets.

Otherwise the best policy is simply say that you can't/don't make specific recomendations about outside assets.






[/quote]

AllREITard, you try to disturb people by lying to them?

Jun 11, 2007 3:49 pm

[quote=anonymous]

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%. 

I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.

How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?

[/quote] I'm just curious in a non qualified account how do taxes upon withdrawal factor in?   Are they considered "costs"?

scrim

Jun 11, 2007 3:54 pm

[quote=scrim67][quote=anonymous]

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%. 

I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.

How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?

[/quote] I'm just curious in a non qualified account how do taxes upon withdrawal factor in?   Are they considered "costs"?

scrim

[/quote]

Scrim, take a Mulligan.

Jun 11, 2007 4:08 pm

I'm just curious in a non qualified account how do taxes upon withdrawal factor in?   Are they considered "costs"?

I wouldn't call them a "cost", but it's a very important consideration.  How things get passed down at death is also a very important consideration.

Every investment has 3 different rates of return:

1)The rate of return

2)The after tax rate of return

3)The rate of return at death

Just for an easy example, compare a CD to a tax free muni bond to a WL life insurance policy.  Let's say that the CD averages 6% for the life of the client.  The Muni bond averages 5.5%.  The Life insurance cash value averages 5%.

Which vehicle gives the best return? The CD has the best rate of return.  The Munibond gives the best rate of return if we are talking about spendable money.  The life insurance passes on the most at death because they get the death benefit and not the cash value.

So to answer your question, the annuity would have a different after tax rate of return in a qualified plan than it would have outside of one, but it wouldn't be accurate to say that the costs are different.

Jun 11, 2007 6:28 pm

[quote=anonymous]

Even if the annuity was going to have
ongoing costs of 1%, it would still be more expensive because of the
amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%.  [QUOTE]

I ment ongoing "true costs" (of insurance and investments) of 1% with the amortisation added on top.  The only annuities with all-in costs of under 1% are from VG/Fidelity. Those of course aren't burdened by a 6% GDC, and heavy marketing expenses etc.

[quote]I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.[/quote]

For 2.3% of assets I would be expecting hedge fund/PEQ type performance. If all I got was stock market-2.3% I would be dissapointed.

2.3% is very expensive.

Compare the difference of 2.3% compounded for 10 years vs 1% or even 1.25% compounded for the same time. That is the economic cost of the annuity. And its not cheap

[quote]How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?[/quote]

If you own underlying stocks etc, your looking at a total cost of 1%,

If you use cheap ETF's the total cost would be slightly higher by a few basis points. Probably 10-25bp. All of which would remain much cheaper than 2.3% yearly.

Jun 11, 2007 6:32 pm

All of which would remain much cheaper than 2.3% yearly.

Again, you continually miss the point.  For some clients it isn't about the yearly cost so much as it is about the guarantees and peace of mind.  Period.

Jun 11, 2007 7:05 pm

I happen to agree that 2.3% is expensive.  The more important point is whether it is worth paying the extra money.  This brings the discussion to investor returns vs. investment returns.  From what I've seen in my practice, the guarantees in the VA have a huge benefit when it comes to investor returns.   Despite paying extra money, my VA clients do much better in VAs than they would in other investments.  This is why I have them in VAs in the first place.

For many other investors, the guarantees of the VA make no difference.  For these investors, VAs are not appropriate, thus we don't use VAs.

Jun 11, 2007 7:07 pm

[quote=Dust Bunny]

All of which would remain much cheaper than 2.3% yearly.

Again, you continually miss the point.  For some clients it isn't about the yearly cost so much as it is about the guarantees and peace of mind.  Period.

[/quote]

Save your time, DB.  Allreit misses just about every point that comes his way.

Jun 11, 2007 8:25 pm

If you own underlying stocks etc, your looking at a total cost of 1%

1% every year, so by you mind numbing math, you are taking more of a commision than an annuity salesman in year eight!

Jun 12, 2007 12:04 am

[quote=anonymous]

I happen to agree that 2.3% is expensive.  The more important point is whether it is worth paying the extra money.  This brings the discussion to investor returns vs. investment returns.  From what I've seen in my practice, the guarantees in the VA have a huge benefit when it comes to investor returns. Despite paying extra money, my VA clients do much better in VAs than they would in other investments.  This is why I have them in VAs in the first place.

For many other investors, the guarantees of the VA make no difference.  For these investors, VAs are not appropriate, thus we don't use VAs.

[/quote]

There is something we all agree on,

1) From the perspective of pure investment returns, the VA is going to greatly lag the underlying investments or a managed account, because of the much higher cost structure.

That's been the main point that I've been trying to make the whole time. And if clients need VA's for whatever reason, then various directly sold VA's (VG/Fidelity) are the way to go.

2) Some clients find value in the guarantees in excess of the economic cost of those guarantee's.


Jun 12, 2007 12:10 am

[quote=AllREIT]

[quote=anonymous]

I happen to agree that 2.3% is expensive. The more important

point is whether it is worth paying the extra money. This brings

the discussion to investor returns vs. investment returns. From

what I’ve seen in my practice, the guarantees in the VA have a huge

benefit when it comes to investor returns. Despite paying extra money,

my VA clients do much better in VAs than they would in other

investments. This is why I have them in VAs in the first place.





For many other investors, the guarantees of the VA make no

difference. For these investors, VAs are not appropriate, thus we

don’t use VAs.

[/quote]



There is something we all agree on,



1) From the perspective of pure investment returns, the VA is going to

greatly lag the underlying investments or a managed account, because of

the much higher cost structure.



That’s been the main point that I’ve been trying to make the whole

time. And if clients need VA’s for whatever reason, then various

directly sold VA’s (VG/Fidelity) are the way to go.



2) Some clients find value in the guarantees in excess of the economic

cost of those guarantee’s.





[/quote]



No, that’s not something we all agree upon.
Jun 12, 2007 12:18 am

I agree with Philo.

Jun 12, 2007 12:32 am

[quote=AllREIT] [quote=anonymous]

I happen to agree that 2.3% is expensive.  The more important point is whether it is worth paying the extra money.  This brings the discussion to investor returns vs. investment returns.  From what I've seen in my practice, the guarantees in the VA have a huge benefit when it comes to investor returns. Despite paying extra money, my VA clients do much better in VAs than they would in other investments.  This is why I have them in VAs in the first place.

For many other investors, the guarantees of the VA make no difference.  For these investors, VAs are not appropriate, thus we don't use VAs.

[/quote]

There is something we all agree on,

1) From the perspective of pure investment returns, the VA is going to greatly lag the underlying investments or a managed account, because of the much higher cost structure.

That's been the main point that I've been trying to make the whole time. And if clients need VA's for whatever reason, then various directly sold VA's (VG/Fidelity) are the way to go.

2) Some clients find value in the guarantees in excess of the economic cost of those guarantee's.


[/quote]

AllREITARD, you are ignoring the performance "structure."