Feedback on strange situation

The account was liquidated???  You mean he has been sitting on cash??

I would be straight up with him and ask him why he is leaving especially since he changed his mind once. 

You might ask him if you have done something that has made him unhappy.  Maybe he is being promised investments that are unrealistic, or maybe the investments are something he doesn't think you can do for him.  Possibly he is moving from you to another firm because of pressures from family or friends.  Who knows until you ask.

If he is mad at you or disappointed with your service you will want to know so you can improve.

Also just in case it IS something shady like the requesting firm continuing to put in the transfer without his knowledge, you will want to speak to him as soon as you can.

Why are you asking us???  Ask the client.

He probably thinks it is very strange you have not asked already.

I have only been successful in stoping  a transfer twice and that was the same client who was mad I didnt call her enough. I have also had people sign the recission letter only to see it still leave shortly after. Remember, someone convinced them in the first place to leave and while you fought back, so did they. Many times they look over the account and find some flaw in it. Whe I left my previous company I had a broker say that my client had too many 30 year bonds and they were going to get hurt when rates went up. The bonds were the 25 dollar preferred stock we all do. You can say something negative about any account if you want to. I do not believe in doing that because karma will get you in the end. Other brokers have said that fees are too high on the fee based account, you have too many C shares, why did he not put you in A shares, you account underperformed the S&P (and it was a balance account). Some people will say anything to get the account.

Just ask him why he is leaving. If you want to drip on him later but my history is that if they want to come back, they will call you back

I spoke to the client today.

He's transferring his assets to an annuity with another firm.

The new advisor didn't disclose clearly the costs or the tax implications of liquidating his investment.

If he didn't have enough respect to come to me first I'm really not very upset losing this one client.   Addition by subtraction.    His assets were .5% of my book.

Another lesson learned,

Scrim

Scrim,

1) You have no clue as to what the new advisor disclosed or didn't disclose regardless of what your client told you.

2)From previous postings, it still obvious that you are not yet knowledgeable enough about annuities.  Regardless of what you are recommending to your client, it is important that you make sure that your client understands the pluses and minuses of annuities, MFs, and UITs.  I'm guessing that one of the reasons that your client switched was that you never took the time to tell him about the advantages (and disadvantages) of annuities.  Therefore, someone else probably just painted a one sided picture for your client.

[quote=scrim67]

A few weeks ago one of my client’s account was liquidated and prepared to be transferred to another firm.   I was surprised he was leaving me but it happens.   Anyway, I had a conversation with him and after our conversation he signed a rescision letter to keep the account with me.

Two days later my back office receives another request to ACAT and the account is liquidated.    My back office is awaiting word from me whether this cash should be transferred to the receiving firm.

What's stange is I see this client a few times a week as he comes into my branch quite often and he hasn't mentioned anything about being dissatisfied with my services.

I'm wondering if anything "shady" might be going on.

Any feedback appreciated.

scrim

…not if it’s in funds and going into an annuity.

ahh the annuity. the last of the large one time payout.

I have recently started doing a little in the annuity side because if we do not at least show it to clients, someone else will. I  over disclose the negatives and some people still want them. I do not like them and would never own one myself. I tell people this but they seem to buy them. There are so many bells and whisltes in these things and they change so often. I will say one thing, the insurance industry has WAY more lobbying power that the brokers. Elliot spitzer gave them a pass.

[quote=mktsystms]

[quote=scrim67]

A few weeks ago one of my client’s account was

liquidated and prepared to be transferred to another firm. I was

surprised he was leaving me but it happens. Anyway, I had a

conversation with him and after our conversation he signed a rescision

letter to keep the account with me.

Two days later my back office receives another request to ACAT

and the account is liquidated.    My back office is awaiting word from me

whether this cash should be transferred to the receiving firm.

What’s stange is I see this client a few times a week as he comes into

my branch quite often and he hasn’t mentioned anything about being

dissatisfied with my services.

I’m wondering if anything “shady” might be going on.

Any feedback appreciated.

scrim

I liquidate and transfer if we are going to be doing something completely different with the investments. 

For example I have an incoming account that the client has expressed desire to buy individual stocks and not mutual funds.  We could liquidate the funds after they arrive, but why should I incurr the ticket charges twice. Once for liquidating and again for placing the trades.

anonymous,

Points very well taken.   I guess I was a little frustrated when making that post and shouldn't assume what the other advisor said since I wasn't present.   That wasn't fair.

Perhaps I should talk more about annuities in my initial presentations and why they shouldn't be used.   My reason for doing this is mostly due to the KISS theory when trying to keep things relatively simple for my clients and prospective clients.

Bottom line in my mind is since losing accounts is not happening very frequently this is not a major concern at this point.

scrim

[quote=anonymous]

Scrim,

1) You have no clue as to what the new advisor disclosed or didn't disclose regardless of what your client told you.

2)From previous postings, it still obvious that you are not yet knowledgeable enough about annuities.  Regardless of what you are recommending to your client, it is important that you make sure that your client understands the pluses and minuses of annuities, MFs, and UITs.  I'm guessing that one of the reasons that your client switched was that you never took the time to tell him about the advantages (and disadvantages) of annuities.  Therefore, someone else probably just painted a one sided picture for your client.

Perhaps I should talk more about annuities in my initial presentations and why they shouldn't be used.   My reason for doing this is mostly due to the KISS theory when trying to keep things relatively simple for my clients and prospective clients.

One of the first things I do when making a presentation to client's or prospects is to try to find out what is their level of investment experience.  You can keep it simple in explaining investments "in general" by using the pyramid model showing income/growth and income/agressive growth and showing that there are taxable/tax free/and tax deferred investments.....here is your opening to discuss annuities as a general concept and when they might be appropriate for your clients. 

I never discuss product at this level, just general concepts...sort of investments 101.  The entire presentation can only be about 5 minutes long or less.  For some people it is information overload and their eyes roll back in their heads, other people really get into it and want more details.  You can tell which is which and when to shut up by watching their body language.

At least if you have discussed the tax deferred concept, when your clients area approached by the annuity sharks, they will know that you are also familiar with these products and may decide to get a second opinion from you.

Scrim,

You have to be careful with your anti-annuity bias.  There are definitely times that they make sense for clients.  They are neither "good" nor "bad".  They are either appropriate or inappropriate based upon the situation.  Many clients like the idea of having an underlying guarantee.  Many clients also love the idea of having income that is impossible to outlive.

why they shouldn't be used

Why shouldn't they be used? I don't do very many, but they do have their uses.  As Anon says you need to keep an open mind.

In a previous post, you indicated that the transferring client did not know about the negatives of an annuity. (I'm assuming it's a variable annuity.)

If you want to cause the transferring broker to get a headache, send the attachment below to your ex-client. It's a section describing VA's taken directly from the SEC website. If your competitor did his/her job explaining this to your client, nothing will happen. If they didn't fully explain the VA, then you may get the account back along with a very grateful client. 

http://www.sec.gov/investor/pubs/varannty.htm

I once lost $100,000 to a competitor, who was getting ready to screw my client on some leveraged bond funds. I did some research, sent it to my client, and a few weeks later, I got the money back. Seems my competitor failed to do their job properly explaining the investment to my client. (The other broker lost $5,000 in commish. I still laugh about that!)

[quote=anonymous]

Scrim,

You have to be careful with your anti-annuity bias.  There are definitely times that they make sense for clients.  They are neither "good" nor "bad".  They are either appropriate or inappropriate based upon the situation.  Many clients like the idea of having an underlying guarantee.  Many clients also love the idea of having income that is impossible to outlive.

[/quote]

I try all the time in my own mind to make a case for annuities in an overall investment plan.  I just can't rationalize it to this point since the negatives way outweigh the positives in my professional opinion.  If I ever use annuties I will have a client take a very small portion of their nest egg and buy an immediate annuity.   

Perhaps this is retarding the growth of my business but my peace of mind is worth the price.

scrim

You still haven't said why you think annuities are bad.

Why in the world and in this low interest rate environment would you ever use an immediate annuity?   I have used them in the past.  Just curious why you would.

I agree Scrim that you should only use annuities where & when appropriate but somehow I just can't stop selling those damn VA's. Here we are in Dec. & they have made up 20-25% of my ytd production.

Seriously, I would have a couple of well respected VA wholesalers pay you a visit & have them roll play the presentation, feature, benefits, &  close of a VA to you. Then you do it to them, continue this process until you feel comfy.

Will it be worth it? Only you can answer that but you may find you're missing a huge opportunity to help your clients.

[quote=babbling looney]

You still haven't said why you think annuities are bad.

Why in the world and in this low interest rate environment would you ever use an immediate annuity?   I have used them in the past.  Just curious why you would.

[/quote]

I would only use an immediate annuity to give them an income stream they cannot outlive.

Again, only use this in a very very small percentage of situations

scrim

[quote=Registered Rep]

I agree Scrim that you should only use annuities where & when appropriate but somehow I just can't stop selling those damn VA's. Here we are in Dec. & they have made up 20-25% of my ytd production.

Seriously, I would have a couple of well respected VA wholesalers pay you a visit & have them roll play the presentation, feature, benefits, &  close of a VA to you. Then you do it to them, continue this process until you feel comfy.

Will it be worth it? Only you can answer that but you may find you're missing a huge opportunity to help your clients.

[/quote]

I have gotten the presentation more time than I can count.  Until I feel I am missing a very significant number of opportunities I'm going to keep my practice similar to its current makeup.

scrim

Your opinion is not what counts.  It is your clients feelings that count.  All products have positives and negatives.  If the negatives outweigh the positives, you should not invest in annuities for that client.  However, for a particular client, the positives may outweigh the negatives. 

My typical annuity client has done much better than my typical mutual fund client.  There is a logical reason for this.  The reason is not that annuities are better (or worse).  When someone buys a mutual fund, you must have them invest in accordance with their risk tolerance.  The guarantees in a VA will allow someone to invest in a more aggressive manner which can possibly lead to higer returns.

Here's an example:

Client: "I want my money to grow as much as possible, but I'm not willing to lose any money on this long term investment.  What should I do with this $100,000"

Rep:"We can invest in mutual funds and have the money grow, but we can't guarantee against loss.  Another option is to invest in a VA.  This VA will guarantee that your money will double in twenty years regardless of investment performance.  However, the expenses are higher so it is likely that you'll have a lower return than if you invested in comparable mutual funds.  Is the possible tradeoff of lower returns on the upside worth having a guarantee that your money will double as a worst case scenario?  If so, let's look at our options in depth."

The reality of the situation is that this type of client will get a higher return long term (despite higher expenses) in a VA because he could invest aggressively in a VA, but would have to invest very conservatively in mutual funds.

I'm selling almost all L-share's now.  I can remember a couple years ago it was always B-share VA's.  Now the only time I sell a B share is if the client is extremely elderly or in really bad health.

Under what circumstances do you guys sell an L vs B?

[quote=anonymous]

Your opinion is not what counts.  It is your clients feelings that count.  All products have positives and negatives.  If the negatives outweigh the positives, you should not invest in annuities for that client.  However, for a particular client, the positives may outweigh the negatives. 

My typical annuity client has done much better than my typical mutual fund client.  There is a logical reason for this.  The reason is not that annuities are better (or worse).  When someone buys a mutual fund, you must have them invest in accordance with their risk tolerance.  The guarantees in a VA will allow someone to invest in a more aggressive manner which can possibly lead to higer returns.

Here's an example:

Client: "I want my money to grow as much as possible, but I'm not willing to lose any money on this long term investment.  What should I do with this $100,000"

Rep:"We can invest in mutual funds and have the money grow, but we can't guarantee against loss.  Another option is to invest in a VA.  This VA will guarantee that your money will double in twenty years regardless of investment performance.  However, the expenses are higher so it is likely that you'll have a lower return than if you invested in comparable mutual funds.  Is the possible tradeoff of lower returns on the upside worth having a guarantee that your money will double as a worst case scenario?  If so, let's look at our options in depth."

The reality of the situation is that this type of client will get a higher return long term (despite higher expenses) in a VA because he could invest aggressively in a VA, but would have to invest very conservatively in mutual funds.

[/quote]

This debate will always be there.   My opinion the negatives far outweigh any positives so I stay away.

Perhaps if the laws change concerning the tax treatment upon withdrawal I might reconsider.

Scrim

Your missing the point that it is not your opinion that matters.  The client is what counts. 

Your tax comment only refers to non-qualified annuities.  Qualified annuities get the identical tax treatment as mutual funds and other investments.  Therefore, according to your comment, it's time to reconsider.

P.S. For the first few years of my career, I also was convinced that annuities weren't good for my clients.

[quote=anonymous]

Your missing the point that it is not your opinion that matters.  The client is what counts. 

Your tax comment only refers to non-qualified annuities.  Qualified annuities get the identical tax treatment as mutual funds and other investments.  Therefore, according to your comment, it's time to reconsider.

P.S. For the first few years of my career, I also was convinced that annuities weren't good for my clients.

[/quote]

We shall see as my practice matures if I introduce new products.  I'll never say never.

Even though I'm not supposed to have an opinion I also feel using annuities in a qualified account is almost never a good idea.

Just my .02

scrim

[quote=anonymous]

Here's an example:

Client: "I want my money to grow as much as possible, but I'm not willing to lose any money on this long term investment.  What should I do with this $100,000"

Rep:"We can invest in mutual funds and have the money grow, but we can't guarantee against loss.  Another option is to invest in a VA.  This VA will guarantee that your money will double in twenty years regardless of investment performance. 

[/quote]

I think this might be a typo on your part.  Based on the good ol' rule of 72, a lump sum doubling in 20 years is a 3.6% return.  I don't think you're gonna sell many VA's with a 3.6% guarantee...

When the light bulb comes on (not if but when)...not only will you provide additional services to meet your clients' goals but you will also experience a bump in production & income. If you don't give them the option - some other advisor WILL.

[quote=Registered Rep]

I'm selling almost all L-share's now.  I can remember a couple years ago it was always B-share VA's.  Now the only time I sell a B share is if the client is extremely elderly or in really bad health.

Under what circumstances do you guys sell an L vs B?

[/quote]

I use to only sell 7-8 year products because the fees were lower.  But each and every time I locked up somebody's money for that long, a better living benefit would be released.

Now I only use 4 year / L share annuity products for flexibility.

I think the 3 and 4 year products are probably best…plus you are doing some “annuitizing” of your book in the process.

[quote=Registered Rep]

When the light bulb comes on (not if but when)...not only will you provide additional services to meet your clients' goals but you will also experience a bump in production & income. If you don't give them the option - some other advisor WILL.

[/quote]

Absolutely!  This thread started when I lost my first account in over two years simply because I did not offer him an annuity option.

I'm living and learning.

Scrim

I'm certainly acquired more accounts than lost though so it's a net positive at this juncture.

I capture alot of VA assets in qualified plans when I explain to them I can reduce their fees which should result in better investment performance over the long term.   In exchange for this they have to give up any death or living benefits.

scrim

[quote=scrim67][quote=anonymous] Your missing the point that it is not your opinion that matters.  The client is what counts. 

Your tax comment only refers to non-qualified annuities.  Qualified annuities get the identical tax treatment as mutual funds and other investments.  Therefore, according to your comment, it's time to reconsider.

P.S. For the first few years of my career, I also was convinced that annuities weren't good for my clients.[/quote]

We shall see as my practice matures if I introduce new products.  I'll never say never.

Even though I'm not supposed to have an opinion I also feel using annuities in a qualified account is almost never a good idea.

Just my .02

scrim[/quote]

Scrim, I like you and respect your desire to do what is right for your clients, but trying to convince you that annuities are OK is like trying to convince Mr. A that Christians aren't retarded.  Certainly, you are entitled to have an opinion and unlike others, I won't call you names and make fun of you for having an opinion that is different from mine.

Someday, I'd venture to guess, the light will come one and like anonymous, myself and other posters with more experience, you too will probably reach the conclusion that annuities make sense for a segment of the population.  If your client has (1) little or no tolerance for stock market fluctuations (desires principal protection), (2) need for returns in excess of current bond and CD rates to provide for purchasing power protection and (3) desires a steady and increasing stream of income for a lifetime, annuities fit the bill, my friend.  For clients such as these, the extra 2% cost is almost irrelevant and doesn't begin to stop them from purchasing the annuity.  Odds are, your former client fit at least part of that profile and you missed an opportunity to sell him what he wanted and what is best for him vs. what you thought was best for him.  In reality, what's best for him is the investment that is an acceptable alternative AND that he's willing to keep.

The argument that they don't belong in IRAs because of the redundant tax deferral is tired and weak.  Very, very few of my clients buy annuities for tax deferral.  At best, for equities, the tax deferral is about a push with the income tax treatment upon withdrawal, so I rarely sell it as a benefit, unless I'm talking to a CD customer who compounds interest and is tired of receiving a 1099 for income that they really don't see.  Annuities belong in IRAs for reasons 1, 2 & 3 above.

Full disclosure...annuities make up about 8% of my AUM, so it's not like I think they are the only answer either...

There's my nickel...you can keep the change...

I do respect all of your opinions.

1-2% more annually in expenses adds up more quickly than one might think.

I have enough trouble convincing clients to deal with my 1-1.5% advisory fee.   If the fees they were paying were close to 3% or so I hardly even want to deal with that situation.   That's just too high.     

scrim

I imagine the fees could be lower.

Again, not everyone has to have the same opinions.

That's what makes life so darn interesting.

scrim

"I think this might be a typo on your part.  Based on the good ol' rule of 72, a lump sum doubling in 20 years is a 3.6% return.  I don't think you're gonna sell many VA's with a 3.6% guarantee..."

I don't know if you understand.  Nobody wants a 3.6% return.  However, people love the fact that this is the absolute worst case scenario.  For someone who has 20 years, this is the best GMAB that exists.  I also use a 10 year one with a guaranteed 0% that has an annual reset.

We don't ever expect the client to have to use the GMAB.  It simply gives them piece of mind and more importantly, the ability to invest more aggressively. 

[quote=scrim67]I do respect all of your opinions.

1-2% more annually in expenses adds up more quickly than one might think.

I have enough trouble convincing clients to deal with my 1-1.5% advisory fee.   If the fees they were paying were close to 3% or so I hardly even want to deal with that situation.   That's just too high.     

scrim[/quote]

You're focusing on the wrong end of the equation...focus on net return after fees...NOT fees.  Say you have a hypothetical investment with a 10% annual return...under your fee-based model, the client sees 8.5-9% net.  Under a variable annuity, the client sees 7% net, but without any risk to principal, etc.  If you present it that way instead of focusing on the fees, I think your success rate will improve regardless of the platform you choose to present...and yes, I believe that more of your target market than you think would be interested in the 7% annuity product.

Also, If your bank is offering CDs at 5% and loaning the money out at 8%, you have...GOSH!!! A 3% "FEE"!

Indyone, you also forgetting to add in the fund expenses, so in your example, Scrim's clients will get less than 8% net.

The part that Scrim doesn't seem to get is that a VA client can invest more aggressively, so even though the fees may be higher, many investors will end up with more money in the VA than the funds.

Scrim, why are VAs inappropriate for qualified money?  This echoes just about everything that I have ever read on the subject that is written by people who are not experts on the subject.  I've never heard an expert on this subject agree with this opinion.

[quote=Indyone]

Also, If your bank is offering CDs at 5% and loaning the money out at 8%, you have...GOSH!!! A 3% "FEE"!

[/quote]

That's a great way to look at it. 

Scrim, I rarely use VAs, but in the right situation, it's perfect.  If it's money the client is going to leave to their kids, but don't want to see it go down, a VA is perfect (especially with restricted beneficiary options if the kids aren't responsible).  Also, if someone has retired, and needs income, being able to guarantee X% of their invested amount (with the possibility to grow) is huge.  Those advisors in 1999, who were telling their clients they would be able to take 5% income out of the mutual funds in their IRAs, for the rest of their life, have some hard phone calls to make (if they haven't made them already).

FULL DISCLOSURE: I’ve sold less than 10 VAs in the 5+ years I’ve been in this business. All but one had a gauranteed income feature of some kind.

There's two ways to choose risk management as far as I see.

a) construct mutual fund portfolios which match your clients risk tolerance

b) use annuities with living benefits

I choose the former because it's less expensive, treated better taxation wise, and assets are usually more available

When I sit down with my clients and explain the way I run my practice I explain even in "conservative" portfolios not only is there a chance you will lose money some years,  you WILL lose money some years.

When we get past that part, I close the sale.

scrim

Scrim,

How big of a tax benefit do you think mutual funds are over VAs?

[quote=BankFC]I think the 3 and 4 year products are probably best...plus you are doing some "annuitizing" of your book in the process.[/quote]

Exactly.

Has anyone gone back and rolled over those 3-4 year annuities into "new" contracts or do you tend to just let them hang out there and spin off a trail.

[quote=BankFC]

Scrim,

How big of a tax benefit do you think mutual funds are over VAs?

[/quote]

Not very

You're right.  In fact the difference is very small, due to the fact that mutual funds have something called TURNOVER, which is the buying and selling of a stock within a year.  This is taxed at ORDINARY INCOME RATES.

No mutual fund I am aware of is truly taxed at the 15% LTCG rate. 

[quote=BankFC]

You're right.  In fact the difference is very small, due to the fact that mutual funds have something called TURNOVER, which is the buying and selling of a stock within a year.  This is taxed at ORDINARY INCOME RATES.

No mutual fund I am aware of is truly taxed at the 15% LTCG rate. 

[/quote]

To that point I use tax efficient funds whenever at all possible.

I try and explain to my clients the difference between tax free and tax efficient.   I think they get it.

scrim

The point is that saying "I prefer mutual funds because of the better tax treatment" is a very weak argument at best.

Wow...how timely is this...quoted VERBATIM from a client email I received just  few minutes ago...

"I know, but I want to put it in something secure.  That one plan you were talking about just scares me.  It seemed to much like a gamble and I don't want to lose everything.  My mom was in something like that and lost $16,000.00.  I don't know if she made it back or not."

I'd proposed a fee-based package to her on a large life insurance settlement recently and was asking her what she thought of proceeding.  Well, guess what the next proposal includes?!!

If it's money the client is going to leave to their kids, but don't want to see it go down, a VA is perfect (especially with restricted beneficiary options if the kids aren't responsible). 

Actually, if it is money that they are planning to pass to heirs an annuity is not a very good choice because it has no step up at death and the beneficaries get to pay ordinary income tax on the deferred gain.  

If the kids are irresponsible they would be better off by putting the money into investments in trust that has spendthrift provisions.

If they are young enough or healthy enough instead of an annuity, why not do a single premium life policy? They would get an immediately magnified death benefit that would pass tax free to the heirs and free up some of their cash to do other investing.

"If it's money the client is going to leave to their kids, but don't want to see it go down, a VA is perfect."

I'll concur what with what babbling looney is saying, non-qualified annuities are not good assets if the purpose is to give money to the kids.

Scrim, you ignored my question asking why annuities are not appropriate to use for qualified money.   

"I prefer mutual funds because of the better tax treatment" 

For qualified money, the tax treatment is identical.

For some of your clients, investing in mutual funds in a conservative portfolio will GUARANTEE that they can't achieve their financial goals.

(Disclosure:  My variable annuity business varies from year to year.  It probably ranges from 5% of my assets to 20% of my assets depending on the year.)

Here's an interesting "did you know".  I can't back this up, but I heard from someone at T. Rowe Price that they now have more dollars invested with them through sub accounts then they do directly in their mutual funds. 

[quote=babbling looney]

If it's money the client is going to leave to their kids, but don't want to see it go down, a VA is perfect (especially with restricted beneficiary options if the kids aren't responsible). 

Actually, if it is money that they are planning to pass to heirs an annuity is not a very good choice because it has no step up at death and the beneficaries get to pay ordinary income tax on the deferred gain.  

[/quote]

I agree with you for non-qual money to a point, but in an IRA it doesn't matter.  Even with non-qual money, the fact that the annuity locks in market gains annually gives the client peace of mind. A lot of children gladly paid taxes on their parent's annuities in 2002, when the actual account value was down 40% from the high. And with the ability to stretch annuities, they are not as painful tax-wise as they once were. I can still see going either way depending on the client's risk tolerance and goals.

[quote=babbling looney]

If the kids are irresponsible they would be better off by putting the money into investments in trust that has spendthrift provisions.

[/quote]

I agree that is better, but some people don't want to pay a couple grand to setup the trust.

[quote=babbling looney]

If they are young enough or healthy enough instead of an annuity, why not do a single premium life policy? They would get an immediately magnified death benefit that would pass tax free to the heirs and free up some of their cash to do other investing.

[/quote]

That's another good way to go, if the client is very sure they will NOT need the money. In the annuity, they can pull it out if needed.

Like I said, I agree with pretty much everything you said.  Depending on the individual and their situation, annuitites sometimes work great, sometimes there are better options.

Right on. 

As financial advisors we need to be flexible and make our recommendations to suit each client's individual situation.  We need to give all the options and help the client decide which suits them best.

I think that this is what we are trying to convey to Scrim.

[quote=anonymous]

"If it's money the client is going to leave to their kids, but don't want to see it go down, a VA is perfect."

I'll concur what with what babbling looney is saying, non-qualified annuities are not good assets if the purpose is to give money to the kids.

Scrim, you ignored my question asking why annuities are not appropriate to use for qualified money.   

"I prefer mutual funds because of the better tax treatment" 

For qualified money, the tax treatment is identical.

For some of your clients, investing in mutual funds in a conservative portfolio will GUARANTEE that they can't achieve their financial goals.

(Disclosure:  My variable annuity business varies from year to year.  It probably ranges from 5% of my assets to 20% of my assets depending on the year.)

Here's an interesting "did you know".  I can't back this up, but I heard from someone at T. Rowe Price that they now have more dollars invested with them through sub accounts then they do directly in their mutual funds. 

[/quote]

VA's are less appropriate only because of the higher fees.  There is no additional tax benefit.

This all being said,

Starting next year I will revisit some VA products for those clients who still seem a bit reticent adding to their fee based accounts.   If they are scared I may introduce an alternative.

Last time I checked the fees with some of the riders approached or even exceeded 3%.  Perhaps thru economies of scale they are lower presently. 

As far as being more aggressive, many of the contracts I read insisted that for principle protection guarantees you were required to have a 60/40 model as the most aggressive.    I felt it defeated the purpose.

Thank you for all the feedback and I will do more research when I return to the office.

Scrim

In some situations for HNW individuals, it can be used to control the RMD of

the individual, and pass on large sums to heirs. To wit: Annuitize the

annuity before the client turns 70 1/2, and use the distribution to fund a

VUL, naming an heir as the owner and benefciary, and the client as the

insured.



Agreed that this is a special circumstances scenario, but it does happen.

[quote=Starka]In some situations for HNW individuals, it can be used to control the RMD of

the individual, and pass on large sums to heirs. To wit: Annuitize the

annuity before the client turns 70 1/2, and use the distribution to fund a

VUL, naming an heir as the owner and benefciary, and the client as the

insured.



Agreed that this is a special circumstances scenario, but it does happen.[/quote]

As long as the client doesn’t mind giving that money away, and if it’s more than 12k/yr then they have to file a gift return.

[quote=joedabrkr]

[quote=Starka]In some situations for HNW individuals, it can be used to

control the RMD of

the individual, and pass on large sums to heirs. To wit: Annuitize the

annuity before the client turns 70 1/2, and use the distribution to fund a

VUL, naming an heir as the owner and benefciary, and the client as the

insured.



Agreed that this is a special circumstances scenario, but it does happen.[/

QUOTE]As long as the client doesn’t mind giving that money away, and if it’s

more than 12k/yr then they have to file a gift return.[/quote]



True enough, but that’s why the Good Lord gave us ILITs!

Scrim,

2 points:

1)There are plenty of quality VAs that have total expenses of under 3%.  This includes the expenses of the underlying funds.  When your clients invest, they have to pay you 1.5% + the cost of the underlying funds.  The difference won't be that large.  Regardless, it is the extra cost that is the issue, not the gross cost.

2)I don't know of any VAs that force people into model portfolios that don't get more aggressive than 60/40.  All the ones that I use allow people to be 100% invested in equities.

I just put about $300,000 into a VA for a client today.  The sale was simple.  They had a choice of using mutual funds and investing in a conservative portfolio or using a VA and investing aggressively.  As the advisor, I do not care what they do.  I'll get paid either way and I don't need to make more money today.  I give them the pluses and minuses of all options and let them choose.

[quote=anonymous]

I just put about $300,000 into a VA for a client
today.  The sale was simple.  They had a choice of using
mutual funds and investing in a conservative portfolio or using a VA
and investing aggressively.  As the advisor, I do not care what
they do.  I’ll get paid either way and I don’t need to make more
money today.  I give them the pluses and minuses of all options
and let them choose.

[quote=scrim67]

I try all the time in my own mind to make a case for
annuities in an overall investment plan.  I just can’t rationalize
it to this point since the negatives way outweigh the positives in my
professional opinion.  If I ever use annuties I will have a client
take a very small portion of their nest egg and buy an immediate
annuity.   

Perhaps this is retarding the growth of my business but my peace of mind is worth the price.

scrim