What do we do in a worst case scenario?
Nov 13, 2008 2:44 pm
Economist Nouriel Roubini predicts a grim picture in a Fortune Magazine article – the worst recession since WW2, rising government deficits, deflation, zero percent Fed interest rates, falling earnings combined with falling market PE rations driving the S&P 500 down another 20 to 40 percent.
From our perspective, that would certainly change investor behavior for a long time, especially for the mom and pop, middle class investors I chase. Do you see new types of solutions for their investing/retirement income needs? Do you see that we should take a new approach? More insurance? More active management of accounts? I've always thought that good stocks and patience are the answer to most cases, but do you think we can sell that to people if the market goes sideways for five years. I also suspect that I should be sitting down with prospects and giving them the worst case scenario -- and then a plan to deal with it. RIght now I'm telling them a variation of the sun will come up tomorrow, but what if it doesn't come out for five years.Nov 13, 2008 3:24 pm
Variable and Fixed annuities.
Nov 13, 2008 3:49 pm
Buyandhold- I feel your pain. I’m not sure we haven’t destroyed our pool of potential prospects for years. If stocks do go sideways for another five, couple that with the last 10 of zero growth, is the theory that we base our advice on flawed? AAAAAHHHHH. What to do?
As for selling variable annuities, I say do so at your own peril. No, no, I am not an annuity basher. They are the majority of my accounts. Right now the annuity seems like an easy sell. "Mr prospect we can invest in the stock market and I can give you a gurantee. I bet you wished you have had this guarantee the last year." However, what if you sell an annuity from a compnay that does not make it through this crisis? What if the guarantee is no good? It seems like slam dunk litigation to me. "Mr broker you sold my client on a guarantee from an insurance company when AIG, ING, and Hartford, some of the most reputable insurance companies, were having financial difficulties. Wouldn't prudent planning avoid such investments in such volatile times." To me, if the gurantee isn't any good, then you sold the client an expensive mutual fund, which is probably what they were running from.Nov 13, 2008 4:25 pm
[quote=the word]Buyandhold- I feel your pain. I’m not sure we haven’t destroyed our pool of potential prospects for years. If stocks do go sideways for another five, couple that with the last 10 of zero growth, is the theory that we base our advice on flawed? AAAAAHHHHH. What to do?
As for selling variable annuities, I say do so at your own peril. No, no, I am not an annuity basher. They are the majority of my accounts. Right now the annuity seems like an easy sell. "Mr prospect we can invest in the stock market and I can give you a gurantee. I bet you wished you have had this guarantee the last year." However, what if you sell an annuity from a compnay that does not make it through this crisis? What if the guarantee is no good? It seems like slam dunk litigation to me. "Mr broker you sold my client on a guarantee from an insurance company when AIG, ING, and Hartford, some of the most reputable insurance companies, were having financial difficulties. Wouldn't prudent planning avoid such investments in such volatile times." To me, if the gurantee isn't any good, then you sold the client an expensive mutual fund, which is probably what they were running from. [/quote]If you really believe what you're saying, why aren't you getting your clients OUT of their annuities?
Nov 13, 2008 4:33 pm
I will not pull the clients out b/c why detroy benefits that have been created b/c something may happen? All that i am saying is that selling an anuity in the current environment seems a bit risky to me. I'm sure most of the companies will make it, but don't be suprised if 1 or 2 don't. Also, I didn't sell those annuities in the curent environment and my main provider is not in the news.
Nov 13, 2008 4:38 pm
[quote=the word]
I will not pull the clients out b/c why detroy benefits that have been created b/c something may happen? All that i am saying is that selling an anuity in the current environment seems a bit risky to me. I’m sure most of the companies will make it, but don’t be suprised if 1 or 2 don’t. Also, I didn’t sell those annuities in the curent environment and my main provider is not in the news.[/quote]What are you selling, now that you’re no longer using those risky annuities?
Nov 13, 2008 4:43 pm
Selling a little bit of Life Insurance.
Buying some individual stocks for clients who have money to play with. Really nothing to bring in any revenue.Nov 13, 2008 5:03 pm
[quote=the word]Selling a little bit of Life Insurance.
Buying some individual stocks for clients who have money to play with. Really nothing to bring in any revenue.[/quote]Things are pretty weird out there, aren't they? Thank God for life insurance.
Nov 13, 2008 5:15 pm
Yeah, I’m the same way about annuities.
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s).Nov 13, 2008 5:34 pm
The conversations that I have with clients are pretty easy when i can point to a guarantee that will help them realize their goals. I couldn’t imagine how I would feel if I were selling funds. Not to bash what you do, just stating that those calls must be rough and keeping you up at night.
We will sell annuities again. We just need to let the dust settle first. And yeah it is strange times. I'm realizing that LI has got to become a larger part of my business model.Nov 13, 2008 5:49 pm
For those who haven’t spent some time investigating annuities, and finding one or two you are comfortable with, I would really recommend it. It will help your business model, it will help you sleep, and it will help your clients sleep.
Nov 13, 2008 6:51 pm
[quote=Borker Boy]Yeah, I’m the same way about annuities.
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s). [/quote]Either you put them into annuities or someone else will.
Nov 13, 2008 7:39 pm
[quote=Hank Moody] [quote=Borker Boy]Yeah, I’m the same way about annuities.
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s). [/quote]Either you put them into annuities or someone else will.
[/quote] And that right there is why potential investors have little to no faith in advisors. Ignore everything about the current environment and push that product to make a comission. Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me.
Nov 13, 2008 8:02 pm
[quote=the word][quote=Hank Moody] [quote=Borker Boy]Yeah, I’m the same way about annuities.
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s). [/quote]Either you put them into annuities or someone else will.
[/quote] And that right there is why potential investors have little to no faith in advisors. Ignore everything about the current environment and push that product to make a comission. Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me. [/quote]
You're right. This guaranteed 10% cash flow, on the client's original investment, as a worst case scenario, really fails to address the current environment. Who would want that when the can only lose all of their money with someone like you?
Nov 13, 2008 8:18 pm
[quote=Hank Moody] [quote=the word][quote=Hank Moody] [quote=Borker Boy]Yeah, I’m the same way about annuities.
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s). [/quote]Either you put them into annuities or someone else will.
[/quote] And that right there is why potential investors have little to no faith in advisors. Ignore everything about the current environment and push that product to make a comission. Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me. [/quote]
You're right. This guaranteed 10% cash flow, on the client's original investment, as a worst case scenario, really fails to address the current environment. Who would want that when the can only lose all of their money with someone like you?
[/quote] Guranteed 10% cash flow? By all means please enlighten us as to which annuity that is. Fixed or Variable? I don't even know whether to take you seriously anymore. And yes you are correct, the alledged 10% cash flow does nothing to address the current environment.
Nov 13, 2008 8:31 pm
[quote=the word][quote=Hank Moody] [quote=the word][quote=Hank Moody] [quote=Borker Boy]Yeah, I’m the same way about annuities.
I sure wish the 90% of my book that's in mutual funds had some guarantees to fall back on, but at the same time, I'm like you in that I'm leery of putting someone in what could be a very expensive mutual fund in the near future--and being a defendant in a lawsuit(s). [/quote]Either you put them into annuities or someone else will.
[/quote] And that right there is why potential investors have little to no faith in advisors. Ignore everything about the current environment and push that product to make a comission. Somebody will sell grandma a 12 yr surrender annuity at age 80, but it won't be me. [/quote]
You're right. This guaranteed 10% cash flow, on the client's original investment, as a worst case scenario, really fails to address the current environment. Who would want that when the can only lose all of their money with someone like you?
[/quote] Guranteed 10% cash flow? By all means please enlighten us as to which annuity that is. Fixed or Variable? I don't even know whether to take you seriously anymore. And yes you are correct, the alledged 10% cash flow does nothing to address the current environment. [/quote]
You're the expert on annuities. You should already know about the guaranteed 10% cash flow. And of course this guarantee wouldn't be interesting to anyone trying to stay invested in this current environment. How could I have missed that?
Nov 13, 2008 8:54 pm
Never claimed to be an expert on annuities.
Unless your annuity is fixed, and haven't seen any reputable companies offering 10% fixed, its garbage. I hoped you looked into those annuitization rates b/c its coming. 10% cash flow+2% fees+ 30% down market = annuitization. Jeseus christ this has got to be a joke.Nov 13, 2008 9:03 pm
[quote=the word]Never claimed to be an expert on annuities.
Unless your annuity is fixed, and haven't seen any reputable companies offering 10% fixed, its garbage. I hoped you looked into those annuitization rates b/c its coming. 10% cash flow+2% fees+ 30% down market = annuitization. Jeseus christ this has got to be a joke. [/quote]No joke, son. It's for real. 10% cash flow on original investment amount - worst case. Net of all fees and no annuitization. Of course, since you're wearing blinders, you can't see it.
Nov 13, 2008 9:07 pm
Dude, balls up and name the product. I'll take my blinders off and still be able to see it is crap. If it is not crap I will gladly admit as much.
Do you wonder how the ins. co. is able to pay that cash flow?
Nov 13, 2008 9:08 pm
What up Word, it’s no joke. It’s all about how you look at numbers.
Here's the thing with the VA's. Despite what some people think, they are for guaranteed income. If you have purchased a VA, you have to be fully committed to using it as an income producing bucket. Here's why: If things continue to be this bad or worse, the VA's will raise the fees. Currently, your rider might be 60 or 70 bps, but they could go as high as say, 1.25%. This is a good thing. Remember, you bought this for the income you will get...guaranteed. The other hedging strategies that are employed, such as options or moving to a fixed bucket, or whatever else it might be, are also used to mitigate the risk of a big disparity between account value and income base. The insurance companies must keep in reserve what they guarantee. They must physically have this. When they go to pay out, they aren't going to pay everyone out at the same time, so that shouldn't be too bad. As has been discussed, if the insurance company sells its annuity division, the new company must honor its guarantees. The fact is, I feel safer being in a VA than not being in a VA. Some of my biggest clients are down 30-40% easy. If they weren't with me, they probably wouldn't have any money in VA's. But in late 2007/early 2008, 1/3 - 1/2 of their money was put into VA's. Their income bases will increase by 7% over the year. Their mutual funds are still down 35% with no guarantees. What up Hank. You make me feel good.Nov 13, 2008 9:15 pm
[quote=the word]
Dude, balls up and name the product. I’ll take my blinders off and still be able to see it is crap. If it is not crap I will gladly admit as much.
Do you wonder how the ins. co. is able to pay that cash flow?
[/quote]What's in it for me? You're so frightened that you think you're gonna spend your life in arbitration because of VA's. You don't deserve to know which product.
Nov 13, 2008 9:25 pm
[quote=snaggletooth]What up Word, it’s no joke. It’s all about how you look at numbers.
Here's the thing with the VA's. Despite what some people think, they are for guaranteed income. If you have purchased a VA, you have to be fully committed to using it as an income producing bucket. Here's why: If things continue to be this bad or worse, the VA's will raise the fees. Currently, your rider might be 60 or 70 bps, but they could go as high as say, 1.25%. This is a good thing. Remember, you bought this for the income you will get...guaranteed. The other hedging strategies that are employed, such as options or moving to a fixed bucket, or whatever else it might be, are also used to mitigate the risk of a big disparity between account value and income base. The insurance companies must keep in reserve what they guarantee. They must physically have this. When they go to pay out, they aren't going to pay everyone out at the same time, so that shouldn't be too bad. As has been discussed, if the insurance company sells its annuity division, the new company must honor its guarantees. The fact is, I feel safer being in a VA than not being in a VA. Some of my biggest clients are down 30-40% easy. If they weren't with me, they probably wouldn't have any money in VA's. But in late 2007/early 2008, 1/3 - 1/2 of their money was put into VA's. Their income bases will increase by 7% over the year. Their mutual funds are still down 35% with no guarantees. What up Hank. You make me feel good.[/quote]Whaddup G? I'm not bringing you to orgasm, am I? Don't waste your time with this guy. Throwing facts at someone like him will not override a naive opinion.
Nov 13, 2008 9:26 pm
[quote=snaggletooth]What up Word, it’s no joke. It’s all about how you look at numbers.
Here's the thing with the VA's. Despite what some people think, they are for guaranteed income. If you have purchased a VA, you have to be fully committed to using it as an income producing bucket. Here's why: If things continue to be this bad or worse, the VA's will raise the fees. Currently, your rider might be 60 or 70 bps, but they could go as high as say, 1.25%. This is a good thing. Remember, you bought this for the income you will get...guaranteed. Is this a joke. Rising fees are good. Fees are already going up b/c they are a percentage of guarantee not account value. The other hedging strategies that are employed, such as options or moving to a fixed bucket, or whatever else it might be, are also used to mitigate the risk of a big disparity between account value and income base. The insurance companies must keep in reserve what they guarantee. They must physically have this. When they go to pay out, they aren't going to pay everyone out at the same time, so that shouldn't be too bad. As has been discussed, if the insurance company sells its annuity division, the new company must honor its guarantees. This is where i get worried. This is like a gentlemans agreement, but nobobdy has to buy these things. The fact is, I feel safer being in a VA than not being in a VA. Some of my biggest clients are down 30-40% easy. If they weren't with me, they probably wouldn't have any money in VA's. But in late 2007/early 2008, 1/3 - 1/2 of their money was put into VA's. Their income bases will increase by 7% over the year. Their mutual funds are still down 35% with no guarantees. No doubt about it. I love selling VA's. I would want a gurantee on my own money. However, i just think we need to slow down right now If you don't, go for it. What up Hank. You make me feel good.[/quote]Nov 13, 2008 9:26 pm
so you all by these great VAs for yourself, wife and parents too?
Nov 13, 2008 9:29 pm
newnew:
Yes.so you all by these great VAs for yourself, wife and parents too?
Nov 13, 2008 9:29 pm
Like I said, balls up and name you annuity and I will tell you why its not right at the moment. If I am wrong, I will use the annuity and get my clients to sign a form that says “I have Bobby Hull to thank for this fine investment I purchased today.”
Nov 13, 2008 9:37 pm
[quote=the word]If things continue to be this bad or worse, the VA’s will raise the fees. Currently, your rider might be 60 or 70 bps, but they could go as high as say, 1.25%. This is a good thing. Remember, you bought this for the income you will get…guaranteed. Is this a joke. Rising fees are good. Fees are already going up b/c they are a percentage of guarantee not account value.
As has been discussed, if the insurance company sells its annuity division, the new company must honor its guarantees. This is where i get worried. This is like a gentlemans agreement, but nobobdy has to buy these things. The fact is, I feel safer being in a VA than not being in a VA. Some of my biggest clients are down 30-40% easy. If they weren't with me, they probably wouldn't have any money in VA's. But in late 2007/early 2008, 1/3 - 1/2 of their money was put into VA's. Their income bases will increase by 7% over the year. Their mutual funds are still down 35% with no guarantees. No doubt about it. I love selling VA's. I would want a gurantee on my own money. However, i just think we need to slow down right now If you don't, go for it. [/quote] [/quote] Point 1: Rising fees are good if you've purchased the VA to provide you lifetime income regardless of account value. Look, nobody wants to run out of money. If you want to leave money behind, don't buy a living benefit. BUT, I buy the VA with the intention of getting a check for life, so the client will not run out of income. If that means that the sustainability of this product must be met with rising fees, than DO WHATEVER IT TAKES TO MAKE SURE MY INCOME KEEPS COMING TO ME. As to the fees already going up, yes, your rider fees will go up when account value is down, not M&E. Again, this helps the long-term viability of LIFETIME INCOME. Point 2: I understand your concern. I had the same concerns. The thing is, these are profitable companies. They are worth something to someone, and other insurance companies will most likely back them up in that regard. If it got to the point where the VA side of the business was failing, there would be problems in mutual funds, FDIC, etc...Basically, pick your poison. Point 3: You should diversify amongst companies, types of riders, and be smart about what you are doing. Control what you can control.Nov 13, 2008 9:40 pm
the word:
I think this Bobby Hull guy would actually like that. You just told your clients that Bobby Hull is responsible for the investment they made that they like and probably want to tell their friends about. You might lose your clients and their referrals to a hockey player.Like I said, balls up and name you annuity and I will tell you why its not right at the moment. If I am wrong, I will use the annuity and get my clients to sign a form that says “I have Bobby Hull to thank for this fine investment I purchased today.”
Nov 13, 2008 9:44 pm
[quote=the word]Like I said, balls up and name you annuity and I will tell you why its not right at the moment. If I am wrong, I will use the annuity and get my clients to sign a form that says “I have Bobby Hull to thank for this fine investment I purchased today.” [/quote]
Like I asked…What’s in it for me?
Nov 13, 2008 9:45 pm
We’ll just have to agree to disagree. If you think selling a guarantee, when you can’t gurantee that the company issuing the guarantee will exist in six months is prudent, business as usual. I’ll wait it out.
I'm still waiting to find out about this 10% wd for life, as the worst case scenario, Hank.Nov 13, 2008 9:46 pm
Nothing in it for you.
I'll just assume your a liar until you offer some proof.Nov 13, 2008 9:59 pm
[quote=the word]We’ll just have to agree to disagree. If you think selling a guarantee, when you can’t gurantee that the company issuing the guarantee will exist in six months is prudent, business as usual. I’ll wait it out.
I'm still waiting to find out about this 10% wd for life, as the worst case scenario, Hank.[/quote]Can you guarantee that the companies in your mutual funds will exist in 6 months? Being the smartest guy in the special olympics doesn't seem to help you much in the business world.
You hold your breath and when I'm ready to tell you, I'll ask around for blue boy. By the way...there's nothing obscure about this guarantee. Many companies offer it. People who understand annuities can EASILY figure out what I'm talking about. I'm not willing to agree to disagree when I'm right and you're wrong. Nice try, though.
Nov 13, 2008 10:00 pm
[quote=the word]
Nothing in it for you.
I'll just assume your a liar until you offer some proof.[/quote]I have no problem with you assuming that I'm a liar.
Nov 13, 2008 10:04 pm
[quote=the word]We’ll just have to agree to disagree. If you think selling a guarantee, when you can’t gurantee that the company issuing the guarantee will exist in six months is prudent, business as usual. I’ll wait it out.
[/quote] So should I not sell term insurance either? No LTCi or DI? What about whole life?Nov 13, 2008 10:09 pm
[quote=Hank Moody] [quote=the word]We’ll just have to agree to disagree. If you think selling a guarantee, when you can’t gurantee that the company issuing the guarantee will exist in six months is prudent, business as usual. I’ll wait it out.
I'm still waiting to find out about this 10% wd for life, as the worst case scenario, Hank.[/quote]Can you guarantee that the companies in your mutual funds will exist in 6 months? Being the smartest guy in the special olympics doesn't seem to help you much in the business world.
You hold your breath and when I'm ready to tell you, I'll ask around for blue boy. By the way...there's nothing obscure about this guarantee. Many companies offer it. People who understand annuities can EASILY figure out what I'm talking about. I'm not willing to agree to disagree when I'm right and you're wrong. Nice try, though.
[/quote] I agree to disagree with Snags. I just have a feeling that your "10% wd for life as a worst case scenario" is a lie. If not prove it and then we can see who is wrong. Put up or shut up.
Nov 13, 2008 10:21 pm
[quote=the word][quote=Hank Moody] [quote=the word]We’ll just have to agree to disagree. If you think selling a guarantee, when you can’t gurantee that the company issuing the guarantee will exist in six months is prudent, business as usual. I’ll wait it out.
I'm still waiting to find out about this 10% wd for life, as the worst case scenario, Hank.[/quote]Can you guarantee that the companies in your mutual funds will exist in 6 months? Being the smartest guy in the special olympics doesn't seem to help you much in the business world.
You hold your breath and when I'm ready to tell you, I'll ask around for blue boy. By the way...there's nothing obscure about this guarantee. Many companies offer it. People who understand annuities can EASILY figure out what I'm talking about. I'm not willing to agree to disagree when I'm right and you're wrong. Nice try, though.
[/quote] I agree to disagree with Snags. I just have a feeling that your "10% wd for life as a worst case scenario" is a lie. If not prove it and then we can see who is wrong. Put up or shut up. [/quote]
I can already tell you who is wrong. Many, many, many companies are offering something similar. It's your contempt, prior to investigation, that will keep you in everlasting ignorance.
Nov 13, 2008 10:55 pm
the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!
Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?Nov 13, 2008 11:07 pm
[quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!
Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?
Did you even THINK before you posted this? Do they let you help real people with their money?
Nov 13, 2008 11:16 pm
[quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!
Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?
Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote] Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00. Thanks for proving my point about guarantees in the current environment..
Nov 13, 2008 11:23 pm
[quote=the word][quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!
Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?
Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote] Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00. Thanks for proving my point about guarantees in the current environment..[/quote]
Well, Wordy Turdy, I suppose he'll have $50,000 for me to put into an index annuity, where he'll get all of the upside of the market and none of the down side. Speaking of the current environment, which annuity companies aren't making good on their guarantees?
Nov 13, 2008 11:32 pm
[quote=Hank Moody] [quote=the word][quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!
Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?
Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote] Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00. Thanks for proving my point about guarantees in the current environment..[/quote]
Well, Wordy Turdy, I suppose he'll have $50,000 for me to put into an index annuity, where he'll get all of the upside of the market and none of the down side. Speaking of the current environment, which annuity companies aren't making good on their guarantees?
[/quote] But I thought the worst case scenario was $10k for life. Looks like you admit the worst case scenario is much worse. You were wrong Bobby. Try to step out of the spotlight of everlsasting ignorance oh orracle of annuities. I like VA's. They are 70% of my book. I guess i can be objective.
Nov 13, 2008 11:38 pm
[quote=the word][quote=Hank Moody] [quote=the word][quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!
Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?
Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote] Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00. Thanks for proving my point about guarantees in the current environment..[/quote]
Well, Wordy Turdy, I suppose he'll have $50,000 for me to put into an index annuity, where he'll get all of the upside of the market and none of the down side. Speaking of the current environment, which annuity companies aren't making good on their guarantees?
[/quote] But I thought the worst case scenario was $10k for life. Looks like you admit the worst case scenario is much worse. You were wrong Bobby. Try to step out of the spotlight of everlsasting ignorance oh orracle of annuities. I like VA's. They are 70% of my book. I guess i can be objective. [/quote]
I'm sorry that you've grown afraid of VA's. I'm not afraid of them and they're easy to sell.
Nov 13, 2008 11:45 pm
I'm sure they are easy to sell if you lie and misrepresent what you are selling.
Scared?? You call it what you want. The money that we invest are the hard earned dollars of hard working people. I will always be prudent with those funds.
Nov 13, 2008 11:46 pm
[quote=the word][quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!
Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?
Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote] Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00. Thanks for proving my point about guarantees in the current environment..[/quote] Word, You need to calm down a little bit. I felt the way you do now, but you need to call up your wholesaler and have him explain how this works to you over some SBUX. The VA side of an insurance company is a separate entity. It is also a profitable entity. If something happened to the parent company, this division could be sold, since it is an asset. Anything the original company has guaranteed, must be backed up by the new company. Also, insurance companies MUST maintain enough reserves to fulfill anything they have guaranteed. This includes living benefits. The VA companies have built in a few buffers. 1. They can raise rider fees. 2. Rider fees are usually based on income base value, but charged to account value. 3. Some companies use options to hedge or move you out of the market or a combination of the two. It is important to find a company that is hedging the right way. I happen to be of the opinion that proper hedging should be based upon the difference of income base vs. account value. The companies I use hedge this way. Some companies hedge for interest rate changes, or other risks that I think are of less importance. In a way, you can think of it like social security. Future buyers will pay for the benefits of today's buyers. Also, remember, not everyone who bought a VA will take income at the same time. And when you take income, you are taking it from your account value until it runs out. There was a good conference call I was on with one of the companies I use about their hedging strategies. With the options they use, in the first two weeks of October, they made $1 Billion. It is also important to find a company that does not have all their business made up of VA's.
Nov 14, 2008 12:01 am
No way i need to calm down. I have to sit here and listen to Bobby spew his smartass comments from his perch on high. You better beleive I am going to let him know when he is wrong and is lying. As is the case in this thread.
Snags, I'm not calling my wholesaler for objective info. All of what you said is relevant and I've heard it all before. Like, I said we can agree to disagree. I will not sell them until their is more clarity about the indusrty.Nov 14, 2008 2:40 am
[quote=the word]No way i need to calm down. I have to sit here and listen to Bobby spew his smartass comments from his perch on high. You better beleive I am going to let him know when he is wrong and is lying. As is the case in this thread.
Snags, I'm not calling my wholesaler for objective info. All of what you said is relevant and I've heard it all before. Like, I said we can agree to disagree. I will not sell them until their is more clarity about the indusrty. [/quote]"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?
What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.
Nov 14, 2008 2:56 am
[quote=Hank Moody] [quote=the word]No way i need to calm down. I have to sit here and listen to Bobby spew his smartass comments from his perch on high. You better beleive I am going to let him know when he is wrong and is lying. As is the case in this thread.
Snags, I'm not calling my wholesaler for objective info. All of what you said is relevant and I've heard it all before. Like, I said we can agree to disagree. I will not sell them until their is more clarity about the indusrty. [/quote]"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?
What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.
[/quote] Hank, can you explain the '10% lifetime cash flow' comment? Are you referring to a GMIB rider? It's a strong conversation point, and I want to make sure I understand what you're showing your client. TIA.
Nov 14, 2008 3:52 am
[quote=deekay][quote=Hank Moody] [quote=the word]No way i need to calm down. I have to sit here and listen to Bobby spew his smartass comments from his perch on high. You better beleive I am going to let him know when he is wrong and is lying. As is the case in this thread.
Snags, I'm not calling my wholesaler for objective info. All of what you said is relevant and I've heard it all before. Like, I said we can agree to disagree. I will not sell them until their is more clarity about the indusrty. [/quote]"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?
What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.
[/quote] Hank, can you explain the '10% lifetime cash flow' comment? Are you referring to a GMIB rider? It's a strong conversation point, and I want to make sure I understand what you're showing your client. TIA.[/quote]
It's not a GMIB rider. I'd explain it, but I don't want "The Tord" to benefit from any of my ideas.
Nov 14, 2008 3:36 pm
[quote=Hank Moody] [quote=the word]No way i need to calm down. I have to sit here and listen to Bobby spew his smartass comments from his perch on high. You better beleive I am going to let him know when he is wrong and is lying. As is the case in this thread.
Snags, I'm not calling my wholesaler for objective info. All of what you said is relevant and I've heard it all before. Like, I said we can agree to disagree. I will not sell them until their is more clarity about the indusrty. [/quote]"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?
What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.
[/quote] You already admitted that this was a lie. Worst case is you are stuck with your account value after the annuity company goes under. Why do you insist on lying to your clients to make a sell? The clarity I need is for AIG to not need to beg for emergeny capital from the US government, for ING not to beg for emergency capital from the Dutch government, for Hartford to not need emergency capital from Allianz. I would argue that that a sell does not need to be made in every environment.
Nov 14, 2008 4:24 pm
"The VA side of an insurance company is a separate entity. It is also a profitable entity. If something happened to the parent company, this division could be sold, since it is an asset. Anything the original company has guaranteed, must be backed up by the new company.
Also, insurance companies MUST maintain enough reserves to fulfill anything they have guaranteed. This includes living benefits.
The VA companies have built in a few buffers. 1. They can raise rider fees. 2. Rider fees are usually based on income base value, but charged to account value. 3. Some companies use options to hedge or move you out of the market or a combination of the two."
Snags, I'm not trying to pick on your post, but there's some things here that are worth further conversation.
The VA side of an insurance company is not a separate entity. The money inside of a VA is in separate accounts, but that's not the same thing.
Sure, a company could sell it's VA business. It's an asset, but just because it's an asset doesn't mean it has value. Ex. XYZ insurance company just got into the VA business. They have one contract on the books. It was purchased with $100,000. The current contract value is $70,000. It has a death benefit of $100,000 and a GMIB value of $106,000. The insurance company collects fees of 1.5% of the contract value for the M&E and .85% of the GMIB value. Now, multiply this by thousands of contracts like this. If these contracts values are underwater, why would a third party pay money for them?
They do have to keep reserves, but these reserve requirements don't have to be enough to fulfill any guarantees. This is because it's impossible to know how much is actually needed. When someone invests $100,000 into a VA, what's the worst case scenario for the insurance company? I think that the worst case scenario is if the VA has an enhanced death benefit and the market completely tanks. ie. someone invests $100,000 and their value goes to $30,000, but their death benefit has increased to $150,00. If the market does this type of tanking, there is not enough money in reserves from the VA business. Hopefully, their other businesses can pick up the slack. Maybe I'm wrong, but I don't that the companies have put enough money into reserves to handle separate account losses of 50%+.
Raising the rider fee is a really interesting concept. Is this really a buffer? I think that it may not be. I'm thinking out loud on this one, so please give me your 2 cents. As you said, they are charged to the account value, but based upon the rider amount. Therefore, when the account value drops, the rider fee as a a % of the contract value increases. This increases the chance that the contract value will drop further. If we then couple this with an increased rider fee, the contract value will drop even faster. Doesn't this then mean that since the separate account becomes less, the insurance company is ultimately on the hook for more money?
Nov 16, 2008 5:45 am
I agree, it's sort of a catch 22 with these variable annuities. The more likelihood that your standard mutual funds will go to zero would also increase the likelihood of the insurance company not making good on their VA guarantees.
Keep in mind NO ONE has to buy out the VA part of these insurance companies and NO, state guaranties will not step in for these income/withdraw guarantees. They only protect the GENERAL account of the insurance companies. i.e fixed annuites and the fixed account within a VA. I don't care how the wholesalers spin the VAs and how their companies hedge against risk because I personally feel that no company's room full of hundred PHD actuarties are better than another's. What it comes down to is how much risk they are willing to take, how much their shareholders are pressuring them for profit (as far as the stock insurance companies go). For example, I think AXA HAD the strongest GMIB product out there for the longest time but as of this year's -40% downturn, they are decreasing the features on the product and increasing the fees. With a 6% withdraw and a 3% fee to start you off, the only thing you're guaranteed is the income based off the insurance company's annuitization chart. There is NO upside potential in the long run. Imagine three bear markets, early 90's, 2001, and right now. During these rough times, your clients' fees probably increased from 3% to anywhere between the ranges of 5-6% (as your account value drops, the fee anchor gets heavier on the guarantee side). The only way to get upside potential is to use the mutual end insurers with the less fancy guarantees, which totals around 2% and does not base their fees off the guarantees. With that said, I think that anyone using withdraw benefits should be safer than people using income benefits. From a business standpoint, withdraw benefits are much more predictable by the actuaries versus an income benefit. Don't get me wrong, I completely believe in the product for any conservative investor for qualified plans.Nov 18, 2008 1:54 am
[quote=anonymous]
Raising the rider fee is a really interesting concept. Is this really a buffer? I think that it may not be. I'm thinking out loud on this one, so please give me your 2 cents. As you said, they are charged to the account value, but based upon the rider amount. Therefore, when the account value drops, the rider fee as a a % of the contract value increases. This increases the chance that the contract value will drop further. If we then couple this with an increased rider fee, the contract value will drop even faster. Doesn't this then mean that since the separate account becomes less, the insurance company is ultimately on the hook for more money?[/quote] Anon, Yes, I definitely think it's a buffer. Since you asked, here's my 2 cents: First, let's make a point. One company I use clearly states in the prospectus, that they can not raise your rider fee in the first 5 years of the contract. If the market has any kind of recovery in the next 5 years, which is entirely possible, this discussion might just be a moot point. Ok, so let's say you're past the first 5 years and they are going to raise your rider fee. You have a choice: Either you can elect to pay the higher rider fee, or you can elect not to pay the higher amount and lose the quarterly ratchet feature of your VA, but still maintain the MAW. Here's the speculation on my part. If after 5 years, the insurance company decides to raise your rider fee, we are probably in a pretty bad state in the markets. Therefore, you're less likely to be getting above average returns in the market. It would seem the guaranteed 7% growth of income base would probably be the best option. So, if you are in the accumulation phase, you would probably want to pay the extra fee to keep getting your guaranteed 7% step-ups. If you are in the distribution phase, your contract value would quite possibly be under the income base high watermark, so it wouldn't be likely that market returns + withdrawals would help get you any higher ratchets. Therefore, you wouldn't elect to pay more for the rider, forego the quarterly ratchet, and continue to receive your MAW. Something else to consider: People are still buying VA's. They bought them at Dow 12000, 14000, 12000, 10000, 8000, and everywhere inbetween. People will continue to buy them. Not everyone will be taking money out at the same time. And when they do begin to take money, they are taking their own money until the point their contract value reaches zero. Some people will live long enough to get income after the contract value hits zero, others will not. That's simple insurance logic. Some people will never take income from their VA's. Others will take out more than their MAW and will reduce their benefit. And some will take out more than their MAW thereby reducing their contract to zero and completely cancelling their income. And all while this stuff is happening, the market will continue to go up and it will continue to go down. The insurance companies will continue to make money on a fee basis and through their hedging strategies. If it gets to the point that insurance companies can't meet their insurance guarantees, it will be the end of the economy. If (when) insurance companies begin paying out income after contract values hit zero, it will work the same way social security works. The fees from the new buyers will be used to pay the income for the old buyers. I would just try to work with companies whose lines of business are very diversified and employ hedging strategies that hedge against the biggest risks.Nov 19, 2008 3:16 am
[quote=snaggletooth][quote=anonymous]
Raising the rider fee is a really interesting concept. Is this really a buffer? I think that it may not be. I'm thinking out loud on this one, so please give me your 2 cents. As you said, they are charged to the account value, but based upon the rider amount. Therefore, when the account value drops, the rider fee as a a % of the contract value increases. This increases the chance that the contract value will drop further. If we then couple this with an increased rider fee, the contract value will drop even faster. Doesn't this then mean that since the separate account becomes less, the insurance company is ultimately on the hook for more money?[/quote] Anon, Yes, I definitely think it's a buffer. Since you asked, here's my 2 cents: First, let's make a point. One company I use clearly states in the prospectus, that they can not raise your rider fee in the first 5 years of the contract. If the market has any kind of recovery in the next 5 years, which is entirely possible, this discussion might just be a moot point. Ok, so let's say you're past the first 5 years and they are going to raise your rider fee. You have a choice: Either you can elect to pay the higher rider fee, or you can elect not to pay the higher amount and lose the quarterly ratchet feature of your VA, but still maintain the MAW. Here's the speculation on my part. If after 5 years, the insurance company decides to raise your rider fee, we are probably in a pretty bad state in the markets. Therefore, you're less likely to be getting above average returns in the market. It would seem the guaranteed 7% growth of income base would probably be the best option. So, if you are in the accumulation phase, you would probably want to pay the extra fee to keep getting your guaranteed 7% step-ups. If you are in the distribution phase, your contract value would quite possibly be under the income base high watermark, so it wouldn't be likely that market returns + withdrawals would help get you any higher ratchets. Therefore, you wouldn't elect to pay more for the rider, forego the quarterly ratchet, and continue to receive your MAW. Something else to consider: People are still buying VA's. They bought them at Dow 12000, 14000, 12000, 10000, 8000, and everywhere inbetween. People will continue to buy them. Not everyone will be taking money out at the same time. And when they do begin to take money, they are taking their own money until the point their contract value reaches zero. Some people will live long enough to get income after the contract value hits zero, others will not. That's simple insurance logic. Some people will never take income from their VA's. Others will take out more than their MAW and will reduce their benefit. And some will take out more than their MAW thereby reducing their contract to zero and completely cancelling their income. And all while this stuff is happening, the market will continue to go up and it will continue to go down. The insurance companies will continue to make money on a fee basis and through their hedging strategies. If it gets to the point that insurance companies can't meet their insurance guarantees, it will be the end of the economy. If (when) insurance companies begin paying out income after contract values hit zero, it will work the same way social security works. The fees from the new buyers will be used to pay the income for the old buyers. I would just try to work with companies whose lines of business are very diversified and employ hedging strategies that hedge against the biggest risks. [/quote] Hey Snags, if you don't mind me asking, have any of your clients began taking out withdraws yet?Nov 19, 2008 4:06 am
[quote=ChrisVarick]
Hey Snags, if you don't mind me asking, have any of your clients began taking out withdraws yet?[/quote] Not yet, I want these things to grow getting the 7% step up for as long as possible.Nov 20, 2008 8:40 pm
Watch out for those step-ups. Some VA’s reset their 10-year accumulation period each year you elect a step-up, plus they can raise the rider fees too.
Nov 20, 2008 9:14 pm
I think you’re confused with the manual watermark resets. What Snags is referring to is the guaranteed growth on the withdrawal base.
Most rider fees are guaranteed for the length of the surrender schedule; at least the ones I’m using anyway.
Nov 21, 2008 1:39 am
gregoron:
7% growth on the income base does not raise fees. a 15% market step up/ratchet on the income/withdraw base COULD trigger a fee increase, in this market, I doubt any portfolio could beat ING's 7% guaranteed growth. No need to worry about that...Watch out for those step-ups. Some VA’s reset their 10-year accumulation period each year you elect a step-up, plus they can raise the rider fees too.
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