Equity Indexed Annuities

Apr 4, 2008 2:00 pm

What is everyone's thoughts on Equity Indexed Annuities.  Due to these markets, its a great time to offer downside protection with upside potential.  Can someone suggest a clean/intuitive product that would be suitable for my clients.  I've been hearing about a new product called the Structured Allocation Annuity developed by Annexus Financial, LLC.  Its a 6 year pt. to pt. with very little moving parts.  I think I might take a look at it.

Apr 4, 2008 3:18 pm

Wow, I actually have heard about this new product I also dug a bit deeper and it truly is unique.  I can’t find another firm that has anything close to this, its so transparent.  Looks like its underwritten by AVIVA which is a huge insurance company out of England getting into the US market.

Apr 4, 2008 3:21 pm

The EIA’s I have seen have huge surrender charges.  I’ve seen as high as 20%.   The people selling EIA’s have typically been people without a securities license and quite frankly clueless.  I cannot think of ANY situation where an EIA makes sense to anyone but the salesman selling it.

Apr 4, 2008 3:28 pm

Henry, let me ask you a ?  Do you have any clients currently worried about the market or looking to get out all together?  How do you guarantee your clients downside protection as well as piece of mind?  In my research the Structured Allocation Annuity is a 6 year pt. to pt.  with no moving parts and a surrender of 9,9,8,7,5,3

With the current rates the product looks pretty sweet

Apr 4, 2008 3:50 pm

Here’s how some guys in my area have used EIAs to make themselves very, very wealthy:

  1. Aggressively tell everyone you know that investing in the stock market is like gambling in  Las Vegas. 2. Tout the wonderful upside potential and downside protection of EIAs. 3. Don't talk about surrender fees, loooong maturity dates, the fact that the 10% "free withdrawal" causes them to lose any and all interest that was credited to the amount they're withdrawing, the fact that they'll have to annuitize to get the interest and the bonus they were promised when they bought the annuity or that even the death benefit cannot be withdrawn in a lump sum without incurring surrender fees. 4. Sell the annuity to them and make as much as 15% on the transaction. 5. Call them 13 months from the time of the original purchase and tell them you've found a better annuity that they should move their "free withdrawal" money into. (There's another commission for you.) 6. Get a prescription for Ambien to sleep at night. 7. Start over at step #1.
Apr 4, 2008 4:00 pm

Great feedback Borker Boy.  I know EIA’s have had a tainted image.  However, I have to disagree with you because there is a need for this strategy in a client’s portfolio.  But in all honesty, can you come up with a stratgey that offers downside protection with upside potential other than an EIA.  According to what I have read, the Sructured Allocation Annuity is not an annual reset, its a 6 year pt. to pt. thats priced daily so your client realizes gains to date thereby eliminating the typical look back provision of an annual pt. to pt.  That sounds pretty innovative and compliant to me. 

Apr 4, 2008 4:45 pm

hey heddy, I think you hit the nail on the head!  It also looks like the product your speaking of addressed some of issues that were wrong with EIA’s.  They gave it liquidity and a better tax efficiency that addresses the age old “phantom income” it looks like.

Apr 4, 2008 4:58 pm

Dearest heddymm06,

  Thanks so much for gracing us with your presence.   I'm sure that we can count on you to continue to educate us on this issue.   Please hurry up and tell us how we can get involved with Annexus.  Also, don't forget to let us know why all of our clients will benefit from this fine product and how this is the best EIA.     
Apr 4, 2008 5:19 pm

Mr. Anonymous, since I’m feeling a little tone in your message.  How does the expert “Mr. Anonymous” manage downside risk?  Do you have any recommendations for EIA’s?  I came across the Annexus one and can’t find anything out there that could compare.

Apr 4, 2008 5:48 pm

Can anyone say, WHOLESALER?!



The giveaway was that both of you buttheads(heddy & mm06) joined today, and you’ve only posted in 1 thread…



Now, please leave.

Apr 4, 2008 5:59 pm

Ashland “Mr. 2 Million AUM”…  How you manage downside risk? 

Apr 4, 2008 6:00 pm

Ashland Pumpkin!  why are you getting worked about a discussion forum.  I don’t know who heddy is and on top of that I’m really interested in the EIA biz!  you leave!

Apr 4, 2008 6:07 pm

Wow, we’ve had some bold people come visit us from time to time, but this guy takes the cake.  Do you really believe that we think mm06 and heddy32 are two different people? 

  Some questions about your wonderful annuity, since you didn't give us any details:   1) Annual fees 2) Surrender period and provisions for free withdrawal 3) What is it indexing 4) Participation Rate 5) Is there a cap on the participation rate 6) guaranteed minimum   Finally, one more question.  How do you feel about the regulators calling for the adoption of the NAIC's Suitability of Annuity Transactions and requiring indexed product training for sellers of EIAs, which could take effect sometime this year?  How's it feel to be a part of an industry that has virtually no accountability to any regulators for ethical standards and sales practices?  I think I'd take Borker Boy's advice and go ask your doc for some Ambien.            
Apr 4, 2008 6:08 pm

heddymm, Can you give me a specific situation in which an EIA would be the best product for the client?   Furthermore, can you please tell me why the EIA that you are pushing would be the best one for the client to buy?  Finally, how much money will I make from selling this EIA to the client in this situation? 

Apr 4, 2008 6:17 pm

Mr. Anonymous, 

  Have you had clients that have lost most of their nest egg due to the volatile market?  Now they're afraid of the market and want to be invested in instruments that barely keep up with inflation.  I'm not saying to put all of your clien't eggs in one basket, but I believe a portion deserves principal protection with upside potential ties to the market.  Do  
Apr 4, 2008 6:25 pm

Heddy, for these clients, which EIA should I use?

Apr 4, 2008 6:33 pm

Mr Anonymous…  Why you do think I posted this thread?  I am looking for some advice.  What would you use as an alternative to EIAs if you believe they are all unsuitable? 

Apr 4, 2008 6:38 pm

I’ve used Jackson National’s EIA.  Five year surrender and half the commission of similar VAs, so I’m certainly not selling it to people to make more money!

  Anon, my slot for such an EIA is in between VA's and FA's...no downside risk, a small guaranteed return, even if the crediting index doesn't work (Jackson pays 3% on 90% of the initial deposit...not much, but at least not a goose-egg at five years), and some market potential.  Return locks in each year.  The audience is limited...a client should make more in a VA, but every once in awhile, I get a client who (1) needs somethings besides a CD, (2) wants assurance that they will make SOMETHING and get their principal back too, (3) do not want a long-term committment (five years in my example and they are out with profits of they want) and (4) Could benefit from some sort of minimal equity exposure.   I think some of the newer EIAs are quite a bit more transparent and less costly than the old ones that I demonize along with most of the rest of you.  I've seen some truly terrible abuses in EIAs and have thus been very slow and very cautious to adopt.  If there are holes in my suitability analysis and any of you have better suggestions, I'd gladly hear them.  I'll admit that I'm pretty new to the EIA game, and I'm sincere in being very open to better suggestions.  As near as I can tell, these things probably average in the 5-8% return range...a little better than fixed annuities and probably a bit lower than VA's.
Apr 4, 2008 6:41 pm

Don’t feed the troll.

Apr 4, 2008 6:45 pm

Thanks Indyone for the great info.  I do agree that the newer contracts are much more transparent.  My only issue with annual pt. to pt. is that you do not know what your client is going to receive year to year because of the volatile options market.  Would you agree?  Ashland… Go pound sand

Apr 4, 2008 6:51 pm
"Mr Anonymous...  Why you do think I posted this thread?  I am looking for some advice.  What would you use as an alternative to EIAs if you believe they are all unsuitable?"    Heddy, Work on your reading comprehension.   You haven't seen me post one negative thing about EIA's.  I think that you are posting because you have a vested interest in the sale of a specific EIA.   I'll repeat what I say every time that the subject of EIA's come up.  EIA's are simply fixed annuities with a different crediting methods than traditional fixed annuities.  They are appropriate whenever a fixed annuity is appropriate and the client wants the opportunity to make a little bit more in exchange for taking the risk that they may make a little bit less.   I may be the exception, but I really haven't had clients say too much in this market.  I think that it may be because one promise that I make to all of my clients is a promise that I will lose money for them.  (no sarcasm intended)
Apr 4, 2008 6:55 pm

Hey heddy32 - how about you answer my questions so we can see how good this annuity you have really is?  Feel free to add any other info you might feel is pertinent.

Apr 4, 2008 7:01 pm

Spaceman Spiff.  Why do they call you spaceman?  I do not have product specs for any contract. 

Apr 4, 2008 7:07 pm

Guys it sounds to me like heddy32 is just blowin smoke, but I would definitely look into Annexus.  Leaving now its happy hour somewhere in the world

Apr 4, 2008 7:12 pm

[quote=anonymous]

"Mr Anonymous...  Why you do think I posted this thread?  I am looking for some advice.  What would you use as an alternative to EIAs if you believe they are all unsuitable?"    Heddy, Work on your reading comprehension.   You haven't seen me post one negative thing about EIA's.  I think that you are posting because you have a vested interest in the sale of a specific EIA.   I'll repeat what I say every time that the subject of EIA's come up.  EIA's are simply fixed annuities with a different crediting methods than traditional fixed annuities.  They are appropriate whenever a fixed annuity is appropriate and the client wants the opportunity to make a little bit more in exchange for taking the risk that they may make a little bit less.   I may be the exception, but I really haven't had clients say too much in this market.  I think that it may be because one promise that I make to all of my clients is a promise that I will lose money for them.  (no sarcasm intended) [/quote] I had to comment simply because in many of my conversations I tell my clients the same thing:   "Mr X, if I am doing my job correctly there will be a minority of years where we will lose some principal"   If you NEVER want a year where you lose some principal here are a few products that may be appropriate for your situation.   scrim
Apr 4, 2008 7:16 pm

Spaceman Spiff was a character from Calvin & Hobbes. 

 
Apr 4, 2008 7:19 pm

Scrim, I don’t even say “minority”.  I just straight out promise to lose money for them some years.  I then explain why we don’t care and why it is important that we have safe money also and this includes long and short term safe money.

Apr 4, 2008 7:19 pm

OK, Heddy. Do you represent this annuity?

Apr 4, 2008 7:22 pm

Everybody…  It was a pleasure conversing with all of you.  I certainly learned alot and put, what I learned, into action as I try to enhance my book of business.  A portion of baby boomers and retired individuals assets belong in EIAs unless you want to have to constantly answer to individuals when the market is making rapid swings.  Good night and God Bless.   

Apr 4, 2008 7:36 pm
heddy32:

Thanks Indyone for the great info.  I do agree that the newer contracts are much more transparent.  My only issue with annual pt. to pt. is that you do not know what your client is going to receive year to year because of the volatile options market.  Would you agree?  Ashland… Go pound sand

  I'll start by saying that if you are here promoting a specific EIA, you're wasting your time.  As others have noted, there are some suspicious elements to the two personalities that showed up nearly simultaneously and pounding the table about the same EIA that none of us have ever heard of and that I frankly don't have desire to do due diligence on.  Most of us here have about all the product we want.   That being said, Jackson has plenty of crediting methods other than point to point.  There's monthly sum and monthly average, so you can play it several wasy in the same contract if you're concerned about options volatility.  In the end, EIAs fit a very small part of my practice and therefore, if I have a vendor I'm satisfied with (and I am), it's pretty doubtful that I'll make a change without compelling evidence that another contract is better.  While the one referenced MIGHT be better, I've yet to see any compelling evidence.  If you can address the questions that have been posed, I may change my mind, but so far, your posts sound like an endorsement without answering why.  Give us proof why yours is better and perhaps you'll get a more positive response.
Apr 4, 2008 8:30 pm

OK, mm06, do you represent this annuity?

Apr 7, 2008 7:13 pm
heddy32:

Everybody…  It was a pleasure conversing with all of you.  I certainly learned alot and put, what I learned, into action as I try to enhance my book of business.  A portion of baby boomers and retired individuals assets belong in EIAs unless you want to have to constantly answer to individuals when the market is making rapid swings.  Good night and God Bless.   

  God bless? You sell piker products to clients who probably deserve better but you still have time to grace us with God's blessing?   Freaking crooks. Sell an equity linked CD if you want upside potential with no downside. You guys are a waste of oxygen.
Apr 7, 2008 10:26 pm
anabuhabkuss:

[quote=heddy32]Everybody…  It was a pleasure conversing with all of you.  I certainly learned alot and put, what I learned, into action as I try to enhance my book of business.  A portion of baby boomers and retired individuals assets belong in EIAs unless you want to have to constantly answer to individuals when the market is making rapid swings.  Good night and God Bless.   

  God bless? You sell piker products to clients who probably deserve better but you still have time to grace us with God's blessing?   Freaking crooks. Sell an equity linked CD if you want upside potential with no downside. You guys are a waste of oxygen.[/quote]   Why is an equity-linked CD better than an EIA?   Mind you, I do not sell EIAs or equity-linked CDs, I would like to know how one is better/worse than the other.  TIA.
Apr 8, 2008 7:21 pm

An equity-linked CD offers little to no liquidity... not to mention annual tax implications for your clients.

Apr 8, 2008 8:01 pm

Back again, I see.

Apr 8, 2008 8:14 pm

I had an insurance guy last year try and convince me EIAs made since and he showed me a specific one. I don’t recall which one, but it was capped at 6% in the perfect market scenario, with a 1% guaranteed minimum. On average the market is down 1 in 4 years so you should expect to make 1% in one of those years. If you make the best at 6% the other 3 your avg return is still only 4.75% (assuming no flat or imperfect market). Why would that be better than the 4.5% FIXED annuity for 5 years with only half the surrender charges that I can get today (I think it was better than 5% last year when he discussed it). I just don’t get it.



Full Discolsure: At EDJ I couldn’t have sold it if I wanted to.

Apr 8, 2008 8:49 pm

Hey Ashland how was your weekend?

Apr 8, 2008 9:20 pm

It was great, mm06, thanks for asking. Say, along with this EIA that you represent, do you have a contraption that can recycle butter?

Apr 8, 2008 9:30 pm

[quote=heddy32]

An equity-linked CD offers little to no liquidity... not to mention annual tax implications for your clients.

[/quote]   You've got a lot to learn about these...as of this post you are 0-2.
Apr 8, 2008 9:33 pm
Incredible Hulk:

I had an insurance guy last year try and convince me EIAs made since and he showed me a specific one. I don’t recall which one, but it was capped at 6% in the perfect market scenario, with a 1% guaranteed minimum. On average the market is down 1 in 4 years so you should expect to make 1% in one of those years. If you make the best at 6% the other 3 your avg return is still only 4.75% (assuming no flat or imperfect market). Why would that be better than the 4.5% FIXED annuity for 5 years with only half the surrender charges that I can get today (I think it was better than 5% last year when he discussed it). I just don’t get it.

Full Discolsure: At EDJ I couldn’t have sold it if I wanted to.

  I don't blame you for not liking that piece of crap.  Just know that it's far from representative of all EIA contracts.  That kind of high-commission, low-potential crap is why EIAs have such a bad name.  Just know that there are better contracts out there than that one...they just don't pay the advisor as well...
Apr 9, 2008 1:07 pm

Indyone.  I believe you need to study up a little on these products cause I think your 0-2…

Liquidity Risk.  Investors typically will have limited opportunities, if any to redeem their equity-linked CDs prior to maturity.  Moreover, the financial institutions do not guarantee the existence of a secondary market.  Many equity-linked CDs do not permit the early withdrawal of your investment without the consent of the financial institution.  If you need to withdraw your investment before the CD matures, you will incur withdrawal penalties.  You also will lose any interest that you would accrue in a regular CD that has the same terms. There is no exception for CDs held in either a traditional IRA account or a Coverdell Education Savings Account (CSA).  Therefore, you should carefully consider your retirement needs or the educational needs of a beneficiary of a CSA before investing in equity-linked CDs.  Other equity-linked CDs allow for redemption only on pre-specified redemption dates.  Therefore, you may not be able to redeem your equity-linked CD when you may want or need your money to be available.
Tax Treatment.  Equity-linked CDs may be treated differently than traditional CDs for tax purposes.  Before investing in these products, you should carefully review the disclosures concerning the reporting of interest income and consult a tax adviser if appropriate.  
Apr 9, 2008 2:57 pm

Alright, alright…I didn’t see the word CD.  I thought you were talking about an EIA. I stand corrected as I was answering the wrong question.

  That answers my question about why you jumped the fenced so quick on EIAs...I'll try to read more carefully next time.
Apr 9, 2008 5:37 pm

[quote=heddy32]Indyone.  I believe you need to study up a little on these products cause I think your 0-2…

Liquidity Risk.  Investors typically will have limited opportunities, if any to redeem their equity-linked CDs prior to maturity.  Moreover, the financial institutions do not guarantee the existence of a secondary market.  Many equity-linked CDs do not permit the early withdrawal of your investment without the consent of the financial institution.  If you need to withdraw your investment before the CD matures, you will incur withdrawal penalties.  You also will lose any interest that you would accrue in a regular CD that has the same terms. There is no exception for CDs held in either a traditional IRA account or a Coverdell Education Savings Account (CSA).  Therefore, you should carefully consider your retirement needs or the educational needs of a beneficiary of a CSA before investing in equity-linked CDs.  Other equity-linked CDs allow for redemption only on pre-specified redemption dates.  Therefore, you may not be able to redeem your equity-linked CD when you may want or need your money to be available.
Tax Treatment.  Equity-linked CDs may be treated differently than traditional CDs for tax purposes.  Before investing in these products, you should carefully review the disclosures concerning the reporting of interest income and consult a tax adviser if appropriate.  [/quote]   Next time you pass yourself off as the expert on equity-linked CDs, try not to copy a source that is the first link listed in a google search of "equity-linked cds".   http://www.sec.gov/answers/equitylinkedcds.htm   Tell us, since you are an impartial witness to all of this, what are the downsides of an EIA?
Apr 9, 2008 6:50 pm

Hey Deekay.  Mr. Senior Idiot…  I stated what the downsides were in my previous post anddyone obviously did not believe me so I need concrete evidence you moron.  There are definitely downsides to an EIA, but I’m sure you already know them Mr. Deekay…

Apr 9, 2008 7:57 pm

Hey Ashland where are you?

Apr 9, 2008 9:37 pm
heddy32:

Spaceman Spiff.  Why do they call you spaceman?  I do not have product specs for any contract. 

  You, or your alter ego, started out this thread with some hype about this new Structured Allocation Annuity from Annexus.  You tout it as a "clean/intuitive" product suitable for your clients.  Then you tell us it's underwritten by a company out of England.  The only real detail you give us is that it is a 6 year point to point.  If it's that great and suitable for your clients, how come you don't have any other details?  Surrender period?  Caps?  Participation rate?  You're going to sell this to your clients, but you don't have any product specs available to answer such simple questions?  Nowhere in your posts did you talk about any downsides of this EIA.  So, why don't you grab whatever prospectus type document you might have for this thing and give  up some of the details.   
Apr 10, 2008 12:04 pm
heddy32:

Hey Deekay.  Mr. Senior Idiot…  I stated what the downsides were in my previous post anddyone obviously did not believe me so I need concrete evidence you moron.  There are definitely downsides to an EIA, but I’m sure you already know them Mr. Deekay…

  I simply wanted you to, in the future, cite your sources when explaining your point.  You made it seem like the comments you cut and pasted were your own.  When, in fact, it was off the SEC website.   I asked earlier what the downsides of an EIA are.  Would you care to enlighten me, or should I google that as well?    The only reason you're getting so bent out of shape with me is because you know the other posters have already called you out.  You're a thinly-disguised annuity wholesaler, passing yourself off as a retail rep.  Frankly, I wouldn't be suprised to find out you are a sub-par wholesaler at that.  Your grammar and thin skin are a dead giveaway.
Apr 10, 2008 12:54 pm

Deekay…  We can compare W2s anyday…  I’m not getting bent out of shape.  I find it amusing how serious you folks take this online forum…

Apr 10, 2008 1:04 pm

Hey deekay take it ease

Apr 10, 2008 7:54 pm
heddy32:

Deekay…  We can compare W2s anyday…  I’m not getting bent out of shape.  I find it amusing how serious you folks take this online forum…

  You called me a moron and you tell me I take it too seriously?    Well, either way, you're mentally deficient.  And we'll leave it at that.
Apr 14, 2008 8:11 pm

did anyone see the dateline story yesterday on salesman selling EIA’s?  Chris Hanson made them look like the crooks that they are.

Apr 14, 2008 9:45 pm
henryhill:

did anyone see the dateline story yesterday on salesman selling EIA’s?  Chris Hanson made them look like the crooks that they are.

  Careful to paint all with a broad brush stroke.  The same could be said for an advisor charging 1.5% + fund fees for a MF wrap account.
Apr 15, 2008 1:42 pm

mm06-

I've never heard of a structured allocation annuity, very interesting thanks for posting. One product that my firm offers that does have a principle protection feature with uncapped upside is a structured product (equity linked notes). There was an article in InvestmentNews the other day on these types of investments. These products range from 18 months to 5+ years and have exposure to global and major indicies, commodities, different sectors or a combination of all. One of the more recent successful offerings was a short on the real estate market, came out 2 years ago and is up 50%. You can customize this product for a client with $1MM+ in assets. I work at an Indy firm that gets to cherry pick the best products from Credit Suisse, JP Morgan, MS, CIBC, HSBC, etc.   Would like to hear any feedback or further info on the structured allocation annuity.
Apr 15, 2008 4:58 pm
iceco1d:

[quote=deekay][quote=henryhill]did anyone see the dateline story yesterday on salesman selling EIA’s?  Chris Hanson made them look like the crooks that they are.

  Careful to paint all with a broad brush stroke.  The same could be said for an advisor charging 1.5% + fund fees for a MF wrap account.[/quote]   Yea....that's almost similar![/quote]   Gee, I dunno, charging 2.3%+ all in for doing absolutely nothing seems kinda outrageous to me.   Look, I don't want to get into an argument about this.  My point was that we all as colleagues should be careful to call every EIA/wrap/VA/SMA advisor a crook because it doesn't conform to how we feel an advisor's practice should look like.
Apr 15, 2008 6:17 pm

I will submit that crook is a strong word but in your opinion, when is an EIA suitable?  I would answer never.

Apr 15, 2008 6:24 pm

An EIA is nothing more than a fixed annuity with a different crediting method than a traditional fixed annuity.  Therefore, it is suitable whenever a fixed annuity is suitable.  It makes sense when the fixed annuity purchaser is willing to take the chance of getting a higher return than a traditional fixed annuity, in exchange for taking the risk that the return may be lower. 

  The product is fine, but I would agree that there are many crooks selling them and the insurance companies are involved with letting unsuitable sales get approved.     Personally, I think that they are "suitable" in many instances, but in the clients "best interest" on rare occassions.  For the record, I have never sold one in the past and now, I don't think that my B/D will approve their sale.
Apr 16, 2008 2:17 am
henryhill:

I will submit that crook is a strong word but in your opinion, when is an EIA suitable?  I would answer never.

  You're showing your ignorance here.  The right EIA is plenty suitable for a CD-only prospect.  The Allianz shit in that piece and the slimeballs who sell it and similar contracts deserve all the abuse that they got, but that is far from the universe of EIAs.  The one I use is 5 years, pays some interest regardless of the market, gives some upside market participation AND allows you to walk away after five years with principal plus.  Show me a mutual fund, VA, or stock that guarantees that.
Apr 17, 2008 3:56 pm

My name is Sheryl J. Moore, and I am an independent market research analyst that owns a consulting firm which tracks every product and company in the indexed annuity market, as well as the sales of the products.

I must admit, was sorely disappointed after seeing the undercover investigation on Dateline.

Was Dateline trying to use psychological methods by repeating the chant “indexed annuities have lengthy surrender charges?”

Fact: the average surrender charge duration on indexed annuities sold as of the fourth quarter of 2007 was ten years. (Source: AnnuitySpecs.com Advantage Index Sales & Market Report.) Are there products on the market with longer surrender charges? Yes- as long as 16 years and as short as one year, but longer-term products usually come with a premium bonus to enhance the consumer’s cash value (hence those “hefty surrender penalties” the Dateline producers kept pointing out on the show; yet no mention of the benefit the consumer gets from the bonus?).

Furthermore, what were producers trying to accomplish by alluding that indexed annuities are illiquid? Fact: 92% of all indexed annuities offer 10% penalty-free withdrawals annually with no cumulative limit, and some offer 20% penalty-free withdrawals! (Source: AnnuitySpecs.com)

Another aspect of disappointment was using Attorney General Lori Swanson as a credible source of information on indexed annuity products. Is this a reliable person to provide unbiased information on the product line? Would you rely on someone who is suing carriers that offer indexed annuities, just for her own political gain? In all fairness, Chris Hansen should have disclosed that Minnesota's legislative auditor has launched a preliminary investigation into allegations of ethical and legal lapses in Attorney General Lori Swanson's office (of interest, Swanson and some of her top aides have been accused of trying to find defendants to fit lawsuits on high-profile topics.) Coincidence?

Indexed annuities are not a one-product-fits-all solution and there is never an excuse for agents behaving badly. Yes, at times indexed annuities are the instruments that are used in the course of bad agent behavior. However, I would hope that by now Chris Hanson, along with all of the viewers, would realize that this is the case with ANY financial product. Insurance companies in this industry do not put up with it. Market conduct and suitability (particularly senior suitability) have been a primary focus in this industry since Fall of 2005, and tremendous strides have been made.

Overall, I will close with the fact that I hope this investigation was a big wake-up call for all of the agents that aren’t doing their job and disclosing all of the facts to their clients. DO YOUR JOBS IF YOU WANT THESE VALUABLE PRODUCTS TO BE AVAILABLE FOR YOUR CLIENTS! To Lori Swanson, you need to worry more about your consumers than about suing indexed annuity carriers just for the sake of suing and headlines. And to Chris Hanson, a special message- indexed annuities are NOT investment products.

As a consumer, I rely on the news for unbiased information that provides BOTH sides of the story. I wish I could have received that with this broadcast.

All of you think that "EIAs" cannot be suitable, and those that sell them are crooks. However, the fact is that all products can have a niche- they just cannot be a one-product-suits-all solution. This product has a different distribution model that those which you sell, and it seems like you are not entirely familiar with it's benefits. Be careful not to trust everything that you read/hear in the media. sjm
Apr 17, 2008 7:27 pm

Drop your commission scale down to acceptable levels, on par with VA’s or funds and shorten surrender schedules to 7 years and we’ll see just how “suitable” and appropriate all your respectable annuity reps will find them.  They won’t.  They are sold far and away because of the commission(s) they pay.  Bottom line.  The people who give your industry the bad press and horrible name are the ones who sell your product for the high commissions and because they don’t need any acceptable licensing to do so. 

And before anyone says I am painting with a broad brush, I am not referring to those advisors who sell a handful a year.  I am referring to "advisors" who do ONLY EIA business.  Those would be the guys/gals making $500,000 per year, of which $490,000 is from EIA commissions. Follow the money tends to work in most instances.  The "bad" advisors, ie the product salesman, go where the quickest bang for the buck resides, and it is you.
Apr 17, 2008 7:50 pm

When is an EIA the BEST solution for a clinet?  When is a product with a 16 or 20 year CDSC charge the BEST solution for a client?  I would argue never.

Apr 17, 2008 7:58 pm

It’s probably the BEST solution if you (the agent) don’t have anything else to sell!

Apr 17, 2008 8:09 pm

think they meant it was the best solution for the “agents” retirement

Apr 17, 2008 9:19 pm

[quote=henryhill]

When is an EIA the BEST solution for a clinet?  When is a product with a 16 or 20 year CDSC charge the BEST solution for a client?  I would argue never.

[/quote]   16 or 20 year CDSC?  Yeah I would be hard pressed to say that's appropriate, but that was never my point.  My point was that such EIAs do not represent the entire EIA universe.  Not by a long shot.  I'll repeat this once more for your benefit...read it s-l-o-w-l-y...   The EIA I use most often is 5 years, pays some interest regardless of the market, gives some upside market participation AND allows you to walk away after five years with principal plus.  Show me a mutual fund, VA, or stock that guarantees that.   Such an EIA is very appropriate for a CD prospect who compounds interest and/or is concerned about a loss in purchasing power down the road when he/she might need to tap into it.  The client cannot stand risk of loss, so stock and mutual funds are out.  The client is dissatisfied with 3% CDs, so CDs and money markets are not a good option.  Client does not want to get locked into a long-term contract, so VAs are out (if a VA is under water, you are essentially locked in unless you are OK with taking the loss).   Now tell me why the EIA I described is unsuitable.  Better yet, tell me what you would use that would be better (and that the client would find acceptable).  We're all here to learn, so school me.
Apr 24, 2008 2:23 pm

you people touting these things should be locked up!  Seriously, would you be selling these things if they paid commissions like mutual funds?  NO!  And why?  Because anyone with any experience whatsoever in this business knows that markets go up!  Pick any 10 year period in history.  For those that are selling on fear of the markets, get a clue!  (or get a securities license!)  With today's variable annuities, you can build in those same guarantees with more flexibiltiy, less fees, better performance (no caps, participation rates, shorter surrender schedules)... oh and by the way, what about attaching a LTC rider to a VA!!!???  Now you're talking!

  These things are being sold by new, unlicensed, stupid people who are only watching out for their best interests.  Remember, if you sell one of these, you will have to apologize for it sometime in the future!  That I can guarantee.   Ask yourself this, with all that is available in today's market place, how would you feel if your mother came to you and said that she has put her life savings into an EIA (not with you- so you didn't get the commission)  How would you feel?
Apr 24, 2008 2:41 pm

stlcfp, For how long would you suggest that Indyone gets locked up?

Apr 24, 2008 3:05 pm

…welcome aboard, idiot.

Apr 24, 2008 3:26 pm

indy… who are you calling an idiot?  I’m not the one selling these things! 

Apr 24, 2008 3:30 pm

I’ve made my case and I’ve yet to see you address the points I made.  I can make more than twice selling mutual funds than I can selling an EIA, so you can strike the profit motive.  I’ve not apologized yet for an EIA.

  How old are you and were you even in this business in 2000?
Apr 24, 2008 3:47 pm

don’t even bother coming at me with stupid remarks…  there is no way you can make selling straight mutual funds- I’ve seen the commissions.  Can you even spell cfp?  what licenses do you hold besides an insurance license?

Apr 24, 2008 4:16 pm

I’m glad they took away the minimum post requirement in the newbie section before you got to post on the “big boy” boards, but this guy is a poster child for not letting the newbies chime in until they have read more than 3 posts.  If he had, he would see that Indy is not one of the EIA idiots - and I agree that they do exist.  Just like EIA’s that don’t screw the client (and therefore don’t pay us well) also exist. 

  I don't use the lower cost EIA's (I've never sold an EIA at all), but I've never been to the moon either.  That doesn't mean that the moon landing was faked in a movie studio, just that I haven't had a personal experience with it.
Apr 24, 2008 4:37 pm

I did read the posts… thanks.  I’m not calling Indy an idiot- if you read them, I believe he came up with that remark.  My contention is that most people that have posted understand that these products pretty much suck, and for those that are touting them as the greatest thing since sliced bread are probably not licensed in other areas, nor understand the difference between true financial planning and product pushing.  That’s all I’m saying-

Apr 24, 2008 4:56 pm

First of all, is anyone else not able to quote responses?  What the hell is up with this site…

 
This is in response to stlcfp.  (St. Louis CFP...just a stab in the dark):   It's not that the EIA pretty much "sucks".  It's used in the wrong situations.  If you were trying to wrap Christmas presents, you'd think a hammer pretty much "sucks".  But, in the right situations, like hanging a picture, a hammer can be a very effective tool.  Just some food for thought.
Apr 24, 2008 5:44 pm

[quote=stlcfp]

These things are being sold by new, unlicensed, stupid people who are only watching out for their best interests.  Remember, if you sell one of these, you will have to apologize for it sometime in the future!  That I can guarantee.

[/quote]   Stlcfp, I apologize.  You called him unlicensed and stupid, but not an idiot.    I agree with 90% of what you are saying, but the hyperbole is making you sound like an idiot.  I'm not saying you are, but painting the brokers (some of whom are fellow CFP's) who think this is an ok product 5% of the time with the EIA slingers who think that an 80 yr old needs a 15 year surrender product makes you sound like an idiot.
Apr 24, 2008 5:55 pm
stlcfp:

don’t even bother coming at me with stupid remarks…  there is no way you can make selling straight mutual funds- I’ve seen the commissions.  Can you even spell cfp?  what licenses do you hold besides an insurance license?

  Again, how old are you?  There are definitely EIAs out there that pay less than 5.75 upfront with a quarter trail.  I know that to be true as I've used them.  If I wanted to make money, the VA equivalent to what I sell pays twice as much, so profit isn't always the motivator despite what you've seen on television.   ...and not only can I spell CFP, I am one.  in addition, I am a CPA, hold life, health and LTC insurance licenses and am series 7/63/24/65 securities licensed.  I think I'm qualified to determine what's appropriate for my clients.   When you post an inflammatory post, right after one of mine, telling me that anyone who holds my opinion about EIAs should be put in jail, you should expect to be called an idiot in response.  Now we can end this now in a civil fashion, or we can spend the next six pages throwing flames at each other and you'll still think I'm a crook and I'll still think you're an idiot.    It's your choice.
Apr 24, 2008 9:02 pm

"Now we can end this now in a civil fashion, or we can spend the next six pages throwing flames at each other and you’ll still think I’m a crook and I’ll still think you’re an idiot.    It’s your choice’

  Good to see that things really haven't changed.  At the end of this flame war one of you will be proven right...hint it isn't going to be stlcfp.   " there is no way you can make selling straight mutual funds- I've seen the commissions.  Can you even spell cfp?  what licenses do you hold besides an insurance license? "   Wow.  I wonder how I've managed to make it all these years with a book that is 85% in equities and funds?  stlcfp has convinced me...Imma gonna sell some of them EIAs so I can buy baby some new shoes.
May 2, 2008 8:02 pm

Can we all agree that downside protection with upside potential is a great concept???  What if there was an EIA with 100% participation in the S&P with no moving parts, no annual renewals, short surrender, and no forced annuitization?  Does that sound good?

May 2, 2008 8:06 pm

I’ll tell you something that sounds almost to good to be true, sounds like a homerun to me.  Thanks Heddy I would like to know more btw have you been on vacation?

May 2, 2008 9:46 pm

[quote=mm06]I’ll tell you something that sounds almost to good to be true, sounds like a homerun to me.  Thanks Heddy I would like to know more btw have you been on vacation?[/quote]

You and your dual personality Heddy aren’t fooling anyone, you think we were born yesterday?

Both registered the same day, both posted on only ONE thread, both last posted on the same day three weeks ago and when one pops up the other one does too within 4 minutes? 

Even a 5 year-old can figure this one out.

May 2, 2008 9:49 pm

You idiots (or more likely idiot) should try posting more than 4 minutes apart.

May 5, 2008 8:52 pm

Funny, I had an ederly (89) come in today with her helper.  She said she had some stuff with her old broker in FL and wanted it moved up here…Well,…yep…2 EIA’s, 1 purchased in 2002… has 330k in it with a whopping 26% surrender and another with a face amount of 171k, surrender 127k…Purchased in 2005.  Can someone help convince me these are good for ANYBODY…

May 5, 2008 11:00 pm

“Can someone help convince me these are good for ANYBODY…”

  I think the agent that sold them to her enjoyed the trades.     Equity indexed annuities are something that is rarely appropriate for clients and especially the long surrender versions with extremely high CDSC.    They were a hot product for awhile when the markets were going up uppity up... but now that we are facing a possible flat market where the indexes that they are linked to don't have a lot of movement, I can't imagine why anyone would want such a thing.  
May 5, 2008 11:17 pm

bspears, do the surrender charges get waived at death? 

  I like defending EIA's.  I've never sold one, but they can be appropriate.  Unfortunately, they sure seem to be usually sold in an inappropriate manner.
May 6, 2008 1:09 pm

I assume they have a death put, still getting info on them.  I also found out because they were sold in FL I can’t change broker of record on them for my client.  LUCKILY, she isn’t needing this for income…

May 6, 2008 1:44 pm

The ones I've seen require the beneficiaries to annuitize over 5 years. Otherwise, they lose the "bonus," index credits and pay a surrender charge.

I just received an unsolicited email about a gold indexed annuity. Here's the sales pitch to potential salesmen:

We've got a hot new annuity product that features a gold index as one of the investment choices your client can pick from. It also has a high initial bonus, a short walkaway period, big commission ... and a killer trip with only $1.2mil to qualify.

You're either going to sell this, or compete with it.

May 6, 2008 1:54 pm

I went to the guy’s website, where he boasts about his firm having an industry-leading 99.5% client retention rate.

  Who wouldn't have that kind of retention rate if they had their entire book locked up in EIAs?    Whether they want to or not, none of his clients are going anywhere for a long, long time.   
May 7, 2008 3:03 pm

i thought eia’s were hot when the market was completely in the crapper.  “no downside risk” remember.  it is when the market is up uppity up people begin to question their choice as they are not fully participating in the giddiness.  they were sold pretty much strictly on emotion, nothing else.  market participation w/o downside risk, lol.

May 7, 2008 7:51 pm

hey Primo! hey Primo!

May 7, 2008 11:10 pm
theironhorse:

i thought eia’s were hot when the market was completely in the crapper.  “no downside risk” remember.  it is when the market is up uppity up people begin to question their choice as they are not fully participating in the giddiness.  they were sold pretty much strictly on emotion, nothing else.  market participation w/o downside risk, lol.

  Well, if the market is going down or sideways there is nothing to participate in.  You only get a teeny weeny interest rate guarantee with a lot of downside in the lack of liquidity and a monster CDSC.   Why in the world would anyone settle for this when they could get a shorter term investment or even a tax free muni bond with a guaranteed return that would beat the crap out of the "guaranteed" rates.   If the market is going uppty up , risk adverse investors are willing to settle for a little less return, as long as there is some return better than a coffee can under the back porch......which is about what EIAs are returning right now.
May 8, 2008 1:22 am
bspears:

Funny, I had an ederly (89) come in today with her helper.  She said she had some stuff with her old broker in FL and wanted it moved up here…Well,…yep…2 EIA’s, 1 purchased in 2002… has 330k in it with a whopping 26% surrender and another with a face amount of 171k, surrender 127k…Purchased in 2005.  Can someone help convince me these are good for ANYBODY…

  Spears, I sure can't defend the kind of high-surrender EIA you're seeing...nor an annuity that forces a client to withdraw over a minimum of 60 months.  All I can say is what I've said before...not all EIA's are created equal.  At the moment, given fixed annuity rates, I'm not seeing much of a niche for any EIA, but the markets could change that.
May 8, 2008 4:04 pm

May 9, 2008 5:00 am

     To understand these EIA’s(and each one is different), you need to pour through the contract…which isn’t provided until you are putting your John Hancock on it. I had clients that went to an “educational” seminar and put a small amount in an EIA. After reading through the contract it is plain that every calculation(and there are many) are made to minimize the clients return and maximize the profits of the insurance company. The contract is approximately 50 or so pages long with dozens of calculations and huge surrender fees(starting at 16%) that last for 10 years. I have spent about 15 hours between the brouchure and the contract( a lot of disconnect between the two) and I’m sure I understand it better than the insurance schlub that is trying to sell it to them. My assistant ordered a selling kit from the insurance provider who issues this annuity(AVIVA) and they promptly sent her one, along with a commission schedule(this product had gross commission of 9.5%). They didn’t care who my assistant was, or if she was licensed…  The more I learn about these products, the worse they look.

    
May 12, 2008 1:00 pm

AVIVA has dozens of contracts can you specify which one it is your talking about. 

May 12, 2008 1:27 pm

mm06,

  Whichever product you are trying to push is the one that is the best.  I will now sell it to all of my clients.  What do I need to do so that you can get some compensation from my sales? 
May 13, 2008 7:03 am
bspears:

Funny, I had an ederly (89) come in today with her helper. She said she had some stuff with her old broker in FL and wanted it moved up here…Well,…yep…2 EIA’s, 1 purchased in 2002… has 330k in it with a whopping 26% surrender and another with a face amount of 171k, surrender 127k…Purchased in 2005. Can someone help convince me these are good for ANYBODY…



C'mon, do tell...I know of a few wackos in FL and it would be fun to know who this is. One specifically, the website is no longer working, but he's been out all over the place recruiting, recruiting, recruiting. Was touting an AVIVA product as the best thing since sliced bread, and now, guess what? AVIVA terminated his contract, which means also terminated the contracts of the entire "downline".
May 13, 2008 5:53 pm

I’m not gonna cut and paste something for the 3rd or 4th time, but EIA are sold at market bottoms when people are pissed they lost their asses and are told, “Look here, market goes up you get market returns, it drops, you are safe.”  I would like to see some stats on investor behavior in 2002-2003 vs. 2006-2007.  Which point in time were they more worried about losses?

Aug 3, 2008 7:10 pm


I have been selling annuities for 6 years (VA, EIA, and Fixed). The idea of AVIVA's Structured Annuity is good but I DO NOT Like the 6 year lock in. I would prefer an annual lock. My favorite contracts are Jackson National's Perspective II VA, AIG's 5 yr 5% Guaranteed fixed annuity, and Standard's 5 & 7 year Indexed annuity (has a principal guarantee rider & annual point to pt) Thoughts?

Aug 3, 2008 8:35 pm

I just lost a prospect to an Aviva hawker. He agree to come sit with me after he did it (actually he did it, then came to see me). He took ALL of his life savings and dumped it in (like 800K). He says to me “well, I get 7% guaranteed on my account no matter what the market does. And if the market goes up, I get more!” Yeah, oncce I asked him to bring in the contract and showed him the “fine print”, he was pi$$ed!! He had NO idea about the surrender fees, and had NO IDEA that the growth was really only on the income base value. He also didn’t realize there were growth caps. Give me a break.

Aug 3, 2008 8:58 pm

[quote=B24]I just lost a prospect to an Aviva hawker. He agree to come sit with me after he did it (actually he did it, then came to see me). He took ALL of his life savings and dumped it in (like 800K). He says to me “well, I get 7% guaranteed on my account no matter what the market does. And if the market goes up, I get more!” Yeah, oncce I asked him to bring in the contract and showed him the “fine print”, he was pi$$ed!! He had NO idea about the surrender fees, and had NO IDEA that the growth was really only on the income base value. He also didn’t realize there were growth caps. Give me a break.[/quote]

No wonder you’re so bitter. Do you really think we’re gonna believe that anyone, let alone a prospect, would come by for you to criticize what they’ve done? You have a poor relationship with the truth, don’t you?

Aug 4, 2008 9:46 pm

I had a very interesting conversation with a guy yesterday who does EIA and “bonus” fixed annuity business exclusively. He actually brought up the fact that a lot of people in town believe he’s churning his clients’ annuities, and he said that to the untrained observer, it could easily appear that way.

  He said he and another CPA sat down several years ago and figured out how to beat the insurance companies at their own game. He buys several annuities for a client with a variety of companies, gets the upfront bonus on the deposits, and then follows their rules and gets out of the contract and moves to something else and gets another bonus. He said he keeps an amount liquid that the client feels comfortable with, but 1035s the rest of their money in and out of annuities without incurring any surrender penalties.   He said he averages his clients 7-8% annually and nets upwards of $500K a year. The average commission he receives is 11.5%.   He markets himself--surprise!-- as being totally anti-stock market and turns away anyone that wants to buy individual stocks or mutual funds. I've been very skeptical of this guy's business practices until he showed me on paper what he does. Now, I'm just feeling sort-of naïve.   Could it be that there actually exists an ethical annuity churner?
Aug 5, 2008 12:12 am

[quote=Borker Boy]I had a very interesting conversation with a guy yesterday who does EIA and “bonus” fixed annuity business exclusively. He actually brought up the fact that a lot of people in town believe he’s churning his clients’ annuities, and he said that to the untrained observer, it could easily appear that way.

  He said he and another CPA sat down several years ago and figured out how to beat the insurance companies at their own game. He buys several annuities for a client with a variety of companies, gets the upfront bonus on the deposits, and then follows their rules and gets out of the contract and moves to something else and gets another bonus. He said he keeps an amount liquid that the client feels comfortable with, but 1035s the rest of their money in and out of annuities without incurring any surrender penalties.   He said he averages his clients 7-8% annually and nets upwards of $500K a year. The average commission he receives is 11.5%.   He markets himself--surprise!-- as being totally anti-stock market and turns away anyone that wants to buy individual stocks or mutual funds. I've been very skeptical of this guy's business practices until he showed me on paper what he does. Now, I'm just feeling sort-of naïve.   Could it be that there actually exists an ethical annuity churner?[/quote]

SO now you've seen the light
Aug 5, 2008 12:31 am

[quote=Borker Boy]I had a very interesting conversation with a guy yesterday who does EIA and “bonus” fixed annuity business exclusively. He actually brought up the fact that a lot of people in town believe he’s churning his clients’ annuities, and he said that to the untrained observer, it could easily appear that way.

  He said he and another CPA sat down several years ago and figured out how to beat the insurance companies at their own game. He buys several annuities for a client with a variety of companies, gets the upfront bonus on the deposits, and then follows their rules and gets out of the contract and moves to something else and gets another bonus. He said he keeps an amount liquid that the client feels comfortable with, but 1035s the rest of their money in and out of annuities without incurring any surrender penalties.   He said he averages his clients 7-8% annually and nets upwards of $500K a year. The average commission he receives is 11.5%.   He markets himself--surprise!-- as being totally anti-stock market and turns away anyone that wants to buy individual stocks or mutual funds. I've been very skeptical of this guy's business practices until he showed me on paper what he does. Now, I'm just feeling sort-of naïve.   Could it be that there actually exists an ethical annuity churner?[/quote]

Where have you been? It's called annuity arbitrage. My average commission is 9% and I don't believe that your guy is getting 11.5%.
Aug 5, 2008 2:40 am

[quote=VA Salesman] [quote=Borker Boy]I had a very interesting conversation with a guy yesterday who does EIA and “bonus” fixed annuity business exclusively. He actually brought up the fact that a lot of people in town believe he’s churning his clients’ annuities, and he said that to the untrained observer, it could easily appear that way.

  He said he and another CPA sat down several years ago and figured out how to beat the insurance companies at their own game. He buys several annuities for a client with a variety of companies, gets the upfront bonus on the deposits, and then follows their rules and gets out of the contract and moves to something else and gets another bonus. He said he keeps an amount liquid that the client feels comfortable with, but 1035s the rest of their money in and out of annuities without incurring any surrender penalties.   He said he averages his clients 7-8% annually and nets upwards of $500K a year. The average commission he receives is 11.5%.   He markets himself--surprise!-- as being totally anti-stock market and turns away anyone that wants to buy individual stocks or mutual funds. I've been very skeptical of this guy's business practices until he showed me on paper what he does. Now, I'm just feeling sort-of naïve.   Could it be that there actually exists an ethical annuity churner?[/quote]

Where have you been? It's called annuity arbitrage.  Trying to convince people to buy American Funds. My average commission is 9% and I don't believe that your guy is getting 11.5%. That's just what he told me, Bobby. How in the hell do you continue to get back into this forum? 
[/quote]
Aug 5, 2008 12:32 pm

While I don’t employ this particular strategy (yet), it illustrates the need to stay open-minded about products you don’t completely understand. I don’t yet buy all aspects of this strategy (yes, the commissions sound higher than I’m willing to believe), but neither am I ready to call this guy a liar.

Aug 27, 2008 5:45 pm

EIA’s, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won’t.

  However, its' the details of the products actual return calculations that are their undoing. Since they all have caps, ceilings, upside participation penalties, etc try calculating their mean returns and variances over 3, 5, 7, 10 year periods. Now compare those numbers w/ same for whatever underlying index they use (SP500, DOW, etc.). When thats done calculate their respective Sharpe Ratio's and you'll see why they suck.
Aug 27, 2008 7:27 pm

If you’ll read some of the comments on the SEC site regarding the proposed rule change, you’ll see how upset insurance agents are about EIAs becoming classified as securities.

  Do you really think they'll disappear? I think a lot of insurance guys will just go get the Series 6 and keep chugging away. That's all they'll need, right?
Aug 27, 2008 8:13 pm

EIA's, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won't.

Let's hope that they don't get treated as a security.  If EIA's are securities, so are all fixed annuities.  Seriously, what's the difference?  In neither case is the clients' money invested in the market.  In both cases, an insurance company offers a minimum guarantee.  In both cases, the client getting their money back is based upon the solvency of the insurance company.   In both cases, the actual performance will partially be based upon securities which the client does not own (an index for an EIA and the insurance company's general account for a fixed annuity).   Insurance agents won't be precluded from selling them.  In fact, only insurance agents can sell them now and if they get classified as a security, it's still only insurance agents who will be able to sell them.  It's just that in addition to being an insurance agent, one will also have to be a registered rep.   It's complete B.S. that only those with a fiduciary obligation will sell them.  There are plenty of people with fiduciary obligations who sell them now.  They may disappear or go way down in popularity.  This is because many B/D's won't allow their reps to sell them or limit their ability to sell them.   Now compare those numbers w/ same for whatever underlying index they use   Why would someone do that?  They are fixed savings vehicles.  They should be sold to and purchased by people who want guarantees and don't want their money in the market, but are willing to take the risk that their savings may underperform other fixed savings vehicles in return for taking the chance that they may outperform.   Borker, getting their 6 isn't enough.  I mean, you are correct, but one would then have to find a B/D who will allow the sales without being too much of a pain and a grid that won't kill compensation.   (For the record, I've never sold an EIA.)
Aug 27, 2008 8:15 pm

[quote=MinimumVariance]EIA’s, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won’t.

  However, its' the details of the products actual return calculations that are their undoing. Since they all have caps, ceilings, upside participation penalties, etc try calculating their mean returns and variances over 3, 5, 7, 10 year periods. Now compare those numbers w/ same for whatever underlying index they use (SP500, DOW, etc.). When thats done calculate their respective Sharpe Ratio's and you'll see why they suck.[/quote]   EIAs aren't designed to keep up with the underlying index.  EIAs are fixed annuities with a different crediting method.  EIAs are designed for fixed annuity buyers, not stock fund/ETF buyers.  Unfortunately, some unscrupulous advisors and agents sold them as "all upside, no downside" products.  But, as a fiduciary, you already knew that, right?
Aug 28, 2008 1:24 pm

[quote=anonymous]

EIA's, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won't.

Let's hope that they don't get treated as a security.  If EIA's are securities, so are all fixed annuities.  Seriously, what's the difference?  In neither case is the clients' money invested in the market.  In both cases, an insurance company offers a minimum guarantee.  In both cases, the client getting their money back is based upon the solvency of the insurance company.   In both cases, the actual performance will partially be based upon securities which the client does not own (an index for an EIA and the insurance company's general account for a fixed annuity). In theory, you're correct, but I can't see a pure fixed annuity ever being designated as a security. The issue with EIAs is that many insurance agents are representing them as being investments in the market, but the agents aren't appropriately licensed to discuss market-related investments. I don't believe EIAs are securities.     Insurance agents won't be precluded from selling them.  In fact, only insurance agents can sell them now and if they get classified as a security, it's still only insurance agents who will be able to sell them.  It's just that in addition to being an insurance agent, one will also have to be a registered rep.   It's complete B.S. that only those with a fiduciary obligation will sell them.  There are plenty of people with fiduciary obligations who sell them now.  They may disappear or go way down in popularity.  This is because many B/D's won't allow their reps to sell them or limit their ability to sell them. I'm seeing a lot of indy's selling these things. I know several CPAs who have their Series 7 but have realized how much money they can make through EIAs, so they've abandoned the "market" per se, and are slanging these things for a living. (Most of them don't do any tax work anymore, either.)   Now compare those numbers w/ same for whatever underlying index they use   Why would someone do that?  They are fixed savings vehicles.  They should be sold to and purchased by people who want guarantees and don't want their money in the market, but are willing to take the risk that their savings may underperform other fixed savings vehicles in return for taking the chance that they may outperform.   Borker, getting their 6 isn't enough.  I mean, you are correct, but one would then have to find a B/D who will allow the sales without being too much of a pain and a grid that won't kill compensation. Will LPL, Ray James, Commonwealth, etc., allow the sale of EIAs?   (For the record, I've never sold an EIA.)[/quote]
Aug 28, 2008 3:58 pm
Borker, getting their 6 isn't enough.  I mean, you are correct, but one would then have to find a B/D who will allow the sales without being too much of a pain and a grid that won't kill compensation. Will LPL, Ray James, Commonwealth, etc., allow the sale of EIAs?

My B/D allows the sale of EIAs ....but.... they have a list of approved vendors.

The trade must be processed through trade review and there are a lot of disclosures, suitability requirements and other forms the client must sign.   After all this, the application is then forwarded to the insurance company and treated like any other outside fixed insurance business without being run through the grid.    (100% compensation)

I don't do these types of annuities.  I imagine that if an agent began processing excessive amounts of EIAs at the expense of doing RRep type business,  the B/D would likely terminate their affiliation.  If you are caught trying to go around the system, selling unapproved annuities or skipping the trade review process, you can be terminated.
Oct 8, 2008 9:30 pm

Instead of EIA’s, why not just park your clients’ money in a money market fund or TIP fund in a VA to minimize downside risk.  They get the 6% guaranteed income benefit anyways on the upside.  Of course, this isn’t going to do a lot for them when the market’s higher than 6%.