Guarantee 100% in ten years

I called EQ myself and they said there is no such product.  

They did say they have something that guarantees 6% annually but to get this you have to annuitize your contract.

scrim

Yes it is possible.   ING has an annuity that has a guaranteed 7% annual compounded living benefit.  Yes, you have to wait 10 years and must annuitize to receive the benefit.  But as long as the client is aware of these conditions, aware that they are paying for this benefit and hasn’t put all of their money in the account, I don’t see an issue.

If the contract market performance is greater than 7% annually (which we hope will happen) then they don't have to annuitize they can take the market value and withdraw as they see fit.  If the market performance is less, then the client is guaranteed an income stream on his higher 7% return.

This seems like a good safety net to me.

Scrim,

It is this kind of product that you will forever be competing with.  Sure, the costs are higher, but the client is paying for a guaranteed double, with some nice income options, and contracts are just getting more and more competitive.  The key to your success is recognizing which clients are willing to accept the risk (your managed money account) in return for potentially greater reward, vs. which ones are uncomfortable with fluctuation and should definitely be steered toward a product that guarantees their principal, which providing a respectable, albeit lower average annual return (the variable annuity).  Embrace the alternatives and watch your business blossom.

A nice added side-effect is that the VA business is much easier to move if you decide that life in the bank no longer agrees with you.

wow!

indy "senior members" recognizing that the lowly and hated annuity has a viable place in some portfolios-- what next, a cure for cancer?

Indy,

Point well taken.

My feeling is that if I offered side-by-side both options most people would take the guarantee.

As I've always said, I hesitate to place my client's hard earned assets in products they cannot reasonably understand.    VA's are convoluted IMHO so I refrain from using them.

I don't want to build my practice that way; unless I absolutely feel they will keep their assets in cash otherwise.     So far, I feel I've lost very little business by recommending non-insurance products.

When, not if, we have a market correction or bear market perhaps I will rue building my practice this way.   I'm just more comfortable builiding this way but the problem of course is I should be making my clients more comfortable as opposed to myself.   It's almost a conundrum!

scrim

Scrim,

Do you really think your clients understand completely the amortization on their mortgage works, how their health insurance premium was determined, or even all the details of their 401K at work?

Most folks do not.  You are the expert Scrim.  That's why you are a paid professional.  You are supposed to make recommendations, and explain them clearly, but in the end, it's still up to you to do whats best for the client.

If someone would be more satisfied with 2% less return and a guarantee of principle and and guaranteed income for life (many times w/o annuitization), then you should give that to them.

If a man wants a brown suit, sell him a brown suit.

I don't think they fully understand the above, however, I do believe they understand it more than an insurance contract.

Asset allocation is a much easier concept to grasp.

If we are the experts, don't we have a fiduciary responsibility to put their assets into the products that best (brown, gray, charcoal) suits their needs with a reasonable cost, tax implicatons and liquidity?

Perhaps one day I will be able to make a case for VA's but until that day comes I am bound by my conciousness to build my practice the way I feel is best.

YMMV

scrim

[quote=TexasRep]wow!

indy "senior members" recognizing that the lowly and hated annuity has a viable place in some portfolios-- what next, a cure for cancer?[/quote]

 Maybe I'm an anomaly, but I've never felt that VAs don't have a place at the table...

"reasonable cost"

Scrim, I respect your seemingly good work ethic and genuine concern for your clients interests, but I do question your willingness to learn new products (even if you are to learn you don't want to use them).

VA's cost in my opinion are reasonable.  Take for example John Hancock Venture VA.  M&E of 1.15 (pays for the guarantee), and subaccount allocation models (rebalanced daily) for between 0.80% (index allocation) and 1.19% (I'm quoting these numbers from my head, but I think they are accurate).

So you are all in for around 2% (maybe 1% more than your avg mutual fund), plus you get the safety of the guarantees.

Food for thought.

cost if very reasonable in the above case.    I'm talking about some of the contracts where the costs are much more prohibitive.....with all the bells and whistles they can approach 2.5-3%.

I also enjoy keeping assets liquid and tax implications at withdrawal favorable.

I'm not saying all VA's are bad, that would be a stereotype.    I just choose not to use them in my practice in almost all situations.

scrim

[quote=Indyone][quote=TexasRep]wow!

indy "senior members" recognizing that the lowly and hated annuity has a viable place in some portfolios-- what next, a cure for cancer?[/quote]

 Maybe I'm an anomaly, but I've never felt that VAs don't have a place at the table...

[/quote]

maybe you are....but more often than not, whenever the 2 words: annuity/bank get mixed in the same sentence, the indy and wirehouse guys come out with guns blazing about how all bank FA's sell annuities to little old ladies----- all the while, the trophy $15,000 fee based acct NEVER gets scrutinized, in fact it's held up as the standard, as if these accts, 1 year and 2 years in, are really going to be getting the attention they are paying for--

[quote=scrim67]I don’t think they fully understand the above, however, I do believe they understand it more than an insurance contract.

Asset allocation is a much easier concept to grasp.

If we are the experts, don't we have a fiduciary responsibility to put their assets into the products that best (brown, gray, charcoal) suits their needs with a reasonable cost, tax implicatons and liquidity?

Perhaps one day I will be able to make a case for VA's but until that day comes I am bound by my conciousness to build my practice the way I feel is best.

YMMV

scrim[/quote]

Scrim, I've been in your shoes, and I've questioned the VA much as you do, but the bottom line is, you have to make the investment fit the client's profile.  Before you recommend anything, you need to spend some time getting to know the client/prospect, their likes/dislikes, risk tolerance, etc.  Usually, by the time I'm done with the profiling part, I already know what the client wants/needs.  In rare instances where I'm not pretty positive as to what fits best by that point, I'll lay the alternatives side by side and go through a pro & con with the client/prospect and help them reach a conclusion.  Usually, though, by that time, it's obvious if they are a fee-based, or retail mutual fund, or municipal bond, or VA, or whatever-type of client, and that it what I recommend.

If you spend some time really learning a couple of good VAs, and then really profile your clients, you'll find they will fit other products like VAs more often than you think.  If you steer that kind of client into managed money, my experience is that you'll spend a lot of time hand-holding in the next market downturn and still have some nervous clients cashing perfectly good investments at the bottom of the market.  At that point, it really doesn't matter if you or I think that the investment being liquidated was the best choice for the client...the best choice is the one that they'll keep...

the guarantees are covered in the M&E?

The contracts I've seen that have a GMIB usually cost around 40-60 basis points and I was always under the impression it was a separate fee.

Can any experts clarify as VA's are self admittedly not my forte?

scrim

Scrim,getting back to your original question,It is your principle is protected 100% and will be returned( they allocate a portion to fixed and a portion to subaccts) . NOT A 100% RETURN ON THE INVESTMENT.

Excellent post Indy.

That is why I always "sell" myself first and not a product.

I hope this strategy helps when we hit a bear market!!!!!

Time will tell.

scrim

Waterboy,

I was told it was 100% on the investment.    

There money will double in 10 years worst case scenario.

scrim

[quote=waterboy]Scrim,getting back to your original question,It is your principle is protected 100% and will be returned( they allocate a portion to fixed and a portion to subaccts) . NOT A 100% RETURN ON THE INVESTMENT.[/quote]

Au contraire...some annuities guarantee principal only and some guarantee a double, which is basically a 7% return for 10 years.

[quote=scrim67]

the guarantees are covered in the M&E?

The contracts I've seen that have a GMIB usually cost around 40-60 basis points and I was always under the impression it was a separate fee.

Can any experts clarify as VA's are self admittedly not my forte?

scrim

[/quote]

Although far from an expert, I know that SOME VA benefits are built into the M&E's but most are "a la carte".

"At that point, it really doesn't matter if you or I think that the investment being liquidated was the best choice for the client...the best choice is the one that they'll keep"

Indy,

I respectfully disagree with you on this one.

If this was true, I'd put clients into the investments they perceive as the most safe.    Their accounts would probably only grow around 5% annually before taxes.   I would probably never lose the accounts though!

scrim

[quote=scrim67]

the guarantees are covered in the M&E?

The contracts I've seen that have a GMIB usually cost around 40-60 basis points and I was always under the impression it was a separate fee.

Can any experts clarify as VA's are self admittedly not my forte?

scrim

[/quote]

Scrim, Most living benefits GMIB / GMWB are add on features which is an additional cost.

[quote=babbling looney]

Yes it is possible.   ING has an annuity that has a guaranteed 7% annual compounded living benefit.  Yes, you have to wait 10 years and must annuitize to receive the benefit.  But as long as the client is aware of these conditions, aware that they are paying for this benefit and hasn't put all of their money in the account, I don't see an issue.

If the contract market performance is greater than 7% annually (which we hope will happen) then they don't have to annuitize they can take the market value and withdraw as they see fit.  If the market performance is less, then the client is guaranteed an income stream on his higher 7% return.

This seems like a good safety net to me.

[/quote]

Amen Mama.

Indy, 

 I Dont know of any VA that will will double the money in 10 yrs AS A LUMP SUM W/D OPTION. Would love to get a rollover from a 50 y.o and in a worst case scenario give them double what they put in at 60.  

Babbling Looney lets see

 Retire at 65,Start contract ,wait 10 yrs .then start w/d . Will more than likely be DEAD BY THE TIME i REALIZE BENEFITS. Oh and forget beneficary, I annuitized so death benefit ( depending on which option I take) can be ZERO.

How does this help the client and beneficiaries?

[quote=scrim67]

"At that point, it really doesn't matter if you or I think that the investment being liquidated was the best choice for the client...the best choice is the one that they'll keep"

Indy,

I respectfully disagree with you on this one.

If this was true, I'd put clients into the investments they perceive as the most safe.    Their accounts would probably only grow around 5% annually before taxes.   I would probably never lose the accounts though!

scrim

[/quote]

Nah, I'd come in and show them why 5% sucks and take your client.  Inflation plus taxation makes 5% almost nothing.  (unless we are talking tax free muni's)  Not selling performance, but selling risk tolerance and the general nature of the stock market over the past 70+ years.  I even show them my account and how I invest.

[quote=waterboy]

Babbling Looney lets see

 Retire at 65,Start contract ,wait 10 yrs .then start w/d . Will more than likely be DEAD BY THE TIME i REALIZE BENEFITS. Oh and forget beneficary, I annuitized so death benefit ( depending on which option I take) can be ZERO.

How does this help the client and beneficiaries?

[/quote]

Personally, I use annuities to protect assets, defer taxes, or for the death benefit properties.  I typically don't tie up money that may be needed in them.  However, I do use some of the bonus products as a way for a select group of clients who are self-employed to have a nice "pension-like" product that matches a portion of their contributions, as long as they are maxing out their other retirement vehicles.

[quote=waterboy]

Babbling Looney lets see

 Retire at 65,Start contract ,wait 10 yrs .then start w/d . Will more than likely be DEAD BY THE TIME i REALIZE BENEFITS. Oh and forget beneficary, I annuitized so death benefit ( depending on which option I take) can be ZERO.

How does this help the client and beneficiaries?

[/quote]

First of all I said as long as you don't put everything into the annuity. Of course you need to have some liquidity. DOH. And as Indyone said you need to address each client's individual needs. In your scenario I wouldn't touch a 10 year annuity with a 10 foot pole.

Ok.... here is a real life scenario from one of my clients.  Retiree at 57, sold one of his businesses. Has a 480K profit sharing plan roll out. All cash.  Doesn't plan to draw IRA income for at least 8 to 10 years. Has other passive income for now. Divorced and his kids are well off.  He doesn't plan to scrimp and leave a legacy for the kids. 

I put 175K in a moderate to mildly aggressive mutual fund portfolio, 175K into 7% compounding annuity in aggressive sub-accounts. The rest 180K into various REITS and short term bonds for now. 

Worst case scenario the 175K in the mutual funds goes to ZERO (hardly likely), guess what?? he will still have 300K in 10 years when he might want to begin to draw an income. 

Best case scenario, we get an average return on the mutual funds of 10 to 12% and because the annuity does have those nasty expenses, we only get a 8 to 10% return.  The bond and REIT portfolio is flexible and we can move with interest rates or other market changes.    Since we all know that past performance is not indicative of future yada yada yada., we can't guarantee anything on the entire portfolio. But we can on the annuity.

So to be conservative in our projections: over 10 years the entire ball of wax gets 8% annual return.  Future value 1.036 M.

I don't know if this helps his beneficaries but it sure helps him.

Oh, yeah and if he dies before 10 years his beneficaries do get a stepped up death benefit on the annuity. Quartely ratcheted to the highest value.

Nice trade Looney

I NEVER sold an EVIL VA the first 2 years out.  Once I understood them better, though, I had no problem using them for a portion of a client portfolio.  AND I"M SELLING STUPID A-SHARE VA's!! 

As a matter of fact, I am currently putting my mother-in-law in one for the income.

babbling’s example above is one of many where the 10 yr worst case aint all that bad (for a worst case).  In the case where there are other pots of $ to draw from in the mean time, I treat this like a 7%/yr bond.

Uh oh.  We've got a huge problem here.  It sure seems that none of you understand the GMIB rider.  You are selling the product in a way that is dishonest for the client. 

Here's a quiz.  What is higher--a 5% GMIB or a 7% GMIB?  What is the true value of a 7% GMIB? 

The rates are bullsh*t!  Why?  All of the insurance companies use either an age setback or lower annuitization rates in conjunction with their GMIB riders. 

Quiz answer:  They are around the same.  Both tend to be around 3%.  What this means is that if the account grows at 4% and the client wants to annuitize the contract the GMIB feature is useless because they will get more money by buying a SPIA using the insurance companies SPIA rates instead of taking the 7% and using the annuitization rates offered with the GMIB contract.

The GMIB is a good feature, but never tell the client that they will get a minimum % return in exchange for annuitizing the contract.  If you want to sell it honestly, say, "Invest X dollars and after Y Years, the insurance company will give you a lifetime income of $Z/month for the rest of your life.

Read the contract!  It is not in the insurance company's interest to explain how the contract actually works.

Has anyone ever actually read the contract???

Example for anyone who doubts me and wants to run the numbers:

50 year old invests $100,000.  Investments earn 4% over the next ten years.  Account value at age 60 equals $148,000.  How much will this pay for a SPIA?  If GMIB option is taken, the value becomes $196,000.  How much will this pay using the GMIB annuity rates?  Use the rates from any company that has a 7% GMIB and you'll see that the $148,000 will pay more than the $196,000!

?  What are you, an actuary?  That is interesting, and if true, news to me.  No, I’ve never read the whole contract.  Maybe I’ll check the #s to see if it plays out that way…if you have quick #s, what do the monthly or annual payments in your above example come out to??

PS Scrim, if you can verify anonymous’s explanation above, you will smoke whoever is trying to use this solution w/your client, because it blows apart the whole argument for using the product (along with MY logic for considering it!).

anonymous,

    Excellent point.  I was reading through this thread, and before I could beat you to the punch, you very elequently explained the BS surrounding the GMIB.  This is a SCAM brokers use to sell annuities to unsuspecting clients.  I've run across more people than I can count that think the GMIB is a GUARANTEED rate of return, no matter what their underlying investments do.  When I explain the truth, they are PISSED.  Two different clients filed complaints after I pointed the lies their broker told them about the GMIB and both got their money back.

    I have NEVER run across ONE PERSON this type of annuity was sold to that truly understands that the GMIB must be annuitized, let alone the fact that the insurance company sets the true rate.  The posts on this thread prove the me that we have uneducated neophites pitching these products without a basic knowledge of what they are selling.

I think the point of the GMIB is that you do not have to annuitize the annuity in order to draw an income for life, and can stop taking it and pull out the cash value of the account at any time.

Like annuitization, in a SPIA, you're stuck and have no future options with that either, and leave no legacy for the kids.

The VA w/ a GMIB rider seems to offer a win-win for the client that doesn't want you to take away his asset (ie. SPIA or annuitization) but can give him the option to start/stop an income stream at any point in the contract without having to make a permanent decision on taking that income.

anonymous - your example is flawed in that you're assuming that VA is will never outperform that 5%/yr thereby never taking advantage of a stepup feature (which helps them lock in gains and increase their income for life... something that's not going to happen with a SPIA or annuitization where payments are fixed for life based on actuarial tables). 

Also, you assume that VA's cash value is going to goto $0 and have no other benefit of than the 5% guarantee for life.  Sure, that's a worst case scenario, but the chances of that are slim and none (and if a VA's value actually did that while a client was pulling out 5% annually, I'd hate to see what their mutual fund portfolio did... probably $0 as well, and no GMIB there).  These companies can offer that 5% for life very safely considering that most subaccounts are going to do well beyond that 5% return on the long-term.  If they happen to have a few bad years in a row and the account takes a beating, they know the client is then essentially stuck because they have the 5%/life to hang onto and in the meantime the subaccount will hopefully rebound and get them back where they need to be anyway. 

STL Indy, it sounds as if you have no idea what a GMIB is.  You are confusing it with a GWIB.

For the record, I don't have a problem with a GMIB rider and I believe that it is appropriate at times.  My problem is that the insurance company's are dishonest by calling it 7%.  The agents are at fault for selling something that they don't understand.

Don't learn on your clients.  Learn for your clients.  If you are learning about products from wholesalers and marketing pieces, your clients are in trouble.  Read the actual contracts!

Oops, I meant GMWB. STL Indy is talking about a guaranteed minimum withdrawal benefit and not a guaranteed minimum income benefit.

Whether Anonymous is 100% accurate (which I believe he's pretty close), 0% accurate, or somewhere in between; this thread only reinforces why I tend to shy away from using these insurance products.

If some of us professionals don't fully grasp all the nuances of a VA, I'm sure not many clients truly understand either.

scrim

Scrim, instead of shying away, stop being a lazy advisor.  VA's are a very powerful investment tool in the hand of the appropriate investor.  You owe it to yourself and your client to take the time to learn how these products work.

I'm calling you lazy because I'm willing to bet that you have never read the actual contract.

You would be correct on that one.

I've never read an entire mutual fund propectus either.

scrim

[quote=anonymous]Oops, I meant GMWB. STL Indy is talking about a guaranteed minimum withdrawal benefit and not a guaranteed minimum income benefit.[/quote]

Correct.  It was late when I was typing that last night, I thought we were talking about the same thing.  I don't really even sell the GMIB benefit on some of these VA's as the clients that I steer towards VA's are looking to draw income now (without killing their asset like annuitizing or buying a SPIA).  I usually combine the GMWB rider with an enhanced death benefit rider (depending if the client is concerned with leaving a legacy).

However, even though the GMIB rider forces you to get that guarantee and recover your loss over a long period of time, that's something that a individual stocks and mutual funds can't offer outside of a VA.  It's better than not having it at all for safety minded retirees, and I think most senior clients would be happy to have the potential safety net there (even if they never want to use it).  We can't expect the insurance company to make them whole at the end of the 5/7/10yr contract and just let them walk away.  If a no-loss guarantee w/ walkaway feature at the end of the surrender period is the most important thing to them, perhaps a fixed annuity would be more suitable.

No one product is right for everyone, and there is a place in the market for all of them I think (even EIA's, at least a good one like ING's Secure Index product line).  Know your client and the rest is easy.

Find out what matters to your client most, then give the fitting product to them.

Amazing how many fools try to force a product where it isn't wanted. These idiots wonder why a prospect does business elsewhere and eventually starve out of the business.

Unless the client's way is committing financial suicide or getting you busted, capture the assets FIRST...THEN drip in your agenda.

You're all getting hung up on some confusion over one possible rider of the VA contract and calling them all bad.  I want to see the assumptions used and the calculation about how the end result is only 3% annual return...call me skeptical, but it's real easy to throw numbers around on this board without any substantiation.  My suspicion is that for this doomsday scenario to play out, you would have to assume less than 7% performance in the first ten years, client conversion to monthly income immediately after ten years (which has been very rare in my book), and about a 2% annuitization rate for at least 25-30 years.  That just doesn't happen very often, so the GMIB is more or less a security blanket for a nervous client, to get them in or keep them in the market.

Scrim, you are showing a bias toward believing those posts that support your own conclusions rather than investigating things for yourself.  Get some illustrations for various scenarios (current income, current tax deferral/retirement income, etc.) and study them.  Ask questions until you understand the products, and then put them in your arsenal.

I just had an illustration ran for some money a client wants to draw income from, and on a $35,000 initial premium, he is immediately able to draw 5% of the contract value, and this draw is based on an increasing contract value, which is ratcheted up each year the contract value is higher.  If the contract value declines, the income draw stays the same for that year.  At the end of the illustration, which runs from February 1985 to April 2006, the client has withdrawn a total of $95,402, and has an account value and guaranteed death benefit of $88,292, for an average total annual return of 11.62%.  This is on an 80/20 stock/bond mix for the duration of the contract.

Given the protections provided, (the annual ratchet, guaranteed income and guaranteed death benefit), please tell me how this is a bad thing for my nervous client?!!!

[quote=Indyone]

Given the protections provided, (the annual ratchet, guaranteed income and guaranteed death benefit), please tell me how this is a bad thing for my nervous client?!!!

[/quote]

It's a bad thing for the brokers who don't have insurance licenses and CAN'T offer them.

[quote=RealityBichslap]

It's a bad thing for the brokers who don't have insurance licenses and CAN'T offer them.

[/quote]

And for the insurance agents w/o securities licenses that can only push fixed products (most of which don't have a clue about good VA's, how they work, and the protection they can provide)... and then when they do sell a EIA to Mr. and Mrs. Smith it's usually some complete piece of 15yr garbage with double digital commissions and not a good one that pays them only 4-5%.

I try to remain neutral.

My point was that they are very complex and confusing products.   I prefer presenting products that are very easy to understand for the average person.

For my "nervous" investor, I'd rather setup a conservative asset allocation plan, keep withdrawal rates reasonable, preach living at or below their means, etc.... to ensure that my clients have a very little chance of ever running out of money.

All this stuff is a moving target of course, but by acting as their fidicuary I feel this is a better option and a much easier concept to grasp.

scrim

[quote=scrim67]For my "nervous" investor, I'd rather setup a conservative asset allocation plan, keep withdrawal rates reasonable, preach living at or below their means, etc.... to ensure that my clients have a very little chance of ever running out of money.

scrim[/quote]

Scrim, that is why your competitors have a natural leg up with "nervous" investors.  The example I posted above satisfies nervous investors while allowing for generous withdrawal rates (5% of an increasing balance) and virtually no chance of them running out of money, while giving them the potential for better overall returns.

I'm not here to twist your arm and tell you you're wrong, just stay neutral and keep an open mind about VAs...otherwise, I suspect that you're limiting yourself here...

I will always keep an open mind.

Until the time where my clients are leaving in droves because they are losing more money than they expected I would prefer building my clientele with those who are like minded as me.

I set there expectations that in any one calendar year there downside is a loss of approx. 5% but of course that comes with the limited upside of around 20%.      I tell them right off the bat that expect your principal to fall 1 or 2 years out of ten and to go up 8 or 9 years on average.   Because we use municipals in alot of cases for the bond allocation much of their return is taxfree as well.   The taxable portion we stick to tax efficient MF's.     

So far, this approach seems to work for "nervous" clients to date.  But then again, I'm only two years into my practice.    I'm always open to change.

scrim

"My point was that they are very complex and confusing products.   I prefer presenting products that are very easy to understand for the average person."

Scrim, how do you know that they are complex and confusing products when you have never read the contract?  

Read and understand the contract and then it will be easy to explain.

"I try to remain neutral."

You sound like a good guy, but when you don't understand products, you are not remaining neutral, you are remaining ignorant. 

I have a VA packet in front of me.

On the 6% withdrawal strategy hypo's with a 500k starting base  it's showing the Account Value going down every year between ages 55 to 70.  

Why is the hypo showing a decrease every year in account value?  Can an account decrease 15 years in a row?

This just doesn't pass the smell test.

scrim

Scrim,

1)We are talking about GMIB features, not GMWB features.

2)Stop looking at hypos.  Read the contract!

Of course an account can decrease every year if someone is taking withdrawals.

I personally have no problem with investors using VA's as long as they are being sold correctly.   VA's are more of a risk management tool in my opinion.

That being said, I think I can do better for clients using proper asset allocation as a risk management tool.

There's more than one way to build our practices so for those advisors who present VA's to clients as risk mgmt tools I have zero issues with that.

scrim

IMO, you should not be allowed to have an opinion on an insurance product if you refuse to read the contract.

"That being said, I think I can do better for clients using proper asset allocation as a risk management tool."

Scrim, here's a hypothetical example for you.  A client has $200,000 of qualified money sitting in CD's.  Based upon his goals, it is determined that this needs to grow to $490,000 in 11 years for him to reach his retirement goal.  This works out to an 8.5% return.  He is risk adverse and is not willing to make an investment that might lose money. 

Please explain what the proper asset allocation is that can give him an 8.5% return with no chance of loss.  Personally, I don't know how this can be done with asset allocation. 

it's not possible, I agree

where can I find the contract?  I have a whole kit in front of me...wouldn't they include the contract in the kit?

[quote=scrim67]

I have a VA packet in front of me.

On the 6% withdrawal strategy hypo's with a 500k starting base  it's showing the Account Value going down every year between ages 55 to 70.  

Why is the hypo showing a decrease every year in account value?  Can an account decrease 15 years in a row?

This just doesn't pass the smell test.

scrim[/quote]

That's probably the 0% return assumption.  Most illustrations will show what happens if you assume historical investment returns, and then they also show a second 0% return assumption as a worst-case scenario.  If all they show is a declining balance scenario, you should have no problem competing with that.

[quote=scrim67]

it's not possible, I agree

where can I find the contract?  I have a whole kit in front of me...wouldn't they include the contract in the kit?[/quote]

Scrim, the information you are looking for is in the prospectus.  That is where the contract information, such as riders and cost, etc. is before the annuity is purchased.  Once purchased, a custom contract with the client's infomation and riders on it is produced, and the client has X days (in my state, 20 days) to look it over and make sure it is what they wanted.

If the prospectus is not included, your kit is not complete...hope that helps.

Scrim, just ask the insurance company to see a pecimen contract with GMIB rider.

IMO, the example that I gave is a perfect fit for a GMIB or GMAB rider.  The client can do the necessary aggressive investing that they need to do, but has no chance of losing principle.  The major benefit of GMIB and GMAB riders are that they allow the client to invest above their natural risk tolerance.  The fact that the rider most likely will never actually be needed is irrelevant.

I meant specimen, not pecimen.  The prospectus may have everything necessary.  However, since an annuity is a contract, I would still suggest looking at an actual contract.

Thanks indy,

I just threw the kit in the trash and will order another one.

one thing I can't figure is if they assume a 0% return and a 0% withdrawal why is the account value declining every year?

scrim

The major benefit of GMIB and GMAB riders are that they allow the client to invest above their natural risk tolerance.  The fact that the rider most likely will never actually be needed is irrelevant.

----------

Exactly--people w/insurance (of any kind) can take more risk--and therefore likely earn a better long-term return and not need the insurance, which is a bit ironic.  Your house isn't going to burn down or get blown away or hit by a meteorite, but you probably want to keep that HO insurance just in case....even if the house is paid for.  One principle of insurance is that you want/need it if the event you're protecting against would be so devastating that you couldn't recover.  That's even IF the probability of that devastation is quite low.  This concept made me willing to consider VAs for retirement planning, as running out of money before running out of life would considered catastrophic for most of my clients (and therefore, for ME!).  When used the right way, those things can provide both principal and inflation protection.

I think they just show the account value going to zero to illustrate the idea about whatever guarantee they've got.....I find it amusing sometimes because wholesalers get all excited about what you get if the account goes to zero (with a straight face).  But I assume they just want a conceptual illustration in the propaganda, I mean, literature.

Maybe my mind works backwards but my point is that if you invest aggressively (100% equity mutual funds) it is basically impossible to lose money also over a ten year time period when you figure in reinvested dividends and such.

If you decrease the level of equity portion then the chances are even smaller.   It's practically zero.

If i'm losing business because I don't have the VA arrow in my quiver I'm better off anyway in the long run.

scrim

I'm just curious.

If clients buy all these riders so they can't ever lose money (subjected to the ability of the insurance company to pay)  wouldn't you just invest them all in the most aggressive allocations offered?

If not, why wouldn't you?

scrim

[quote=scrim67]One thing I can’t figure is if they assume a 0% return and a 0% withdrawal why is the account value declining every year?

scrim[/quote]

That's because of the costs of the riders.  If the market returns zero over 15 years, and you have, say 1.5% in contract costs, the contract will gradually decline.  That is a pretty far-fetched scenario, although it still compares favorable to say, the great depression.

in the example is shows it decreasing from 500k to 482k then 464.5k the next year.

The riders are 3.6% annually?      Am I figuring this right?

scrim

"If i'm losing business because I don't have the VA arrow in my quiver I'm better off anyway in the long run."

Maybe, maybe not.  All I'm telling you is that I felt pretty much the same way you do now back when I was fairly new to the business.  If I were a betting man, I would bet that you will find more and more applicability as you get further into your career and get more familiar with how a couple of good VAs work...don't try to learn them all...you just make yourself crazy.

"If clients buy all these riders so they can't ever lose money (subjected to the ability of the insurance company to pay)  wouldn't you just invest them all in the most aggressive allocations offered?"

Certainly, I am comfortable investing them much more aggressively that I would otherwise, but I still don't want to see my client contract value cut in half, even with the principal guarantee.  There's just something about seeing huge swings, even with the guarantees in place, that make nervous clients question you again and again.  They'll see their guaranteed value, but if the contract value is waaaaaaaay less than that, they still tend to get nervous...just the nature of most of my VA clients, I guess.

[quote=scrim67]

in the example is shows it decreasing from 500k to 482k then 464.5k the next year.

The riders are 3.6% annually?      Am I figuring this right?

scrim[/quote]

Sure looks that way to me...yikes...that IS an expensive contract!  I'd recommend you look for a different carrier...

indy,

that's so interesting to me.

even though it's supposedly impossible for them to lose principal..they still get "nervous".

If someone would get nervous when there's no way they could lose principal then they need more help than we can give.

scrim

Do you think that 3.6% includes the fund expenses.    I sure hope so.

scrim

That would be my guess, but you’d have to ask the company for sure…

[quote=scrim67]indy,

that's so interesting to me.

even though it's supposedly impossible for them to lose principal..they still get "nervous".

If someone would get nervous when there's no way they could lose principal then they need more help than we can give.

scrim[/quote]

I see that all the time to be honest.  If all they've ever had is CDs, they get nervous about everything initially.  It's really the fear of the unknown.  You just have to decide if they are a hopeless case, or if you can do a little hand holding until they get used to how their "new" investment works.  For the most part, they evetually settle down and will even ultimately thank you for introducing them to a better way of investing.

Working in a bank setting I see alot of that too.

I am confident that in a big market downturn I will only lose a small amount of business.   I figured if I set their expectations from the beginning combined with good service I shouldn't lose too many.

The ones I do lose I figure weren't good clients to begin with so it will be the proverbial addition by subtraction.

After two years, the one thing I know now is that as long as my health is ok, I will be in this business for a long time as it took me many years to find work I was passionate about.

scrim

"Maybe my mind works backwards but my point is that if you invest aggressively (100% equity mutual funds) it is basically impossible to lose money also over a ten year time period when you figure in reinvested dividends and such.

If you decrease the level of equity portion then the chances are even smaller.   It's practically zero.

If i'm losing business because I don't have the VA arrow in my quiver I'm better off anyway in the long run."

You are definitely thinking backwards.  Are some of your clients conservative?  Do some of these conservative clients need to get high rates of return to accomplish their goals?  What would happen when they invest aggressively and lose 20% the first year?  Aren't they going to want to pull their money out?  If they do, haven't they just blown any chance of accomplishing their retirement goals?  If they keep their money in and the market goes down a second year, what happens then?  What happens when you get sued and you show the attorney the risk tolerance questionairre that showed that they are conservative, but you invested aggressively or that you didn't use one?  Are you saying that you don't want the clients who actually need your help the most?

I would never invest aggressively if there risk tolerance is low.

If my client has a low tolerance for risk and a ten year time frame I will do a 60/40 allocation to begin with in most cases.     Upside potential is around 25% and downside risk in any given year is a loss of 15%.    I tell them to expect two down years of every ten and one in ten if we flip it to a 40/60.     As long as their diversified they will be fine.

After fees that averages 7% annually and much of the income is tax free using muni's.

What's nice is that their assets remain liquid just in case they need to tap it, the taxation upon withdrawal is favorable too.

scrim

Scrim, I have to pick your entire post apart.

"I would never invest aggressively if there risk tolerance is low."

Are you saying that instead of using a VA, you would just tell your client, "I'm sorry.  Because you are conservative, your goal of retiring at 10 years is impossible.  Please decide if you want to work longer or lower your standard of living?"

"If my client has a low tolerance for risk and a ten year time frame I will do a 60/40 allocation to begin with in most cases."

You can't do that if you have a client who is not willing to lose money.  

"After fees that averages 7% annually"

You have no clue what that will average.  It may have in the past, but so what. 

"much of the income is tax free using muni's"

muni's are not appropriate for the majority of investors.

"the taxation upon withdrawal is favorable too."

What makes it favorable? 

How likely is it for a 60/40 allocation to lose money over a ten year period?   My opinion is Zero.

From my understanding when you take withdrawals out of a VA it's taxed quite unfavorably compared to a mutual fund.

I'm not sure why Muni's aren't appropriate...especially a fund that is diversified.

scrim

to answer your first point,

yes, they might have to work longer or lower their standard of living in retirement.

I don't see how a VA can help with that.

let's face it...if they haven't had a plan for many years it's too late so matter what we do.

scrim

Scrim, you are missing some very key points. 

1)It doesn't matter if it won't lose money over a 10 year period.  For a conservative investor, it may not be appropriate to lose money over a one year period.

2)For some people a 60/40 mix might guarantee that the client can't achieve their investment goals.

Let's assume that we are talking about qualified money so that the taxes are the same.  If we were talking unqualified, the annuity might be an advantage or disadvantage based upon specific facts.  (Advantage: tax deferred growth.  Disadvantage: taxed as ordinary income and not capital gains)

Muni's aren't appropriate for most investors because they pay less interest. 

anonymous is completely correct on the difference b/w a SPIA and the VA annuity (based on the benefit base) annuity payout. 

It does make me a little mad when people trash something that havent even read or understand.  Most peoples anger comes from them not picking up the contract and deciding to give opinion on the numbers when they wont even read to find out what the numbers really are and what they mean.  You are arguing without even looking into the other side of the argument, and that is why you will likely lose this case.  Boy wouldnt you hate to lose the case to an ANNUITY SALESMAN!! How about going out and finding what products and solutions would accomplish the same goals and be more cost effective and beating the guy at AXA EQ.  I used to use their products and know that there are plenty of good competitors products that may be as good or better for the client.  Maybe not. 

You can double a clients money in 10 years by earning 7.2% annually.  That does not take into consideration potential taxes (depending on this being a Qual or NQ acct). 

Depending on the version of this contract (which the only main difference is how many years there is a surrender charge), the fees are probably similar to what people charge for managed money.  A little over 1%, lets say 1.25% is the base charge.  Then you pay additional money for the GMIB rider, which is probably 60 - 70 basis points.  I believe this product would be 1.8-1.85% expense for those options (that is using the standard contract, not the one that gives you a bonus or that has no surrender charge).  So your clients pay 60-70 basis points annually in order to have a form of protection, in this case a 6% guarantee.  So, on 100k account, they pay 600 bucks a year (increasing with acct. value) to know that if all the money goes away, they arent broke. 

Then you have your MF expenses, say from 80-150 basis points.  So how much cost difference is there between doing a wrap account and doing the VA?  Pretty much the cost of the GMIB rider, 60-70 basis points. 

Are there other costs?  Ya, opportunity cost if the client ends up not needing the insurance(GMIB).  They say that 90% of all VA's are never annuitized, so your paying for the 10% chance that you will need this option.  Another opportunity cost is associated with being limited to the funds available in the contract.  Hell, depending on your firm, they contract may offer more funds than you can.  Then again, maybe you can offer anything and the funds in the contract are just not up to par with what your client needs. 

And guess what, if you laid this out to the client, you would win the business.  But you can't even open up the damn contract. 

VA annuity (based on the benefit base) annuity payout. 

Should read " VA annuity (based on benefit base ) annuity payout. "

baylorjoyce1, Great post!

Let me clarify one point.

"They say that 90% of all VA's are never annuitized"

I don't know the source of this common stat, but it is very misleading.  It's more correct to say, "90% of VA's are never annuitized with the company that had the VA."

Example: Client has a VA that has grown to $1,000,000 with ABC Insurance Company.  ABC's SPIA pays $97,000.  The agent would receive a very nominal commission (if any) for turning it into a SPIA.  The agent shops the market and finds some SPIAs paying less and some paying more.  He does a 1035 exchange into DEF's SPIA paying $99,000.  The client gets more money.  The agent gets a new commisson and the VA falls into the 90% stat.  Everyone wins except the statistician.

Thanks. 

""""Let me clarify one point.

"They say that 90% of all VA's are never annuitized"

I don't know the source of this common stat, but it is very misleading.  It's more correct to say, "90% of VA's are never annuitized with the company that had the VA.""""

I think thats splitting hairs, but you added more context to the statement, which never hurts. 

That is a statement that the Accumulator (the AXA EQ contract we are referring to) wholesaler will make himself, I've heard him say it on many occasions.  Weve had a pretty good last 20+ yrs in the market, so there wasnt need for much annuitization.  The whole point is to have the protection if the client wants it. 

When I tried to make a case for VA's possibly being appropriate to protect assets from lawsuits even that fell flat when I did my own research.

This debate could go on for ever.

There's room for all products in this world including EIA's but I won't touch those either because they seem a bit shady to me also.

scrim

Scrim, this isn't a debate.  You haven't read a  contract, thus you are not capable of taking a side.  Your decision to remain ignorant on the subject is to the detriment of your clients and eventually to your practice.

ok, I'll read a contract.

Then we can resume our debates.

scrim

Actually, that 90% rule applied to all deferred annuities, not just VA’s.  Although I’m interested to see if that changes should we get new tax laws RE: annutization…

FreedomLvr, I believe that you are correct.  My point is that many more get annuitized than the 10%, but they usually don’t get annuitized with the original company, thus they get counted in the 90% figure.

Ok,

I have a copy of the contract of a very popular VA.

As I go thru it I may post a few random thoughts and questions.

First observation:

The contract expenses with all the bells and whistles are 4% and that doesn't even include the mutual fund operating expenses which max out at 2.7%.  

That's 6.7% in expenses...can this be right?

I imagine in a "real life case scenario" this never happens.

I would imagine real life maxes out closer to 2.5%?    Is that a fair guess?

Thanks in advance 

You may be adding a lot of riders that can't (or shouldn't) be purchased together.  You may be looking at the maximum that the expenses can be instead of what they actually are.

2.5% sounds pretty good for real life.

[quote=scrim67]

Ok,

I have a copy of the contract of a very popular VA.

As I go thru it I may post a few random thoughts and questions.

First observation:

The contract expenses with all the bells and whistles are 4% and that doesn't even include the mutual fund operating expenses which max out at 2.7%.  

That's 6.7% in expenses...can this be right?

I imagine in a "real life case scenario" this never happens.

I would imagine real life maxes out closer to 2.5%?    Is that a fair guess?

Thanks in advance 

[/quote]

The two VAs that I use cost anywhere between 2.60% and 3.15% a year.

Observation 2:

In this contract it says that if you do choose some type of guarantee of principal rider the insurance company at their discretion will put some of the assets in a fixed rate account.

In "real life" how does this work?  

If the client wants to be "aggressive" and put 100% in stock mutual funds AND have the guarantee of principal rider is this combination impossible?    That's the way it reads to me.

Thanks in advance for any feedback.

scrim

Most of those riders require a percentage, say 20% in bonds, so yes, you are correct as far as my carriers go.

Indy,

In your example my follow up question is the following:

If a client chooses a "balanced" allocation within a VA at a 70/30 model AND chooses the principal guarantee is 30% going to fixed income or 44% going to fixed income in total?

scrim 

The 20% in my example is just a company minimum.  Your 70/30 would work just fine as it satisfies the minimum.  They would not adjust it to 44%.

The one that I use, allows the money to be 100% equity, but the money must be in one of 5 model portfolios.   The client can switch portfolios at any time.

I did read much of the contract today and while I did learn a few things my mindset is much the same.

The most simplified analogy regarding VA's is the same feeling I get when I buy an appliance or car and I decline the extended warranties, rustproofing, etc.

Of course in our world we are dealing with someone's assets and life's dreams so it's a very weak analogy but you get my point.

scrim

Scrim...yes these can be very expensive. When you think about the guarantee withdrawal benefit (ex...5% for life )it comes down to this.Some customers( especially conservative c.d. customers)need to hear the word guarantee.

(in my opinion)  a waste of time and expense.With that being said some people.. now matter how much you try to educate about asset allocation ...want to hear that word guarantee.At the end of the day present options and give them what they want

My reasoning for calling the guarantee a waste is this.Assume you have a mutual fund portfolio and were to start withdrawals of 5 % at age 60( annuity w/d age). If the customer were to start withdrawing money at age 60 and had zero growth the w/d would last 20 years till age 80. Now ask ourselves this ARE WE EVER GOING TO SEE A 20 YEAR BEAR MKT?... I am not bashing annuities ,I sell them ,for the other features .1) guarantee death benefit 2) stepped up death benefit 3)tax def. and the all important 4)CUSTOMERS LOVE HEARING GUARANTEES. Always a good idea to know the pros and cons and use it to your advantage ..Happy selling

what is the good part about the death benefit?   wouldn't a joint account with rights of survivorship accomplish something similiar?

yes, maybe with the annuity you get the highest value but why is that so great?

couldnt' the survivor simply continue the account in a non annuity scenario?

[quote=waterboy]Now ask ourselves this ARE WE EVER GOING TO SEE A 20 YEAR BEAR MKT?... [/quote]

Of course not, but what if a client purchased a VA and wanted to take 5% income right away.....and you talked them out of the the 5% guarantee withdrawal rider.

You deliver the contract and right after the free look period is up we have a 2-3yr bear market right off the bat (ie. like 2001-2003) and their $100k VA now has a value of $50k...  They still need the $5k/yr withdrawal that they started back from the beginning, but with only $50k to work with they're taking out 10% of the VA's value to keep the same income from day one.  Good luck trying to keep that client and good luck trying to even get back to the original $100k while they continue to take out $5k/yr.

If they had taken the riders, no worries about that $5k/yr drying up and no worries about their $100k being gone should they die.

[quote=scrim67]

The most simplified analogy regarding VA's is the same feeling I get when I buy an appliance or car and I decline the extended warranties, rustproofing, etc.

[/quote]

But what if your potential clients are the type that do buy the extended warranties, rustproofing, etc.?  The point people here are trying to make and that you don't seem to get is that some investors need the feeling of security that insurance provides, even if it is likely not needed.

And here is a little insurance 101 for you:  the majority of the people that buy insurance (of any kind, house, auto, life, annuities, etc.) have wasted their money in doing so.  That is the very nature of insurance - you are transferring the risk to the company and they are spreading it among the masses.  A few people will get a windfall, but most will pay for insurance that they never use.  If the majority of the people that bought insurance ended up money ahead by doing so, the insurance companies would all go broke.

[quote=scrim67]

Of course in our world we are dealing with someone's assets and life's dreams so it's a very weak analogy ...

[/quote]

Exactly. 

great points law.

the only difference is perhaps car insurance, house insurance you have to buy......there is no choice I don't think.

Does that have any validity?

scrim

[quote=scrim67]

great points law.

the only difference is perhaps car insurance, house insurance you have to buy......there is no choice I don't think.

Does that have any validity?

scrim

[/quote]

Perhaps, but only with the bottom feeders that are barely scrapong by in life - not the people we are typically working with.  Personally, I would have car and house insurance regardless of whether it was required.  And I have life insurance even though it isn't. 

I re-read my post and it sounded a bit combative for my taste.  I hope you didn't take it as such.  I just think that, based on your posts, you are either losing out on business or putting clients in investments that won't meet their goals.  Annuities have a place, and I think you are missing out if you don't take the time to learn where that place is.

Let's try to keep this as simple as possible. 

1)Annuities are not appropriate in many cases. 

2)In other cases, they are one of many options. 

3)If a person needs a high rate of return, but can't take market risk, a VA with a living benefit (GMIB, GMAB) may be their only option.

Scrim, you've already admitted that if a client needs a high rate of return, but can't take market risk, you can't help him.  Bring VA's into your bag of tricks and you'll be able to service this type of client.

A basic argument against VA's is that they are more expensive than mutual funds.  That may be true.  What the argument misses is that we are not comparing a MF that is 100% equities to a VA that is 100% equities.  A VA will allow an investor whose risk tolerance would put him 20% bonds/80% equities into a portfolio that is 100% equities.  Over a 10+ year period of time, which investor is going to do better?

anonymous,

I don't think it's a given that a 100% equities will beat a 80% equities portfolio all the time.   Especially when you consider the extra cost and tax treatment at withdrawal of a VA.

scrim

Scrim,

To give you an example of how an annuity death benefit can be powerful, let's use a real life example:  AXA/Equitable Accumulator.

Clint puts in $400,000 with a 6 percent withdrawl coming off every year ($24,000).  This money can be invested as aggressively as they want.

Market has some ups, some downs, but at death the client has taken say 10 years worth of income ($240,000), and the account value is, say, $210,000.

At death, the annuities beneficiares would recieve THE ORIGINAL AMT INVESTED...in other words, equitable will cut them a check for the account value plus another $190,000 to get them back to $400,000.

This death benefit has sold a lot of annuities.  

Bank,

That appears to be a very good benefit.

scrim

I was mistakenly under the impression that you always subtracted any withdrawals.

What is this benefit called and how much does it cost?

Thanks in advance.

Scrim

You were mistaken and you weren't...you do suntract withdrawls, but the amount you subtract equals the guaranteed growth of the death benefit.

It is a really fancy name...it's called "Enhanced Death Benefit."  It costs 0.60%, and you get a 6% guaranteed increase on your death benefit (worst case) OR the annually ratcheted amount (over time probably will be higher).

You do subtract withdrawls, but if you take 6% income and are guaranteed to make 6% worst case on the death benefit, then you see how worst case senario your bene's get at least your original investment back.

It is the best annuity death benefit in the industry IMO.

Scrim, I (hopefully obviously) meant to say 20% equities and 80% bonds.  Heck, maybe we are talking about someone whose risk tolerance suggests 50% bonds and 50% cash.  My point is that the guarantee in the VA can allow someone to invest more aggressively than their risk tolerance will allow.

So they are paying over ten years $24,000 for this benefit.    

Is there any study on how often this benefit is actually advantageous to them?

I would guesstimate it can't be very often.   10%?

scrim

You know what part of my problem is?   I play too much texas hold 'em.

Let's say there's only one card in the deck that can make my hand on the river so the chances are around 2%.    If I have to call a $10 bet to win a pot with $100 in it the pot odds are 10-1.        Since I have a 49-1 chance to make my hand I always fold.

Yes, bad analogy but that's the way my mind works.    I need to think more like a client or quit playing cards!

Have a good weekend.

scrim

Nope, incorrect.  Scrim, with respect I must say for an advisor of your tenure, I don't understand why you have to be hand held on some pretty basic concepts.

You multiplied $400,000 (.006) = $2,400 

then $2,400(10 yrs) = $24,000

That is most likely a significant overestimate based on my example.  The 0.60% is only charges on the account value, so if the account value was $300K it would be $3,600, if it was $200K it would be $1,200. 

So the aggregate amount over 10 years would be LESS than $24,000 based on my example.  Okay?

Now, as far as "guesstimates" go, I do hope you are not one of those people (whom I cannot stand) who pull actuarial numbers out of thin are as if they are fact. 

You (and I) have no idea how many folks will use that benefit, but it sure is nice to say to a couple who need income:

"YES, I can GUARANTEE you X amount of income for the rest of your life regardless of the market, regardless of what happens.  And YES, you still will be investing trying to grow your money, taking advantage of the good times.  And YES, no matter what, you still will be able to leave AT LEAST this much to your children, I GUARANTEE it."

You can make up (aka guesstimate) as many actuarial figures on the likelihood of needing this as you want, but the fact is, you cannot GUARANTEE them anything.

What is the price of peace of mind?  In this case its 0.60%.

Good thread and a great VA education for you, scrim...I see a tiny crack in your anti-VA armor...

You have a good weekend also...

You're right Scrim...terrible analogy. 

If THAT's how your mind works (whatever that meant) then maybe your better off just selling your proprietary wrap account to anyone and everyone that somehow (magically) compensates you 3% while charging the client 1.5%.

Isn't that how it works Scrim?  And is that a MF wrap or indiv stocks/bonds?

75% of my business in a mutual fund wrap product that has thousands of different combinations.    20% is in mutual funds  the rest if split between individual securites and annuities.  

Total fees for the wrap product are around 2.2% which is comparable to many VA's.     The accounts are 100% liquid just in case they need to use any of the funds.

scim

[quote=scrim67]The accounts are 100% liquid just in case they need to use any of the funds.[/quote]

I don't think anyone would advocate putting anywhere close to 100% of a retiree's money into a VA.  Yes, annuities have surrender charges (and most good VA's are in the 3-6yr range), but what are the odds that a person would need all of their money liquid at a specific time?  That's why you leave some in cash and other more liquid accounts... they can draw off of there should the need come up and leave the annuity alone. 

Plus, these insurance companies know that one fear these seniors have is needing large sums of liquid assets available for LTC needs and many of the annuities available today have the ability to get as much cash out as they need (even all of it) w/o surrender charges for LTC specific needs.  Other than long-term care, it would be rare for a client to need all of their money at one time.

[quote=STL Indy]

[quote=scrim67]The accounts are 100% liquid just in case they need to use any of the funds.[/quote]

I don't think anyone would advocate putting anywhere close to 100% of a retiree's money into a VA.  Yes, annuities have surrender charges (and most good VA's are in the 3-6yr range), but what are the odds that a person would need all of their money liquid at a specific time? [/quote]

Maybe just stating the obvious here, but most reputable VA products have 0 CDSC versions offering the immediate liquidity to clients, but MUCH less commission (up front) to reps- trails are better, tho.

[quote=scrim67]

75% of my business in a mutual fund wrap product that has thousands of different combinations.    20% is in mutual funds  the rest if split between individual securities and annuities.  

Total fees for the wrap product are around 2.2% which is comparable to many VA's.     The accounts are 100% liquid just in case they need to use any of the funds.

scim

[/quote]

so 75% of your clients/GC are paying the same as they would for a VA, but without the added protection of insurance on the principal-- the VA also auto-rebalances and can provide protected annual Income withdrawals and 0% CDSC options (100% liquidity)-- yet you believe that ALL clients are better off in the wrap account?

what about the < $50,000 to < $100,000 rollover client who (as your book grows) gets increasingly neglected in the grand scheme of things? not all, but certainly some would be better off in the VA-

just for full disclosure any IRA assets are charged about 50 basis points less.

So IRA assets are being charged around 1.7% total which includes mutual fund fees.

scrim

[quote=TexasRep][quote=STL Indy]

[quote=scrim67]The accounts are 100% liquid just in case they need to use any of the funds.[/quote]

I don't think anyone would advocate putting anywhere close to 100% of a retiree's money into a VA.  Yes, annuities have surrender charges (and most good VA's are in the 3-6yr range), but what are the odds that a person would need all of their money liquid at a specific time? [/quote]

Maybe just stating the obvious here, but most reputable VA products have 0 CDSC versions offering the immediate liquidity to clients, but MUCH less commission (up front) to reps- trails are better, tho.

[/quote]

Yep.  Most of them have multiple commission options and multiple CDSC options (with different product names)... although I think you're talking about annuity commission options for investment advisors where they simply charge a wrap fee, correct?

Anyway, despite the onslaught of negative advertising towards full service brokers, since when is it against the law to make a little money in this business?  Just because there are two nearly identical policies from the same insurance company, with the only difference being 2-3yrs longer for surrender charges, with more commission being paid to the rep, doesn't mean it's a bad product.  The state insurance dept. had to approve of that product, even the longer term surrender one, and we do operate our businesses to earn a living, no?  I mean, we don't see TV ads about people who are tired of paying their attorney, CPA, MD, dentist, etc... for services rendered.  Why should it be any different in our profession?

[quote=STL Indy][quote=TexasRep][quote=STL Indy]

[quote=scrim67]The accounts are 100% liquid just in case they need to use any of the funds.[/quote]

I don't think anyone would advocate putting anywhere close to 100% of a retiree's money into a VA.  Yes, annuities have surrender charges (and most good VA's are in the 3-6yr range), but what are the odds that a person would need all of their money liquid at a specific time? [/quote]

Maybe just stating the obvious here, but most reputable VA products have 0 CDSC versions offering the immediate liquidity to clients, but MUCH less commission (up front) to reps- trails are better, tho.

[/quote]

Yep.  Most of them have multiple commission options and multiple CDSC options (with different product names)... although I think you're talking about annuity commission options for investment advisors where they simply charge a wrap fee, correct?

Anyway, despite the onslaught of negative advertising towards full service brokers, since when is it against the law to make a little money in this business?  Just because there are two nearly identical policies from the same insurance company, with the only difference being 2-3yrs longer for surrender charges, with more commission being paid to the rep, doesn't mean it's a bad product.  The state insurance dept. had to approve of that product, even the longer term surrender one, and we do operate our businesses to earn a living, no?  I mean, we don't see TV ads about people who are tired of paying their attorney, CPA, MD, dentist, etc... for services rendered.  Why should it be any different in our profession?

[/quote]

i totally agree- we need to make a living.

the zero CDSC are offered outside wrap accts by Hartford (Access), AmSkank and others-- of course there are others offered within the wraps--

i have no problem selling a 7 yr bonus/plus annuity within a IRA where the client really shouldn't/won't be accessing the money for 7+ years anyway--i.e. 48 to 52 yrs old-- and doesn't really qualify for a managed money acct based on size anyway--