Variable Annuities
I know you’re all probably foaming at the mouth with the commissions tied to a potential opportunity of selling someone a variable annuity, but I’m posting regarding just the opposite.
I know there is a lot of knowledge on this board, and I sincerely hope someone out there is willing to provide sound advice. I am not a registered rep, nor do I have a lot of experience in the financial services world, but I do know that variable annuities have hefty commissions tied to them, and I do know that they're not right for everyone, or even most. My aunt, who probably has another 20 years or so in the workforce, is considering a variable annuity. Her advisor tells her it's probably not the best idea for her, and then strategically tells her that there's a guaranteed point which her returns would not fall under regardless of the market (seemingly a ploy to get her to buy). Can someone who's knowledgeable provide an intelligent, non-insulting/non-sarcastic comment or argument that I can present to her about why she shouldn't buy one? I really would hate to see her make a big mistake. Thanks.Why should the basis of whether one buys or not buys a product be determined by whether there’s a commission tied to it? A REIT has a nice commission too, as do A share mutual funds. Anything an advisor sells is going to have a commission except for a wrap account.
You also didn't give any details about your aunt other than she still has time in the workforce. Is it a qualified or non-qualified acct.? What is the surrender schedule on that annuity? Are there any living benefit riders attached to it? Were you in the meeting listening to the advisors "strategically" worded annuity pitch, or are you going off your aunt's words? Theses are all important questions when talking about annuities.No, I wasn’t in the meeting. Actually, I am the one who is questioning the whole thing. My aunt doesn’t think the advisor did anything wrong. I don’t know all the details, as we didn’t get that far. I’ve heard from several sources, including registered representatives, that some people think selling variable annuities is unethical and they avoid it at all costs, regardless of the situation. So when I heard that she might be interested in one, this is what immediately came to mind.
I know my aunt, like many, is freaking out about the state of the economy, and she's concerned about her retirement. I know she currently has a traditional IRA (I tried to get her to also open a Roth), and her current 401(k) plan at work does not offer great flexibility, nor a great company match. Quite frankly, I think she's worried. Because she's my aunt, and the conversation can be a bit awkward, we don't talk actual numbers, so I'm in the dark there. She's single, no kids, recently bought a home (within past year). I don't know what, if any, riders were attached to what they were talking about. All I know is that she liked the fact that her returns has unlimited upside (variable annuity) coupled with the guarantee that her returns would not go below a certain percentage, regardless of the market. Based on the above info, which hopefully helps you a little bit more, what can you tell me?So you are not in the business yet, do not understand your Aunt’s situation, do not understand an option that her FA showed her, and feel because you have heard bad things about VA’s, you should intervene? Is that about it? You are most likely the one that is about to damage your Aunt, VA or no VA. A variable annuity can be appropriate in many situations. In many situations, it is not. The same can be said for any investment. You do not have the requisite knowledge of the product or your Aunt to make a judgement. If you are truly concerned, go with your Aunt to the FA and relay your concerns. If he is an ethical FA, which you have no reason not to believe, he (or she) will do what is best by your Aunt.
Well since you seem so full of knowledge, could you briefly explain when a VA would / would not be appropriate? General terms, of course, your majesty.So you are not in the business yet, do not understand your Aunt’s situation, do not understand an option that her FA showed her, and feel because you have heard bad things about VA’s, you should intervene? Is that about it? You are most likely the one that is about to damage your Aunt, VA or no VA. A variable annuity can be appropriate in many situations. In many situations, it is not. The same can be said for any investment. You do not have the requisite knowledge of the product or your Aunt to make a judgement. If you are truly concerned, go with your Aunt to the FA and relay your concerns. If he is an ethical FA, which you have no reason not to believe, he (or she) will do what is best by your Aunt.
From my time in the industry, I can tell you the most unethical ways that people do sell annuities. Now the important thing to remember is selling annuties is not unethical, Christ if they were an unethical product then they wouldn’t exist, its the way they are sold that is unethical sometimes. For example:
1. Selling a qualified annuity as a product that gives the client a tax-deferral benefit 2. Not telling the client there is a surrender period on it 3. Not telling the client there is an M&E ratio attached Thats all I can think of. Now that you said that her returns would not go below a certain percentage, what does that mean? She may be talking about the fixed acct. that is attached to all variable annuties. Fixed accts. will usually have a guaranteed 3% or so return, but that only applies to the portion of the account that is in the fixed acct.. If she still has 20 years of work left then probably no more than 20% of the acct. should be in the fixed acct.. I'd get further clarification on what she meant by "returns would not go below a certain percentage, regardless of the market." Hope this helps.[quote=3rdyrp2]From my time in the industry, I can tell you the most unethical ways that people do sell annuities. Now the important thing to remember is selling annuties is not unethical, Christ if they were an unethical product then they wouldn’t exist, its the way they are sold that is unethical sometimes. For example:
1. Selling a qualified annuity as a product that gives the client a tax-deferral benefit 2. Not telling the client there is a surrender period on it 3. Not telling the client there is an M&E ratio attached Thats all I can think of. Now that you said that her returns would not go below a certain percentage, what does that mean? She may be talking about the fixed acct. that is attached to all variable annuties. Fixed accts. will usually have a guaranteed 3% or so return, but that only applies to the portion of the account that is in the fixed acct.. If she still has 20 years of work left then probably no more than 20% of the acct. should be in the fixed acct.. I'd get further clarification on what she meant by "returns would not go below a certain percentage, regardless of the market." Hope this helps. [/quote] Thanks, this is more the response I was looking for. At last, I found someone in this business that does not think they're God's gift to personal finance!! What is M&E ratio? I think she said that guaranteed percentage was around 6% or so, but never said anything about it being fixed. I'll have to find out more from her. So are you saying that within a VA there can be a portion that acts as a Fixed Annuity? Lastly, the tax-deferral part. Do you say that because most retirement accounts have this benefit and it's not a "true" selling point of an annuity? Or do you say this because that's not what a person should look for in an annuity? My understanding is that generally speaking, the number one reason someone might want to purchase an annuity is that they're worried about outliving their money. Is that accurate? Thanks, again, 3rdyrp2, you've been very helpful unlike some others.Well since you seem so full of knowledge, could you briefly explain when a VA would / would not be appropriate? General terms, of course, your majesty.[/quote] When someone who does not understand what the hell they are talking about influences investor behaviour. General enough? The answer to your question is that it can't be answered. You did not provide, nor do you have the information needed to answer it. Nor can anyone as a RR give specific advice on your Aunt's situation on a message board. You are asking complete strangers to confirm your opinions on a product you do not understand, instead of trusting your Aunt's advisor, who knows her and her situation. Can the attitude. You wouldn't ask someone applying to medical school to treat your cancer, would you? You may have the best intentions at heart, but you may also be hurting your Aunt. Go with your Aunt and talk to her advisor if you feel this is a bad situation for her. FWIW, I don't like annuities.[quote=Primo]So you are not in the business yet, do not understand your Aunt’s situation, do not understand an option that her FA showed her, and feel because you have heard bad things about VA’s, you should intervene? Is that about it? You are most likely the one that is about to damage your Aunt, VA or no VA. A variable annuity can be appropriate in many situations. In many situations, it is not. The same can be said for any investment. You do not have the requisite knowledge of the product or your Aunt to make a judgement. If you are truly concerned, go with your Aunt to the FA and relay your concerns. If he is an ethical FA, which you have no reason not to believe, he (or she) will do what is best by your Aunt.
A qualified account like a traditional IRA, TSP, 401(k), 403(b), etc. already is tax-deferred so its non-compliant for an advisor to recommend a client to put an IRA or 401(k) into an annuity "because it gives you tax-deferral". That is probably up there with forging a signature in terms of being "unethical".
Sure, an annuity will allow you to not outlive your savings, but depending on the size of the account when you annuitize, you could be getting a $36.75 check each month for the rest of your life if its a small annuity. They determine the monthly annuity check based on your life expectancy at the annuitization age. For example, your aunt is 65 years old, the account is $100,000, and her life expectancy is 83. They will pay your aunt a monthly income based on the $100,000 number and the 18 years left of life number. She dies early (assuming there is not a survivor benefit rider) and the insurance company wins, she lives long and she wins. Its like a pension or social security, the longer you wait to receive a monthly check, the more money you will get each month.
Big thing to remember: There are many ways to utilize an annuity effectively rather than just as something to annuitize at some point.i would wager the advisor is talking about a living benefit with a 6% provision. this is NOT a guarantee of any “rate of return.” big distinction between the cash value of the annuity and the benefit base.
to answer your initial question, many years ago annuities were often sold based on benefits which had no added value to justify using them being used instead of a traditional ira. in the last 10 years or so, insurance companies have added bells and whistles almost to the point of overkill, and many of them, IN THE RIGHT SITUATION, can definitely be appropriate, and worth their cost, to justify using a variable annuity ira.
you can throw generalizations out all day, but blanket statements like “variable annuities should never be used, they are bad.” just makes me think you really need to do some research. i would HIGHLY recommend you go to an appointment with your aunt. i always offer that to my “older” clients, especially in situations like this, where Mom or Aunt XYZ relies on a son or daughter for advice. if he/she refuses your request, run.
[quote=RickRoss]
What is M&E ratio?[/quote] Mortality and Expense ratio. Its insurance for the insurance company issuing the policy in case (and I may not be correct on this statement) a large number of claims are submitted at once and the policies are valued at more than the cash that the company has on hand. It usually runs about .85%-1.2% per year, depending on the company.“I know you’re all probably foaming at the mouth with the commissions tied to a potential opportunity of selling someone a variable annuity, but I’m posting regarding just the opposite.”
Rick, if someone has $1,000,000 and purchases a VA from me how much will I make? If the same person invests $1,000,000 with me and buys the Vanguard S&P 500 fund in a 1% fee based account how much money can I expect to earn? Assume that the person will be a client for the next 20 years and the S&P grows by an average of 7% a year. "My aunt, who probably has another 20 years or so in the workforce, is considering a variable annuity. Her advisor tells her it's probably not the best idea for her, and then strategically tells her that there's a guaranteed point which her returns would not fall under regardless of the market (seemingly a ploy to get her to buy)." This advisor sounds a little bit like me when I'm recommending that someone is buying something other than a VA. "Hey Rick's Aunt. A VA is one thing that you can buy, but I don't think that you should buy one. However, it is important that you understand them because they are something that are appropriate in many situations. Here are the positives..... In your case, a better alternative is XYZ, but I did want you to understand why we aren't buying the VA despite the guarantees." "Can someone who's knowledgeable provide an intelligent, non-insulting/non-sarcastic comment or argument that I can present to her about why she shouldn't buy one? I really would hate to see her make a big mistake. Thanks." No one can make an intelligent argument of why she shouldn't buy one based upon the information given. The only one who has a clue as to whether it's appropriate is the advisor who understands her information. If you want to learn about the pros and cons of annuities, you would come across as someone who wants to learn. Instead, you are coming across as someone who thinks he knows something, when your post screams complete ignorance.3rdyrP2,
I'm reading your responses and cringing because it sounds as if you have just enough knowledge to be dangerous on this subject.
Your #1 way that people unethically sell a qualified annuity inside of a tax deferred account is to characterize the annuity as something that gives tax deferral. I think that this is an urban myth. Yes, it is true that this would be unethical. However, I've simply never seen a qualified annuity that was purchased for this purpose and I've seen plenty that have been sold in an unethical manner (based upon what the client has said). "Mortality and Expense ratio. Its insurance for the insurance company issuing the policy in case (and I may not be correct on this statement) a large number of claims are submitted at once and the policies are valued at more than the cash that the company has on hand. It usually runs about .85%-1.2% per year, depending on the company." It's not insurance for the company. It is primary the way that the insurance company makes their money on VA's. It's also a way for companies who sell VULs to make more money. How do we know that it's not insurance for the insurance company? Let's use a 1% M&E charge. The client invests $100,000. The account value drops to $85,000. The M&E is $850. If the client dies the insurance company is on the hook for $15,000. They need insurance to cover this loss. What if the account grows to $500,000? The M&E is now $5,000. How much risk does the insurance company have? $0. The value would have to drop more than 80% before the insurance company had any risk. So, if this was actually insurance instead of the way in which the company makes its money, would the insurance company charge more based upon decreased risk?[quote=RickRoss]I know you’re all probably foaming at the mouth with the commissions tied to a potential opportunity of selling someone a variable annuity, but I’m posting regarding just the opposite.
I know there is a lot of knowledge on this board, and I sincerely hope someone out there is willing to provide sound advice. I am not a registered rep, nor do I have a lot of experience in the financial services world, but I do know that variable annuities have hefty commissions tied to them, and I do know that they're not right for everyone, or even most. My aunt, who probably has another 20 years or so in the workforce, is considering a variable annuity. Her advisor tells her it's probably not the best idea for her, and then strategically tells her that there's a guaranteed point which her returns would not fall under regardless of the market (seemingly a ploy to get her to buy). Can someone who's knowledgeable provide an intelligent, non-insulting/non-sarcastic comment or argument that I can present to her about why she shouldn't buy one? I really would hate to see her make a big mistake. Thanks.[/quote]Boy, did you come to the right/wrong place!!!!!!!!
I hope that those who have responded to this this person are registered in the state where he/she lives. Otherwise, they are breaking the law.
[quote=anonymous]
3rdyrP2,
I'm reading your responses and cringing because it sounds as if you have just enough knowledge to be dangerous on this subject.
Your #1 way that people unethically sell a qualified annuity inside of a tax deferred account is to characterize the annuity as something that gives tax deferral. I think that this is an urban myth. Yes, it is true that this would be unethical. However, I've simply never seen a qualified annuity that was purchased for this purpose and I've seen plenty that have been sold in an unethical manner (based upon what the client has said).[/quote] I apologize for maybe wording my response in a way that doesn't come across in a way that your company's sales consulting guy would explain it, I was trying to explain it in a way that would make sense to someone who has no idea what an annuity is. You may not know anyone specifically who has sold it as a tax deferral vehicle, but it happens. Trust me, I'm a fan of qualified annuities. I'm not knocking them, I'm just trying to make the guy aware of some things to look out for. Saying that people will sell qualified annuities as a tax deferral vehicle only would be insulting to a clients intelligence, but an advisor can say "An annuity is a great way to utilize your TSP as an income supplement to your govt. pension, and it still maintains the pre-tax/tax-deferral that your TSP currently has." The selling pt. there isn't anything special that an annuity has instead of a regular IRA, but simply the fact that no taxable event would occur by using an annuity for that account.[quote=anonymous]“Mortality and Expense ratio. Its insurance for the insurance company issuing the policy in case (and I may not be correct on this statement) a large number of claims are submitted at once and the policies are valued at more than the cash that the company has on hand. It usually runs about .85%-1.2% per year, depending on the company.”
It's not insurance for the company. It is primary the way that the insurance company makes their money on VA's. It's also a way for companies who sell VULs to make more money.[/quote] Not necessarily: http://www.sec.gov/investor/pubs/varannty.htm#vchMortality and expense risk charge – This charge is equal to a certain percentage of your account value, typically in the range of 1.25% per year. This charge compensates the insurance company for insurance risks it assumes under the annuity contract. Profit from the mortality and expense risk charge is sometimes used to pay the insurer's costs of selling the variable annuity, such as a commission paid to your financial professional for selling the variable annuity to you.
Telling someone with a concern to go with his Aunt to meet her FA is breaking the law? Try harder Bobby.I hope that those who have responded to this this person are registered in the state where he/she lives. Otherwise, they are breaking the law.
Mortality and expense risk charge – This charge is equal to a certain percentage of your account value, typically in the range of 1.25% per year. This charge compensates the insurance company for insurance risks it assumes under the annuity contract. Profit from the mortality and expense risk charge is sometimes used to pay the insurer's costs of selling the variable annuity, such as a commission paid to your financial professional for selling the variable annuity to you. "
Yes, necessarily. You need to read critically and use your mind and not your eyes. You can't think critically and believe that M&E is to compensate the insurance company for insurance risks. If this was true, the greater the risk, the higher the M&E charge. The reality is just the opposite. The lower the risk, the higher the M&E charge. Ex. George and Sam both invest $100,000 in a VA with a 1% M&E charge. George makes great investment choices. Sam makes terrible investment choices. 20 years later, George's account value is $500,000. Sam's account value is $25,000. George is paying $5,000 in M&E charges. Sam is paying $250. What is George getting in return for this $5000? Absolutely nothing. If he dies, his family gets the contract value. What is Sam getting in return for his $250? $75,000 of life insurance. If he dies, his family gets $100,000. They get the contract value of $25,000 and the insurance company has to reach into their coffers for the other $75,000. Why does George pay $5000 when there is no risk? Simple. The purpose of the M&E is to compensate the insurance company. This is how they make their money and pay their expenses. I'm not arguing against annuities. I use them often. I'm not complaining about the expenses. I'm simply saying that it's complete B.S. to say that the purpose is to cover the insurance company against insurance risks. I'd be happy to apologize if I'm wrong. Can you name one insurance company that lowers the insurance charge in their VA when the risk goes down? Compare it to a UL policy. George and Sam both have $100,000 UL policies in which the death benefit doesn't increase. George has $50,000 of cash. Sam has $10,000 of cash. George pays for $50,000 of life insurance. Sam is paying for $90,000. In this case, the insurance charges actually are compensating the insurance company for insurance risks. Information coming from a reputable source doesn't make the information accurate. Say something that is wrong enough times by enough different sources and people start to believe it...even those who should know better. My point is that the "M" of "M&E" is mostly B.S. M&E expenses is the primary way in which the insurance company makes money on a VA.Telling someone with a concern to go with his Aunt to meet her FA is breaking the law? Try harder Bobby.[/quote][quote=Hank Moody]I hope that those who have responded to this this person are registered in the state where he/she lives. Otherwise, they are breaking the law.
I wouldn't quarrel with what you just said, but giving a stranger any opinion or explanation of annuities may be giving him information that he uses to make a decision. Telling this guy to do anything but go away is dangerous territory. A good rule of thumb would be to ask yourself if you would be comfortable telling your compliance director to review this communication with the public that you didn't get prior approval to make.
[quote=anonymous]
"Not necessarily: http://www.sec.gov/investor/pubs/varannty.htm#vchMortality and expense risk charge – This charge is equal to a certain percentage of your account value, typically in the range of 1.25% per year. This charge compensates the insurance company for insurance risks it assumes under the annuity contract. Profit from the mortality and expense risk charge is sometimes used to pay the insurer's costs of selling the variable annuity, such as a commission paid to your financial professional for selling the variable annuity to you. "
Yes, necessarily. You need to read critically and use your mind and not your eyes. You can't think critically and believe that M&E is to compensate the insurance company for insurance risks. If this was true, the greater the risk, the higher the M&E charge. The reality is just the opposite. The lower the risk, the higher the M&E charge. Ex. George and Sam both invest $100,000 in a VA with a 1% M&E charge. George makes great investment choices. Sam makes terrible investment choices. 20 years later, George's account value is $500,000. Sam's account value is $25,000. George is paying $5,000 in M&E charges. Sam is paying $250. What is George getting in return for this $5000? Absolutely nothing. If he dies, his family gets the contract value. What is Sam getting in return for his $250? $75,000 of life insurance. If he dies, his family gets $100,000. They get the contract value of $25,000 and the insurance company has to reach into their coffers for the other $75,000. Why does George pay $5000 when there is no risk? Simple. The purpose of the M&E is to compensate the insurance company. This is how they make their money and pay their expenses. I'm not arguing against annuities. I use them often. I'm not complaining about the expenses. I'm simply saying that it's complete B.S. to say that the purpose is to cover the insurance company against insurance risks. I'd be happy to apologize if I'm wrong. Can you name one insurance company that lowers the insurance charge in their VA when the risk goes down? Compare it to a UL policy. George and Sam both have $100,000 UL policies in which the death benefit doesn't increase. George has $50,000 of cash. Sam has $10,000 of cash. George pays for $50,000 of life insurance. Sam is paying for $90,000. In this case, the insurance charges actually are compensating the insurance company for insurance risks. Information coming from a reputable source doesn't make the information accurate. Say something that is wrong enough times by enough different sources and people start to believe it...even those who should know better. My point is that the "M" of "M&E" is mostly B.S. M&E expenses is the primary way in which the insurance company makes money on a VA. [/quote]Did your compliance department approve of this communication with the public? What other regulations do you like to violate?
[quote=RickRoss]I know you’re all probably foaming at the mouth with the commissions tied to a potential opportunity of selling someone a variable annuity, but I’m posting regarding just the opposite.
I know there is a lot of knowledge on this board, and I sincerely hope someone out there is willing to provide sound advice. I am not a registered rep, nor do I have a lot of experience in the financial services world, but I do know that variable annuities have hefty commissions tied to them, and I do know that they're not right for everyone, or even most. My aunt, who probably has another 20 years or so in the workforce, is considering a variable annuity. Her advisor tells her it's probably not the best idea for her, and then strategically tells her that there's a guaranteed point which her returns would not fall under regardless of the market (seemingly a ploy to get her to buy). Can someone who's knowledgeable provide an intelligent, non-insulting/non-sarcastic comment or argument that I can present to her about why she shouldn't buy one? I really would hate to see her make a big mistake. Thanks.[/quote]Hey everyone...I know you're all foaming at the mouth at the thought of submitting patients to non-critical medical procedures. Now that I've prejudged and insulted you all, let me ask my question of you.
I'm not a board-certified physician like you all, but I did take first aid as a boy scout. Anyhow, my 35-year old aunt has a sharp pain in her lower right quadrant. Her internist tells her it's probably appendicitis and he suggests she go through surgery. I don't know much about appendectomies, but I know they cost a lot and doctors make a ton of money off them. He keeps talking about "...if you don't do this you'll die from septicemia" or some such nonsense.
I know I came in here with a smug and a scornful, demeaning attitude towards your profession, but can someone who's in-the-know help me convince her it's just gas from too many bonbons? And that she really shouldn't go through this procedure? I'd hate to see her make a big mistake.
Like letting nephew Rick interfere in something that he knows nothing about? That's great. I agree that if you're really concerned you should meet with her and her FA.
By the way Rick, I get paid the same whether I put someone in mutual funds or annuities. So not all advisors are 'foaming at the mouth' thinking about annuities.
CR
PS - You may want to work on your inter-personal communication skills
Please do tell us, you've had 38 posts on this site and you're not a rep and don't have a lot of experience. What is it exactly that you do do?I am not a registered rep, nor do I have a lot of experience in the financial services world…
[quote=anonymous]Ex. George and Sam both invest $100,000 in a VA with a 1% M&E charge. George makes great investment choices. Sam makes terrible investment choices. 20 years later, George’s account value is $500,000. Sam’s account value is $25,000. George is paying $5,000 in M&E charges. Sam is paying $250.
What is George getting in return for this $5000? Absolutely nothing. If he dies, his family gets the contract value. What is Sam getting in return for his $250? $75,000 of life insurance. If he dies, his family gets $100,000. They get the contract value of $25,000 and the insurance company has to reach into their coffers for the other $75,000.[/quote] No. Not all annuties automatically come with the guaranteed death benefit rider. If you get an old plain jane annuity with $100,000 and it goes down to $50,000, then your beneficiaries are getting $50,000. You can add a guaranteed death benefit rider for additional cost to get that principal guarantee.“Did your compliance department approve of this communication with the public? What other regulations do you like to violate?”
Bobby, how about you? Does your compliance department allow you to post here knowing that the public can you read what you post? Did they approve of this communication with the public?Bobby must have gone to church today. Little holier-than-thou.
[quote=anonymous]“Did your compliance department approve of this communication with the public? What other regulations do you like to violate?”
[/quote]
I'm on a board where everyone is presumed to be a registered rep. You are communicating with someone who has admitted that they are part of what is to be considered the general public. I can't believe that you were too dumb to anticipate my response before you stuck your foot in your mouth. What other regulations do you like to violate?
[quote=Primo]Bobby must have gone to church today. Little holier-than-thou.[/quote]
Holier than though and right.
[quote=snaggletooth][quote=RickRoss]Please do tell us, you’ve had 38 posts on this site and you’re not a rep and don’t have a lot of experience. What is it exactly that you do do?[/quote]
You don’t know who “Freeway” Rick Ross is? Where did you sped the 80’s.
Well, for part of it, in the womb.[quote=snaggletooth][quote=RickRoss]Please do tell us, you’ve had 38 posts on this site and you’re not a rep and don’t have a lot of experience. What is it exactly that you do do?[/quote]
You don’t know who “Freeway” Rick Ross is? Where did you sped the 80’s.
Good for you, kid.
Yet, by your own admission, Bobby, you know that non-registered reps are here reading the information and sometimes posting. Bobby, if I’m not mistaken, we are on the exact same board participating in the exact same thread in which someone has admitted to not being a registered rep.
Bobby will your broker/dealer allow to post on this board without approving each post, knowing that there is no requirement that one be a registered rep to post on this board and the general public can read what you post?[quote=anonymous]
"No. Not all annuties automatically come with the guaranteed death benefit rider. If you get an old plain jane annuity with $100,000 and it goes down to $50,000, then your beneficiaries are getting $50,000. You can add a guaranteed death benefit rider for additional cost to get that principal guarantee." You do realize that you are making my point with this. An annuity that has no death benefit still has M&E charges. How can M&E compensate the insurance company for insurance risk in a contract that doesn't even have the possibility of insurance risk? [/quote] The M&E ratio that each person pays does not need to be insurance for that particular contract, its combined with each contract issued by the entire company. Annuities are issued by insurance companies that have term insurance, and disability insurance, who's policy holders do not pay M&E expense. January 2009, 100 $1 million term insurance claims are put forth to New York Life. You think New York Life is going to pay the beneficiaries $100 million worth of benefit with the money earned from the monthly term premiums those 100 people have been paying? Hell no, take it out of the M&E escrow account.Agreed on that the majority of the M&E includes the E. I was grasping at straws with the New York Life example. I do have a question that maybe you can give me your theory to. Do you think the insurance companies make more money off the M&E expense, the surrender charge from people who surrender too early, or from taking the money contract holders put into the fixed account and make more interest than the investors are receiving from it?
What is the legitimate chance that at least one, major, VA carrier goes Chapter 11 in the foreseeable future? Not sure if an AIG-type
bailout is in the cards again. It is, at least, a whole new wrinkle
here as it pertains to contract “Guarantees”.
Being that 4 of them applied to be bank holding companies, might be a reasonable chance of failure. Does C make it to Monday?
They’re making their money primarily on the M&E. Additionally, some of the money from the fund expenses are ending up in the insurance company coffers.
They aren't making money from the surrender charges. The surrender charges are primarily needed because most annuities are "B" shares. The company has paid the rep before they have earned the money. The surrender charges simply reimburses the company. Keep in mind that if the insurance company is getting a surrender charge, they are not getting years and years of earning 1% +. I would guess that they are making very little from people who are using fixed accounts. It usually doesn't make sense for a VA owner to use the fixed account especially considering that the bulk of VA sales have living benefit riders.If a major insurance company, like AIG, goes under in the foreseeable future, it wouldn't be because of the VA's. I do think the guarantees would be ok because, right now, the contracts are still assets, not liabilities.What is the legitimate chance that at least one, major, VA carrier goes Chapter 11 in the foreseeable future? Not sure if an AIG-type bailout is in the cards again. It is, at least, a whole new wrinkle here as it pertains to contract “Guarantees”.
snag,
The “why” (an insurer fails) doesn’t matter. Secondly, VA’s are structures in such a way that the underlying “assets” (sub-accounts) are held in the “Separate Account”, which is, necessarily, owned for the benefit of contract owners/annuitants and their beneficiaries only and not, in any way, an “asset” of the carrier. If a carrier completes the process of failing, the liability to the contract owners is the “guarantee” of benefits (death benefit, income benefits, return of principal, etc.) that the carrier provided. That is the risk and question to which I was referring.
[quote=YHWY]snag,
The “why” (an insurer fails) doesn’t matter. Secondly, VA’s are structures in such a way that the underlying “assets” (sub-accounts) are held in the “Separate Account”, which is, necessarily, owned for the benefit of contract owners/annuitants and their beneficiaries only and not, in any way, an “asset” of the carrier. If a carrier completes the process of failing, the liability to the contract owners is the “guarantee” of benefits (death benefit, income benefits, return of principal, etc.) that the carrier provided. That is the risk and question to which I was referring.
[/quote]
Last time I checked, homeowner’s insurance is issued by insurance companies. Should we not insure our homes because the insurance company might go out of business?
You kids crack me up.
There is a huge difference Bobby, and you know it. If your homeowner policy company goes belly up tomorrow, you can go to a different company for a policy immediately, and as long as you don't have a fire tomorrow, you are ok. If your Va company goes under, you lose the sizable insurance benefit that has built up and cannot get it back.[quote=YHWY]snag,
The “why” (an insurer fails) doesn’t matter. Secondly, VA’s are structures in such a way that the underlying “assets” (sub-accounts) are held in the “Separate Account”, which is, necessarily, owned for the benefit of contract owners/annuitants and their beneficiaries only and not, in any way, an “asset” of the carrier. If a carrier completes the process of failing, the liability to the contract owners is the “guarantee” of benefits (death benefit, income benefits, return of principal, etc.) that the carrier provided. That is the risk and question to which I was referring.
[/quote]
Last time I checked, homeowner’s insurance is issued by insurance companies. Should we not insure our homes because the insurance company might go out of business?
You kids crack me up.
Hank/Bobby,
Jesus, you are one defensive annuity salesman. My point was simply that, IF an insurer fails, it doesn’t matter if it’s “becuase of VA’s” (or any other lines of business), as Snaggle put it. There are, in fact, repercussions to annuity owners IF their carrier fails.
You One-Trick-Ponies crack me up.
Alllllllllllllllllllllllllllllrighty, then.
To those of you who tried to help me in a subject that I openly admitted I was ignorant about, thank you. To those of you who took shots at me, and attempted to insult me and make yourselves feel better, I wish you the best in your next therapy session. It's amazing how many people on this board have such a vast amount of knowledge and either choose not to share it, or even worse, share it with others in a condescending manner. I would think that if a big part of your job was to educate your clients, you'd be professional in your interaction about such subject matter, whether I am a client or not.[quote=YHWY]Hank/Bobby,
Jesus, you are one defensive annuity salesman. My point was simply that, IF an insurer fails, it doesn’t matter if it’s “becuase of VA’s” (or any other lines of business), as Snaggle put it. There are, in fact, repercussions to annuity owners IF their carrier fails.
You One-Trick-Ponies crack me up.
[/quote]
Please don’t call me Jesus or Bobby. My name is Hank.
I’ve learned a new trick. Index Annuities. I did a little over $300,000 yesterday. I hate working weekends, but my office is only 5 minutes from home and I got paid 8%.
[quote=RickRoss]Alllllllllllllllllllllllllllllrighty, then.
To those of you who tried to help me in a subject that I openly admitted I was ignorant about, thank you. To those of you who took shots at me, and attempted to insult me and make yourselves feel better, I wish you the best in your next therapy session. It's amazing how many people on this board have such a vast amount of knowledge and either choose not to share it, or even worse, share it with others in a condescending manner. I would think that if a big part of your job was to educate your clients, you'd be professional in your interaction about such subject matter, whether I am a client or not. [/quote]It is illegal for us to discuss investments with you. Furthermore, it is compounded when we give you advice on how to advise your aunt. What part of that don't you understand? You might want to bring it up in your next therapy session. We are not here to give free advice to someone that is too cheap to pay for it.
Great job, “Hank”. That’s a good day’s work. I trust that the carrier you chose has the financial strength to honor its guarantees and commitments going forward.
[quote=YHWY]Great job, “Hank”. That’s a good day’s work. I trust that the carrier you chose has the financial strength to honor its guarantees and commitments going forward.
[/quote]
We’ll find out.
Interesting perspective.
[quote=Hank Moody] [quote=RickRoss]Alllllllllllllllllllllllllllllrighty, then.
To those of you who tried to help me in a subject that I openly admitted I was ignorant about, thank you. To those of you who took shots at me, and attempted to insult me and make yourselves feel better, I wish you the best in your next therapy session. It's amazing how many people on this board have such a vast amount of knowledge and either choose not to share it, or even worse, share it with others in a condescending manner. I would think that if a big part of your job was to educate your clients, you'd be professional in your interaction about such subject matter, whether I am a client or not. [/quote]It is illegal for us to discuss investments with you. Furthermore, it is compounded when we give you advice on how to advise your aunt. What part of that don't you understand? You might want to bring it up in your next therapy session. We are not here to give free advice to someone that is too cheap to pay for it.
[/quote] Hey, look in the mirror. Smile. Tell yourself how great you are. Then get over it, and move on. Egotistical prick.
[quote=RickRoss][quote=Hank Moody] [quote=RickRoss]Alllllllllllllllllllllllllllllrighty, then.
To those of you who tried to help me in a subject that I openly admitted I was ignorant about, thank you. To those of you who took shots at me, and attempted to insult me and make yourselves feel better, I wish you the best in your next therapy session. It's amazing how many people on this board have such a vast amount of knowledge and either choose not to share it, or even worse, share it with others in a condescending manner. I would think that if a big part of your job was to educate your clients, you'd be professional in your interaction about such subject matter, whether I am a client or not. [/quote]It is illegal for us to discuss investments with you. Furthermore, it is compounded when we give you advice on how to advise your aunt. What part of that don't you understand? You might want to bring it up in your next therapy session. We are not here to give free advice to someone that is too cheap to pay for it.
[/quote] Hey, look in the mirror. Smile. Tell yourself how great you are. Then get over it, and move on. Egotistical prick.[/quote] You're not even a rep. What do you do? Why are you here except to glean information about a specific situation to which no one here even knows about, plus shouldn't be giving advice on anyways?
[quote=iceco1d]
I think this is the oddest annuity post I've seen on here in awhile. [quote=RickRoss][quote=Hank Moody] [quote=RickRoss]Alllllllllllllllllllllllllllllrighty, then. To those of you who tried to help me in a subject that I openly admitted I was ignorant about, thank you. To those of you who took shots at me, and attempted to insult me and make yourselves feel better, I wish you the best in your next therapy session. It's amazing how many people on this board have such a vast amount of knowledge and either choose not to share it, or even worse, share it with others in a condescending manner. I would think that if a big part of your job was to educate your clients, you'd be professional in your interaction about such subject matter, whether I am a client or not. [/quote]It is illegal for us to discuss investments with you. Furthermore, it is compounded when we give you advice on how to advise your aunt. What part of that don't you understand? You might want to bring it up in your next therapy session. We are not here to give free advice to someone that is too cheap to pay for it.
[/quote] Hey, look in the mirror. Smile. Tell yourself how great you are. Then get over it, and move on. Egotistical prick.[/quote] Anyway, Ricky, here's some advice for you - You came on here huffing & puffing about "now, I know some of you guys are foaming at the mouth over annuity commissions" - now, it's pretty clear that MOST of us on here are a bit more intelligent than a coffee table, so we immediately "get" what you are saying. Here's how that's perceived, "Now, I know some you guys are scumbags that are just out to screw your clients with the highest commission products you can find" - exactly HOW did you expect to be received by this board, when you come on here saying that [even though you tried to be as subtle as possible in your own cute little way]? Secondly, someone else pointed - we don't work for free here. If you ARE a registered rep, and you need help understanding something or need people to bounce ideas off of, surely there are plenty of members on here that would be happy to help you. If you ARE NOT a registered rep, you need to PAY for the knowledge that we have. You can encourage your aunt to get a second opinion, or you can even pony up a few bucks, and go PAY an RIA to explain this stuff to you. We don't come to your drive-thru and ask you to get us a Happy Meal for free, please don't come on here and expect us to give you free financial advice (and surely don't do with an attitude). [/quote] You know what, ice, most of what you said is right on. The more I think about my initial approach, I probably should have worded it differently. In the past, when I've done so, I still received negative feedback, so I guess that played into my underlying tone. Anyway, I appreciate your sincerity and will use a different approach next time. "Do you want fries with that?" Just kidding, I actually have an MBA, just not the knowledge of a RR. That's why I came here.
Axa and Mass Mutual are suspending some VA guarantees.
[quote=Borker Boy]
Axa and Mass Mutual are suspending some VA guarantees.
[/quote] Where did you see that BB?Sign up for Ignites and you will receive a two-week free trial, or if eligible, you will automatically be added to your company's existing subscription at...
[quote=Borker Boy]
Axa and Mass Mutual are suspending some VA guarantees.
[/quote] Very interesting. How legit is this information? Have you talked to the wholesalers yet?“Axa and Mass Mutual are suspending some VA guarantees.”
We need some clarification on this one. Guarantees are not being suspended. Anyone who purchased a contract with a guarantee, still has a guarantee. What is being suspended is new sales. MassMutual came to the conclusion with one of their GMIB riders that under current market conditions they couldn't do it profitably, so they decide to stop offering this particular guarantee at this time. I don't know any AXA details.[quote=anonymous]“Axa and Mass Mutual are suspending some VA guarantees.”
We need some clarification on this one. Guarantees are not being suspended. Anyone who purchased a contract with a guarantee, still has a guarantee. What is being suspended is new sales. MassMutual came to the conclusion with one of their GMIB riders that under current market conditions they couldn't do it profitably, so they decide to stop offering this particular guarantee at this time. I don't know any AXA details.[/quote]Axa is permitting people that have GMIB's to switch to a GWB, so that they do NOT have to annuitize. This is better for the clients, which should be quite upsetting to the fearmongers on this board.
[quote=Hank Moody] [quote=anonymous]“Axa and Mass Mutual are suspending some VA guarantees.”
We need some clarification on this one. Guarantees are not being suspended. Anyone who purchased a contract with a guarantee, still has a guarantee. What is being suspended is new sales. MassMutual came to the conclusion with one of their GMIB riders that under current market conditions they couldn't do it profitably, so they decide to stop offering this particular guarantee at this time. I don't know any AXA details.[/quote]Axa is permitting people that have GMIB's to switch to a GWB, so that they do NOT have to annuitize. This is better for the clients, which should be quite upsetting to the fearmongers on this board.
[/quote] Hank, Why is it better to switch from GMIB to GMWB? Is it just the annuitization thing? Because as far as income to the client, I would suspect they would receive more income from annuitizing than 5% withdrawal for life. If it's just an annuitization thing, than I would agree, clients like to not give up control.
[quote=snaggletooth][quote=Hank Moody] [quote=anonymous]“Axa and Mass Mutual are suspending some VA guarantees.”
We need some clarification on this one. Guarantees are not being suspended. Anyone who purchased a contract with a guarantee, still has a guarantee. What is being suspended is new sales. MassMutual came to the conclusion with one of their GMIB riders that under current market conditions they couldn't do it profitably, so they decide to stop offering this particular guarantee at this time. I don't know any AXA details.[/quote]Axa is permitting people that have GMIB's to switch to a GWB, so that they do NOT have to annuitize. This is better for the clients, which should be quite upsetting to the fearmongers on this board.
[/quote] Hank, Why is it better to switch from GMIB to GMWB? Is it just the annuitization thing? Because as far as income to the client, I would suspect they would receive more income from annuitizing than 5% withdrawal for life. If it's just an annuitization thing, than I would agree, clients like to not give up control.[/quote]
Personally, I don't like the thought of annuitization and I don't sell it for that reason.
Agreed. The only GMIB contracts on my book are from broker of record changes.
Personally, I don’t like the thought of annuitization and I don’t sell it for that reason.
Annuitization can make sense in lots of situations. The problem is that in order to give what APPEARS to be a great benefit with the GMIB, the insurers give lousy annuitization rates.
You can always buy an annuity, get the bonus for the client and the commission for yourself, annuitize after 2 years over a 5 year period and send the payments each year to another annuity for another commish.
That's what the annuity guys in my town do, and boy are they getting rich! And of course, eventually the insurance company will figure out what you're doing and drop you as an agent, but there are hundreds, if not thousands, of insurance companies to choose from.the old look back feature i presume?
I don’t know what it’s called. I have a buddy who works there and he’s always telling me about the new ways they’ve found to screw the insurance companies.
There's a state law in Florida that forces insurance companies doing business there to allow their policy holders the ability to annuitize over 5 years after one year of being in the annuity without paying surrender fees. If they only wait one year to annuitize, though, the agent gets a charge-back on the commission. So, they wait two years.borker-i was referring to the crappy annuitization rates. most contracts which have a living benefit, often the gmib, make the client “look back” if they decide to annuitize. so a 70 year old who opts to annuitize would do so at a 60-65 year old factor.
your scenario is a form of annuity arbitrage.I have an idea – look at the prospectus real close and find out all the annual fee’s she’ll be paying – it’ll be beteen 2% and 4%. Then tell her “Look, so you get this minimum return of 3%, which you then pay to the insurer in fees”.
Now you can get all fancy and try to price in the min guar as a put option -- which it is -- and explain how NOBODY with a brain will pay a 3% annual premium for a 3% once-in-a decade option".[quote=MinimumVariance]I have an idea – look at the prospectus real close and find out all the annual fee’s she’ll be paying – it’ll be beteen 2% and 4%. Then tell her “Look, so you get this minimum return of 3%, which you then pay to the insurer in fees”.
Now you can get all fancy and try to price in the min guar as a put option -- which it is -- and explain how NOBODY with a brain will pay a 3% annual premium for a 3% once-in-a decade option". [/quote]Let me help you, so that you don't' sound so stupid. Minimum guarantees are net of expenses. Otherwise, they wouldn't be guarantees.
Pacific Life and The Hartford have become the latest insurance companies to reveal plans to either increase costs or discontinue certain variable annuity benefit riders.
In a letter to broker-dealers, Pacific Life announced it will hike charges and eliminate guaranties on a swath of its VA riders effective Jan. 1. Meanwhile, The Hartford will increase the prices on its existing guaranteed minimum withdrawal benefits (GMWB) riders.
Both firms’ product and pricing structure amendments underscore the challenges facing insurers and come on the heels of similar measures taken by AXA Equitable and Mass Mutual.
Pacific Life’s letter details several riders slated for restructuring and cutbacks. That includes Foundation 10, a guaranteed minimum withdrawal benefit for life (GMWL) rider that provides an annual 10% credit for up to 10 years. That benefit will no longer be available on new and existing contracts. Clients who have already purchased the rider will be able to keep it at a higher cost — 135 basis points, up from the current 85 basis points.
ING announced some changes today. Their GWB benefit will be 6% compounded (down from 7%) now with an annual step up and cost is going up .10.
Source URL:https://www.wealthmanagement.com/forums/rookies-trainees/variable-annuities