Aren't you glad you placed your clients in VA's

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Oct 17, 2008 10:57 pm

Warren would win the Presidential election if he entered. Why doesn’t he?

  Oh yeah, it's a thankless job...
Oct 18, 2008 2:32 am

Anyone here think now that stock brokers may be on the rise again as more people try to mimic Warren Buffet?  I mean, with mutual funds, you don’t know what holdings they have.  With stocks, you get to pick the companies - at a bargain right now - and actually see how each are doing.

Oct 18, 2008 2:56 am

I don’t think stock brokers are coming back – but for clients who need large cap stocks in their portfolio, I think a mix of 10 to 20 blue chips would be better for them than a mutual fund.
One thing I"ve noticed in the crash is that my stock holders feel better than the mutual fund holders.

Oct 18, 2008 11:20 pm

Unless they owned WM, LEH, BSC, FNM, FRE…

Oct 19, 2008 5:23 am

[quote=Vin Diesel]

given the terrible market conditions - im so happy my mutual fund clients are in VA's with guarantees.

i couldn't imagine having clients in wrap accounts that are down big for the quarter, then hitting them with a wrap fee.   while VA's get a lot of negative press; they are looking good now [/quote]   Not really, they'll see at the year-end statement their income riders fees just went up 20%-30%.
Oct 19, 2008 6:05 am

If the client owns a GMAB, why would they care?  They know the worst case senario is they get their money back.

CV, you are a broken record.  If you have something to add to the VA discussion besides 'high fees', then by all means, let us know.  Otherwise, what would you recommend these days?  FWIW, I doubt you have clients.  But please correct me if I'm wrong.

Oct 19, 2008 8:20 pm

He’s an internal wholesaler for a VA company!

  So... which company is it that's raising their rider fees?   Care to share what YOUR company seems to be doing?  Hmmm?
Oct 19, 2008 9:46 pm

[quote=Ominous]He’s an internal wholesaler for a VA company!

  So... which company is it that's raising their rider fees?   Care to share what YOUR company seems to be doing?  Hmmm?[/quote]   If you have an income rider, the expense is calculated on the rider, not the account value.  Example.  .50% GMIB.  $100m started a year ago (since VA guys love to use the worst possible scenario), account value today $60m, GMIB based on $100m plus 6% step up so $106m= $503 divided by $60m account value=.84%.  Since VA guys love talking about equity armegeddon, imagine what % the fees will represent if equities continue to fall.  They will put the VA in a position of having such a fee anchor on it, it may never come back.  This is assuming that the VA company does not raise it's fees, which of course they can do at any time.
Oct 20, 2008 1:16 am

Bravo, Primo. I'm always entertained by the armegeddon scenarios the VA wholesalers contrive.

Someone please tell me about the GMAB. I've seen a few people mention that they prefer it over the GMIB. I've yet to hear about it at Jones.

Oct 20, 2008 2:55 am

GMAB = Guaranteed Minimum Asset Balance

  It's typically the CHEAPEST rider with just a "return of original premium" option.   If your account lost principle value over 10 years, you get all your original investment back.   Metlife and MassMutual have similar variations of it.  I think Pac Life has a GMAB rider too.   Allianz has one that's a little different in their "High 5" VA (but watch out on how they allocate the portfolio - they sell low and buy high systematically).   Since it's not one of the sexy income riders, that's probably why you haven't heard of it from your wholesalers.
Oct 20, 2008 10:57 am

If the client owns a GMAB, why would they care?  They know the worst case senario is they get their money back.

  They should care if the cost of the rider goes up.  It's true that their worst case scenario remains the same, but every other scenario gets worse if the price of the rider increases.   GMAB is a Guaranteed Minimum Accumulation Benefit.  I like it because it's honest.   It is a one day guarantee.  Ex. Joe invests $100,000 into a VA with a 10 year GMAB on January 1, 2008.  On January 1, 2018, Joe is guaranteed to have $100,000, so the insurance company will make up any shortfall.  There is no guarantee on December 31, 2017.  There is no guaranatee January 2, 2018.   I sometimes use a 20 year GMAB.  It works the same way, but the value is guaranteed to double.  Joe would be guaranteed to have $200,000 on January 1, 2028.
Oct 20, 2008 2:18 pm
gregoron:

I agree with Anon.  I think that no insurance company will let another one go under.  It’s bad for the industry in general.  The US gov’t. just beat others to bailing out AIG.  Troubled Hartford got capital infusion from Allianz a few weeks ago.  Other insurance companies will honor a failing insurer’s promise.   They have a fraternal relationship unlike banks, who aren’t even trusting each other right now.  Besides, they should have enough cash reserves to honor their promises.   It’s pretty much the stock holders who lose if and when an insurer tanks. 

  I love how people take what the media feeds them and assume it's true.  In the midst of this bailout frenzy HIG went way down.  Allianz, with a wad of cash in their pocket, sees that, knows that Hartford is a great buy at the price and does so.  It wasn't a "capital infusion", it was a company making a big play on another.  Similar to Buffet buying GS or GE.    I agree with the original poster, only to the extent that I can have the conversation with my VA with income rider clients that even though the downturn is hurting their account value, their income is perfectly safe.  The downside is that it's going to take a while before there are any market step ups in those products.  And if they start taking income right now, we increase the possibilities of actually running out of contract value.  Not a big deal for their income stream, but they're certainly not going to like it. 
Oct 20, 2008 2:20 pm

Yes.   My VA clients are mostly IRAs and 401K rollover accounts with at least 7 to 10 years to being 501/2 and able to withdraw.  This is long term money that they are not planning to take large lump sums from.  The intention of these accounts is to have a supplimental income stream at retirement.

  I called all of them and discussed their statements and account values which are down dramatically to mildly from inception depending on how long ago we invested.  This was a perfect time to remind them about the GRIB 7% annual step up on the income pool.  The product is doing what we intended it to do.  Protect the client's future income stream despite a down market.
Do we want the actual value of the product to be MORE than the income pool?  Of course. And given that these people have many years to go before they are ready to withdraw, that may happen.  However, if it doesn't happen that we are able to recover, they will have an income stream.   GMAB didn't exist on the product I use, when these contracts were issued.    
Oct 20, 2008 5:19 pm

[quote=babbling looney]Yes.   My VA clients are mostly IRAs and 401K rollover accounts with at least 7 to 10 years to being 501/2 and able to withdraw.  This is long term money that they are not planning to take large lump sums from.  The intention of these accounts is to have a supplimental income stream at retirement.

  I called all of them and discussed their statements and account values which are down dramatically to mildly from inception depending on how long ago we invested.  This was a perfect time to remind them about the GRIB 7% annual step up on the income pool.  The product is doing what we intended it to do.  Protect the client's future income stream despite a down market.
Do we want the actual value of the product to be MORE than the income pool?  Of course. And given that these people have many years to go before they are ready to withdraw, that may happen.  However, if it doesn't happen that we are able to recover, they will have an income stream.   Exactly! and thats my point. isn't this a better client conversation to have than...mr. client you're down X% and there is going to X$'s for your quarterly fee, but don't worry the market will come back. I love having and showing those VA guarantees   GMAB didn't exist on the product I use, when these contracts were issued.    [/quote]
Oct 20, 2008 5:33 pm

[quote=Vin Diesel][quote=babbling looney]Yes.   My VA clients are mostly IRAs and 401K rollover accounts with at least 7 to 10 years to being 501/2 and able to withdraw.  This is long term money that they are not planning to take large lump sums from.  The intention of these accounts is to have a supplimental income stream at retirement.

  I called all of them and discussed their statements and account values which are down dramatically to mildly from inception depending on how long ago we invested.  This was a perfect time to remind them about the GRIB 7% annual step up on the income pool.  The product is doing what we intended it to do.  Protect the client's future income stream despite a down market.
Do we want the actual value of the product to be MORE than the income pool?  Of course. And given that these people have many years to go before they are ready to withdraw, that may happen.  However, if it doesn't happen that we are able to recover, they will have an income stream.   Exactly! and thats my point. isn't this a better client conversation to have than...mr. client you're down X% and there is going to X$'s for your quarterly fee, but don't worry the market will come back. I love having and showing those VA guarantees   GMAB didn't exist on the product I use, when these contracts were issued.    [/quote] [/quote]   Yes, as long as the damn insurance company stays in business.  Seeing the news on ING wasn't too heartwarming...but it will probably be better that way.
Oct 21, 2008 6:56 pm

[quote=Ominous]GMAB = Guaranteed Minimum Asset Balance

  It's typically the CHEAPEST rider with just a "return of original premium" option.   If your account lost principle value over 10 years, you get all your original investment back.   Metlife and MassMutual have similar variations of it.  I think Pac Life has a GMAB rider too.   Allianz has one that's a little different in their "High 5" VA (but watch out on how they allocate the portfolio - they sell low and buy high systematically).   Since it's not one of the sexy income riders, that's probably why you haven't heard of it from your wholesalers.[/quote]

Some GMIB's have this feature.  On Metlife's GMIB Plus rider, the client gets the principal back if the account value is lower than the net investments (within first 120 days only) on the 10th year.  So, the client chooses the to receive income or have the principal restored and cashed out on year 10.  It's not so good for retirement accounts where additional contributions are made after 120 days of contract effectivity, because these subsequent investments do not get added to the principal base that would be restored.  Another downside is the cost of the GMIB Plus rider, which is 80 bps. I believe.
Oct 21, 2008 7:57 pm

Gotta side with Vin and company. Right now these annuites are looking pretty damn smart. With the market’s performance having a safety net, even an expensive one, is money well spent in the eyes of many people.

  As long as the guarantees are understood and the expenses fully disclosed there is no reason not to like these annuities for the plus 50 crowd.   As for the companies staying in biz, most are now going beyond standard disclosure to show their exposure to the current situation and are restating their superior financial strength. For example a Hancock wholesaler dropped by with some info showing that their total exposure to high risk debt is 4/10 of a percent. I think Hancock can survive a 4bp hit. Most likely the same story for most top end insurers.
Oct 21, 2008 10:03 pm

Right now these annuites are looking pretty damn smart. With the market’s performance having a safety net, even an expensive one, is money well spent in the eyes of many people.

  There's nothing like being able to sleep at night. Still, a year or two or ten down the road, it will be interesting to see how these contracts pan out in terms of total return.   Insurers don't go out of business, they just get bought or they could just stand in line behind all of the other social guarantees that Americans will be paying for (forever). I guess that's why some folks are pulling their money out,  and buying land, sheep and guns and such.
Oct 21, 2008 11:38 pm

I am relooking at Hancock as they are one of the few AAA rated insurers in our system. Do they have a GMIB+ similar to Met Life? I am familar with Met’s, that is why I ask.

Oct 23, 2008 12:09 pm

I have a bunch of Hancock contracts who by the way recently had their AAA rating verified. They do have a GMIB in “Principal Plus” benefit which cost 40-60 bps I think.