What would you do?
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Client: 41 year old male.
Investments: mutual funds and stocks - NQ Client of mine recently lost $40K over the last year and called today stating that he is done losing money. Wants ideas on principal protected investments. He is open to ideas. Can do CDs or corporates, but does anyone have any ideas that are more attractive?[quote=etj4588]He’s 41. Wouldn’t an annuity keep him locked in till 59 1/2?[/quote]
No. He won’t be “locked in.” He can get his money if he’s willing to pay a 10% penalty on the profit. Much less than the penalty he’s already paid to be in the market.
[quote=etj4588]So the penalty is only on gains for early withdrawal?[/quote]
Correct. His initial premium dollars had already been taxed when he earned them.
[quote=iceco1d]Now that’s slick…and I’m not talking about the recco. [/quote]
What ARE you talking about?
So let me get this straight because I've never sold an annuity to anyone under 60:
He puts $100K into, for examples sake, a 1 year Fixed Annuity paying 3%.
At the end of the year, he withdraws the money. He would be withdrawing $103K minus $300 penalty, so in total he gets $102,700 (forget ordinary taxes for the moment). So the effective yield would actually be 2.7%?
Am I correct here?[quote=etj4588]
So let me get this straight because I’ve never sold an annuity to anyone under 60:
He puts $100K into, for examples sake, a 1 year Fixed Annuity paying 3%.
At the end of the year, he withdraws the money. He would be withdrawing $103K minus $300 penalty, so in total he gets $102,700 (forget ordinary taxes for the moment). So the effective yield would actually be 2.7%?
Am I correct here?[/quote]Yes.
Gee I dunno! [/quote][quote=San Houston] [quote=iceco1d]Now that’s slick…and I’m not talking about the recco. [/quote]
What ARE you talking about?
I get it.
[quote=etj4588]Client: 41 year old male.
Investments: mutual funds and stocks - NQ Client of mine recently lost $40K over the last year and called today stating that he is done losing money. Wants ideas on principal protected investments. He is open to ideas. Can do CDs or corporates, but does anyone have any ideas that are more attractive? [/quote] Tell him that he's only trading what he loses money to. If he moves to something fixed like a CD paying 1.5% right now, sure, his money is guaranteed, but so are his taxes and his ability to lose purchasing power to inflation, which from all that I've read and learned is right around the corner. Tell him to grow a pair and give you some more money to add to his investments. If he doesn't understand the long term effect of making a stupid decision like this now, fire him. Send him to the bank. Two or three years down the road, after he's missed a 40% upswing, he'll be complaining to you because his buddies are on the road to recovery, but he's lagging behind. Hartford has a great piece called Crisis to Confidence. Have them overnight you some copies and show him pages 2 and 3. It'll be a 5 minute discussion. If you don't end up with him either staying put or adding money, you've done something wrong.Fire him and find someone with a reasonable risk tolerance for his time horizon.
I have a question for you Hank. Wouldn't this situation concern you? Clients don't remember half of what they are told ten minutes later, much less years later. A broker in my office just had a complaint filed against him over a pre 59 1/2 annuity withdrawal issue. Wouldn't you be concerned this will come back on you being the client is so far away from a penalty free withdrawal?[quote=etj4588]He’s 41. Wouldn’t an annuity keep him locked in till 59 1/2?[/quote]
No. He won’t be “locked in.” He can get his money if he’s willing to pay a 10% penalty on the profit. Much less than the penalty he’s already paid to be in the market.
I have a question for you Hank. Wouldn't this situation concern you? Clients don't remember half of what they are told ten minutes later, much less years later. A broker in my office just had a complaint filed against him over a pre 59 1/2 annuity withdrawal issue. Wouldn't you be concerned this will come back on you being the client is so far away from a penalty free withdrawal?[/quote][quote=San Houston] [quote=etj4588]He’s 41. Wouldn’t an annuity keep him locked in till 59 1/2?[/quote]
No. He won’t be “locked in.” He can get his money if he’s willing to pay a 10% penalty on the profit. Much less than the penalty he’s already paid to be in the market.
Well, Primo, no. It wouldn't concern me.
[quote=Spaceman Spiff][quote=etj4588]Client: 41 year old male.
Investments: mutual funds and stocks - NQ Client of mine recently lost $40K over the last year and called today stating that he is done losing money. Wants ideas on principal protected investments. He is open to ideas. Can do CDs or corporates, but does anyone have any ideas that are more attractive? [/quote] Tell him that he's only trading what he loses money to. If he moves to something fixed like a CD paying 1.5% right now, sure, his money is guaranteed, but so are his taxes and his ability to lose purchasing power to inflation, which from all that I've read and learned is right around the corner. Tell him to grow a pair and give you some more money to add to his investments. If he doesn't understand the long term effect of making a stupid decision like this now, fire him. Send him to the bank. Two or three years down the road, after he's missed a 40% upswing, he'll be complaining to you because his buddies are on the road to recovery, but he's lagging behind. Hartford has a great piece called Crisis to Confidence. Have them overnight you some copies and show him pages 2 and 3. It'll be a 5 minute discussion. If you don't end up with him either staying put or adding money, you've done something wrong. [/quote] I just had the chance to listen to Dr. Quincy Krosby of the Hartford speak yesterday, and they handed out that "Crisis to Confidence" pamphlet. It's short, sweet, and simple to understand. It really makes a good case for the values of controlling your emotions during the inevitable financial crises that occur as well as a solid explanation of "buying pessimism and selling optimism". They made it almost completely product/company neutral, so you can use it even if you don't like the Hartford. I say "almost" b/c the last two pages are dedicated to advertising the Hartford.I've got this strategy I've been using with my clients, approved by some of the brightest minds on Wall St.
- Fill half of your portfolio with MBS. Make sure you get some good, high yield ones out of CA and FL. - Buy CDO's on margin -Take the rest of the money in your portfolio and remodel your house. Make sure you include a four-legged comode. The only downside of this plan is, if it fails, you have to go before congress so they can pontificate, and you get to answer questions about your compensation and what stock purchases you made in the past year. Trust me, it will work.Give him 3 options.
1. Stay in equity. It's your best long term choice and here's why. 2. You're freaked out by your losses. Let's move this into a money market until you're comfortable. Then we can jump back in. 3. Show him a fixed annuity or an EIE if you can do those. His choice. You're not responsible for his choices. I suspect that what he really wants is a one-year, insured note paying 10 percent. He won't go for the fixed annuity 'because it won't pay me enough' and he won't go for the money market 'because I'll miss the rally.'[quote=Spaceman Spiff][quote=etj4588]Client: 41 year old male.
Investments: mutual funds and stocks - NQ Client of mine recently lost $40K over the last year and called today stating that he is done losing money. Wants ideas on principal protected investments. He is open to ideas. Can do CDs or corporates, but does anyone have any ideas that are more attractive? [/quote] Tell him that he's only trading what he loses money to. If he moves to something fixed like a CD paying 1.5% right now, sure, his money is guaranteed, but so are his taxes and his ability to lose purchasing power to inflation, which from all that I've read and learned is right around the corner. Tell him to grow a pair and give you some more money to add to his investments. If he doesn't understand the long term effect of making a stupid decision like this now, fire him. Send him to the bank. Two or three years down the road, after he's missed a 40% upswing, he'll be complaining to you because his buddies are on the road to recovery, but he's lagging behind. Hartford has a great piece called Crisis to Confidence. Have them overnight you some copies and show him pages 2 and 3. It'll be a 5 minute discussion. If you don't end up with him either staying put or adding money, you've done something wrong. [/quote] I live in a very rural area, and I used to believe that I had the absolute dumbest clients in the United States. However, after this debacle began and I started trying to calm their fears using slick sales pieces, I realized that many of them aren't as dumb as they previously seemed to be. I was shocked at how many paid close attention to the cutoff dates on all of the "here's what you would've had" examples. The Hartford piece is a good one, but the first thing I noticed is that the market is down almost 31% since 9/30/08--the date they use in their piece. I don't know what the answer is, because I know it's difficult to update that stuff regularly, and I realize we're trying to get them to focus on investing principles, but come on, we're down substantially lower than the good ol' days of September 2008 (10850) and the forecasts continue to deteriorate. The "steadfast" folks--those who decided to just hang in there--are down from $425K to $293K, and I don't know what CD rate they used, but the folks who bailed and bought CDs have been earning interest on their $277K since 9/30, so the gap's closing quickly. My clients ain't buyin' the dog-and-pony show anymore.Nice how they control the dates to make it look better. It used to be a convenient way for me to convince unsuspecting prospects that the investments I was offering up had done a whole lot better than the ones they had…I manipulated the start dates to my satisfaction(Loved the hypo system from Jones, another slick trick from my mentor).
If you sit back and look at the industry as a whole, IT IS IN THE BEST INTEREST OF THE ESTABLISHMENT to keep the clients in a buy and hold mindset. Now I hear radio adds for lawyers toting.."your broker told you to hold on...and your investments rode the market all the way down.." if you feel this is you, call us. If your licensed in this industry, you had the same training as virtually everyone else...buy and hold is the way...slick advertisment toting the gains after the down years, etc. However, all the returns are based on your clients putting money in on January 1st of each year, and we all know we don't due all our business on that exact date. So the advertised returns for most investments are very misleading, and how they can do differently is beyond me. I guess when you get a letter from a clients lawyer, just whip out the slick add from Hartford...see if that will get you off. This industry is all smoke and mirrors...all of it.