[quote=Bobby Hull][quote=bankrep1] [quote=Bobby Hull]

[quote=bankrep1]Just curious how everyone else handles a clients 401K. Say for example they have 200K liquid and 500K in their 401K. How do you personally handle this situation?[/quote]

You raise $2,000,000 per month and you even have to ask this question? You are a liar and I eagerly await your silly explanation.

[/quote]

Bobby I do and I know you're jealous. I get frustrated when I have given out free advice and was wondering how others approach this subject. The specific event that led me to ask this question is I have a client who has about 200K with me, she retired and has a 500K 401K for which I have given her advice on for the last couple of years. I asked for the rollover and she is "debating", had I not given her advice she wouldn't of performed that well and would be handing me the rollover. Her thing is the 401K has done very well and there are no fees. . . Her other investments are in a wrap 1.25%[/quote]

Someone else is talking to her about rolling her 401k and he's looking better than you are. Selfishly, she's probably considering a guaranteed variable annuity, as opposed to something that guarantees YOU 1.25%/year. More than likely, she's already moved it and doesn't want to hurt the feelings of "that boy at the bank."

[/quote]

Bobby is probably right.  In addition many 401K plans are already in a group variable annuity format so the switch is from something familiar to something familiar.  People don't like change........especially old people.

[quote=Dust Bunny]

It has never been a problem.  Since I don’t
have my IAR status yet, I can only broadly hint.   Later I
will be able to have them sign an advisory agreement and then be able
to give information…legally instead of trying to do backdoor advice.

[quote]Mrs Client, while I can’t comment specificly about your 401(k),
Its my experience that people like your self often targeted by annuity
salesmen. These annuities are many times innapropriate and always
expensive. The most important thing you should know about annuities is
that they pay a 6% commision to the broker.



On a $500K account such as yours, that’s a $30,000 payday. So you
should be aware that annuity salesmen are highly motivated. I’d take
everything they say with big grain of salt. If you ever need a second
opinion on any major financial transaction,you know that I’m always
here. [quote]

[quote=AllREIT] [quote=Dust Bunny]

It has never been a problem.  Since I don't have my IAR status yet, I can only broadly hint.   Later I will be able to have them sign an advisory agreement and then be able to give information...legally instead of trying to do backdoor advice.

[/quote]

What I'd do is say that the bank, has a policy that you cannot make specific comments about outside accounts, including 401(k). That's not to say that as a valued client, I won't look over your 401k, and make comments.

Keep it general, and focus on how the 401(k) assets fit into general allocations. And how its better to have all accounts consolidated so you don't forget about assets etc.

If your worried about annuity sharks tell them the Truth.

[quote]Mrs Client, while I can't comment specificly about your 401(k), Its my experience that people like your self often targeted by annuity salesmen. These annuities are many times innapropriate and always expensive. The most important thing you should know about annuities is that they pay a 6% commision to the broker.

On a $500K account such as yours, that's a $30,000 payday. So you should be aware that annuity salesmen are highly motivated. I'd take everything they say with big grain of salt. If you ever need a second opinion on any major financial transaction,you know that I'm always here. [quote][/quote]

I think the difference between people like you and me is that you think that people aren't as smart as they really are. When someone like you sends the message that they are too stupid to think for themselves, you lose the prospect. I know because when I was a rookie, I made the same mistakes.

In addition many 401K plans are already in a group variable annuity format so the switch is from something familiar to something familiar. 

This is true except that the participants tend not to know that they own a group variable annuity.  They think that they own mutual funds.

ALLREIT, live by sword, die by the sword.  The "annuity shark" can easily show that the person putting them into a fee based account will earn much more than if they bought an annuity.

The best "annuity sharks" are people like me who give their client choices.  "This is the advantage and disadvantage of the annuity.  This is the advantage and disadvantage of the UIT.  This is the advantage and disadvantage of the mutual fund, etc."  We know that we'll makde money regardless of the choice that the client makes.  The key to giving the client choices is that they are making choices between investments instead of the choice of whether to work with me or someone else. 

[quote=anonymous]ALLREIT, live by sword, die by the sword.  The
"annuity shark" can easily show that the person putting them into a fee
based account will earn much more than if they bought an annuity.
[/quote]



In my experience clients just “glow” when they learn how much money brokers make on annuity sales. All you need are a few drops of doubt to spoil the soup and immunize clients from annuity salesmen.



If your goal is to sour clients on annuities, then you do what I said.
If your goal is to try and later sell them an annuity yourself, then
you can’t tell clients the truth about annuities.



Like I showed before, the total economic cost of a variable annuity is
probably twice that of a managed account, since the initial 6% has to
come from somewhere, the embedded insurance has to be paid for, and the
investments have to be managed.



Out of all the elements of a VA contract, the embedded insurance is the only part worth paying for. The 6% GDC doesn’t add anything for the client. And I tell clients that.



As for my own practice, it is monoline. I tell clients I’m in the
investment buisness. I manage money for people. I don’t sell life
insurance, don’t sell annuities, don’t sell mortgages etc.

[quote]The key to giving the client choices is that they are making choices between investments instead of the choice of whether to work with me or someone else. 

[quote=AllREIT][quote=anonymous]ALLREIT, live by sword, die by the sword.  The “annuity shark” can easily show that the person putting them into a fee based account will earn much more than if they bought an annuity. [/quote]

In my experience clients just “glow” when they learn how much money brokers make on annuity sales. All you need are a few drops of doubt to spoil the soup and immunize clients from annuity salesmen.

If your goal is to sour clients on annuities, then you do what I said. If your goal is to try and later sell them an annuity yourself, then you can’t tell clients the truth about annuities.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account, since the initial 6% has to come from somewhere, the embedded insurance has to be paid for, and the investments have to be managed.

Out of all the elements of a VA contract, the embedded insurance is the only part worth paying for. The 6% GDC doesn’t add anything for the client. And I tell clients that.

As for my own practice, it is monoline. I tell clients I’m in the investment buisness. I manage money for people. I don’t sell life insurance, don’t sell annuities, don’t sell mortgages etc.

[quote]The key to giving the client choices is that they are making choices between investments instead of the choice of whether to work with me or someone else. 

[/quote]

For myself, I think the value I add is helping clients make good choices, not from presenting them with many choices, some of them bad. I'm not a used car dealer.

Has this cost me clients? Maybe, but at least in my biased sample, clients appreciate the fact that I focus on investments only.

[/quote]

I think the difference between people like you and me is that you think that people aren't as smart as they really are. When someone like you sends the message that they are too stupid to think for themselves, you lose the prospect. I know because when I was a rookie, I made the same mistakes.

As for my own practice, it is monoline. I tell clients I'm in the investment buisness. I manage money for people. I don't sell life insurance, don't sell annuities, don't sell mortgages etc.

That's your business model and that's fine for you. It doesn't give you the high horse position to denigrate others who offer a more full service and varied product selection for their clients.  Frankly you sound like an elitist know it all snob.  I also don't go around dissing other advisors to my clients.  That is something I learned not to do since in high school. It just makes you look bad when you are whining and complaining about the competition.

Disclaimer: I do about 90% of my business in securites and very little in insurance products.  So don't go off ranting that I'm an "annuity shark".  I do have the occasional annuity and life sale when it is appropriate, but I don't have the closed mind that you seem to have.

To each his own.  I'll respect your business model if you respect mine and others.

[quote=Dust Bunny]

As for my own practice, it is monoline. I tell clients I’m in the investment buisness. I manage money for people. I don’t sell life insurance, don’t sell annuities, don’t sell mortgages etc.

That’s your business model and that’s fine for you. It doesn’t give you the high horse position to denigrate others who offer a more full service and varied product selection for their clients. Frankly you sound like an elitist know it all snob. I also don’t go around dissing other advisors to my clients. That is something I learned not to do since in high school. It just makes you look bad when you are whining and complaining about the competition.

Disclaimer: I do about 90% of my business in securites and very little in insurance products. So don’t go off ranting that I’m an “annuity shark”. I do have the occasional annuity and life sale when it is appropriate, but I don’t have the closed mind that you seem to have.

To each his own. I’ll respect your business model if you respect mine and others.

To each his own.  I'll respect your business model if you respect mine and others.

I can respect any business model that is being run in an ethical manner.  Allreit can certainly not sell annuities if he so chooses.   The problem is that based upon his anti-annuity posts, he is not doing it in an ethical manner.  For example, he talks about the amount of money that the annuity salesman makes without mentioning that he will make more money by putting the maoney into a managed account.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account

Actually, you made that assertion, but you failed miserably in trying to back it up.  You did succeed in letting us know that you don't understand VA's.   

[quote=anonymous]

To each his own.  I’ll respect your business model if you respect mine and others.

I can respect any business model that is being run in an ethical manner.  Allreit can certainly not sell annuities if he so chooses.   The problem is that based upon his anti-annuity posts, he is not doing it in an ethical manner.  For example, he talks about the amount of money that the annuity salesman makes without mentioning that he will make more money by putting the maoney into a managed account.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account

Actually, you made that assertion, but you failed miserably in trying to back it up.  You did succeed in letting us know that you don't understand VA's.   

Annuity costs to the client come in three parts (GDC, embedded insurance, and invesment expenses), of which the 6% GDC is wholly useless to the client.



If you have a managed account @ 1% vs an annuity at 1.25% plus a 6% GDC being amortised over the life of the contract, the annuity is going to be more expensive.



Even if the annuity was going to have ongoing costs of 1%, it would
still be more expensive because of the amortisation of the 6% GDC.
Eitherway clients care about what will be cheaper and better for them.



You tell a client that they can have a fully liquid account @ 1%,
Annuity sharks will try to sell them an annuity @ 1.25 + 6% with
surrender charges and unfavorable tax treatment at withdrawral. I think thats a very ethical thing to tell clients.



Anyways, I’m done with talk about annuities. Bobby chimed in
about swooping in with an annuity, and I responded with how to make
clients very skeptical about annuities.



----

As for the main subject of the thread: if you can charge hourly. This problem of outside assets becomes very simple.



You simply charge hourly when talking/researching outside assets.



Otherwise the best policy is simply say that you can’t/don’t make specific recomendations about outside assets.

I’m glad were done talking about annuitties. Thanks for everyones comments.

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%. 

I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.

How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?

[quote=AllREIT] [quote=anonymous]

To each his own.  I'll respect your business model if you respect mine and others.

I can respect any business model that is being run in an ethical manner.  Allreit can certainly not sell annuities if he so chooses.   The problem is that based upon his anti-annuity posts, he is not doing it in an ethical manner.  For example, he talks about the amount of money that the annuity salesman makes without mentioning that he will make more money by putting the maoney into a managed account.

Like I showed before, the total economic cost of a variable annuity is probably twice that of a managed account

Actually, you made that assertion, but you failed miserably in trying to back it up.  You did succeed in letting us know that you don't understand VA's.   

[/quote]

Uhhhh no. I showed how the 6% cut comes right out of total return of the underlying investments. However several folks had a hard, very hard time understanding that.

You look at any insurance company that sells VA's and in the P&L there is a line for DAC (Deferred Aquisition Costs) which is an expense applied against gross earnings from annuities. Those gross earnings are the ongoing expenses of the annuity.

Annuity costs to the client come in three parts (GDC, embedded insurance, and invesment expenses), of which the 6% GDC is wholly useless to the client.

If you have a managed account @ 1% vs an annuity at 1.25% plus a 6% GDC being amortised over the life of the contract, the annuity is going to be more expensive.

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC. Eitherway clients care about what will be cheaper and better for them.

You tell a client that they can have a fully liquid account @ 1%, Annuity sharks will try to sell them an annuity @ 1.25 + 6% with surrender charges and unfavorable tax treatment at withdrawral. I think thats a very ethical thing to tell clients.

Anyways, I'm done with talk about annuities. Bobby chimed in about swooping in with an annuity, and I responded with how to make clients very skeptical about annuities.

----
As for the main subject of the thread: if you can charge hourly. This problem of outside assets becomes very simple.

You simply charge hourly when talking/researching outside assets.

Otherwise the best policy is simply say that you can't/don't make specific recomendations about outside assets.






[/quote]

AllREITard, you try to disturb people by lying to them?

[quote=anonymous]

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%. 

I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.

How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?

[/quote] I'm just curious in a non qualified account how do taxes upon withdrawal factor in?   Are they considered "costs"?

scrim

[quote=scrim67][quote=anonymous]

Even if the annuity was going to have ongoing costs of 1%, it would still be more expensive because of the amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%. 

I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.

How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?

[/quote] I'm just curious in a non qualified account how do taxes upon withdrawal factor in?   Are they considered "costs"?

scrim

[/quote]

Scrim, take a Mulligan.

I'm just curious in a non qualified account how do taxes upon withdrawal factor in?   Are they considered "costs"?

I wouldn't call them a "cost", but it's a very important consideration.  How things get passed down at death is also a very important consideration.

Every investment has 3 different rates of return:

1)The rate of return

2)The after tax rate of return

3)The rate of return at death

Just for an easy example, compare a CD to a tax free muni bond to a WL life insurance policy.  Let's say that the CD averages 6% for the life of the client.  The Muni bond averages 5.5%.  The Life insurance cash value averages 5%.

Which vehicle gives the best return? The CD has the best rate of return.  The Munibond gives the best rate of return if we are talking about spendable money.  The life insurance passes on the most at death because they get the death benefit and not the cash value.

So to answer your question, the annuity would have a different after tax rate of return in a qualified plan than it would have outside of one, but it wouldn't be accurate to say that the costs are different.

[quote=anonymous]

Even if the annuity was going to have
ongoing costs of 1%, it would still be more expensive because of the
amortisation of the 6% GDC.

I think that we are getting to the bottom of your misunderstanding.  You are confusing how the company accounts for the costs on their books for accounting purposes vs. how the client gets charged.  All that matters to the client is how they get charged.

If the ongoing costs are 1%, the amoritization of the GDC is part of this 1% and not additional.   This is, of course, why a VA that doesn't charge the client an upfront load, but does pay a commission will be higher than 1%.  [QUOTE]

I ment ongoing "true costs" (of insurance and investments) of 1% with the amortisation added on top.  The only annuities with all-in costs of under 1% are from VG/Fidelity. Those of course aren't burdened by a 6% GDC, and heavy marketing expenses etc.

[quote]I've mentioned that the VA that I use costs the client 2.3% a year.  More accurately, it costs about 1.8% and then another .5% if the client wants the guarantees of the death benefit and the living benefits.  Some clients choose to not have these.  In order for your twice as expensive comment to be accurate, you need to be getting your clients "all in" at under 1%.[/quote]

For 2.3% of assets I would be expecting hedge fund/PEQ type performance. If all I got was stock market-2.3% I would be dissapointed.

2.3% is very expensive.

Compare the difference of 2.3% compounded for 10 years vs 1% or even 1.25% compounded for the same time. That is the economic cost of the annuity. And its not cheap

[quote]How are you going to say that a managed account costs the client 1%?  Are you charging an annual fee of 1% and the investments are free?  Are the investments 1% and you work for free?[/quote]

If you own underlying stocks etc, your looking at a total cost of 1%,

If you use cheap ETF's the total cost would be slightly higher by a few basis points. Probably 10-25bp. All of which would remain much cheaper than 2.3% yearly.

All of which would remain much cheaper than 2.3% yearly.

Again, you continually miss the point.  For some clients it isn't about the yearly cost so much as it is about the guarantees and peace of mind.  Period.

I happen to agree that 2.3% is expensive.  The more important point is whether it is worth paying the extra money.  This brings the discussion to investor returns vs. investment returns.  From what I've seen in my practice, the guarantees in the VA have a huge benefit when it comes to investor returns.   Despite paying extra money, my VA clients do much better in VAs than they would in other investments.  This is why I have them in VAs in the first place.

For many other investors, the guarantees of the VA make no difference.  For these investors, VAs are not appropriate, thus we don't use VAs.

[quote=Dust Bunny]

All of which would remain much cheaper than 2.3% yearly.

Again, you continually miss the point.  For some clients it isn't about the yearly cost so much as it is about the guarantees and peace of mind.  Period.

[/quote]

Save your time, DB.  Allreit misses just about every point that comes his way.