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Jan 27, 2006 5:13 am

[quote=scrim67]I guess maybe I live in a vacuum.

How can an appropriate mixture of stock and bonds lose principal over a long time frame?

I think it's almost impossible.

Am I not thinking outside the box here?

scrim[/quote]

Scrim, I agree that it is very unlikely, but that doesn't matter to some folks.  If it is theoretically possible, they don't want it. Period.  So you find something with a guarantee, that yes, probably makes less over time, but will not lose principal...and the clients are happy as a lark...and couldn't care less that their neighbor is averaging 2%/year more than they are. ("...but his principal is not guaranteed")

Jan 27, 2006 5:16 am

I have occasionally a tough time overcoming lack of FDIC insurance.

How do overcome no FDIC or SIPC?

scrim

Jan 27, 2006 5:21 am

[quote=scrim67]

I have occasionally a tough time overcoming lack of FDIC insurance.

How do overcome no FDIC or SIPC?

scrim

[/quote]

Offer them brokered CD's for one.

Your platform offers SIPC insurance bro.  You should make sure your branch manager has his signs posted, otherwise he'll get a black mark on his compliance audit.

Jan 27, 2006 5:24 am

joe,

sorry for the confusion.

so an insurance product is SIPC insured?

we do have SIPC...I didn't realize it covered insurance products.

i'm learning every day

scrim

Jan 27, 2006 5:28 am

[quote=scrim67]I have occasionally a tough time overcoming lack of FDIC insurance.

How do overcome no FDIC or SIPC?

scrim[/quote]

First pick a solid insurance company.  The Hartford has been around almost 200 years...much longer than the FDIC system.  ING is one rung below triple-A.  Then there are the reserves that insurance companies are required to maintain to back up their claims-paying abilities, and finally, as Joe alluded to, the SIPC system is in place for at least most reputable Broker/dealers...

Bottom line is, these guarantees are as solid as the firms behind them...choose wisely and you won't have any problem selling the guarantees...

Jan 27, 2006 5:33 am

[quote=scrim67]joe,

sorry for the confusion.

so an insurance product is SIPC insured?

we do have SIPC...I didn't realize it covered insurance products.

i'm learning every day

scrim[/quote]

In reality, SIPC doesn't cover much of anything, other than your assets disappearing from a failed broker/dealer, but it kind of sounds like FDIC and that makes Joe Customer feel good...

Jan 27, 2006 5:40 am

yeah,

anytime I explain how SIPC insurance works I always tell them, in reality you really don't need SIPC or FDIC insurance for that matter, but you don't have a chance to decline it like at a rental car place.

customer never seems to object to that explanation.

scrim

Jan 27, 2006 12:34 pm

[quote=scrim67]

I guess maybe I live in a vacuum.

How can an appropriate mixture of stock and bonds lose principal over a long time frame?

I think it's almost impossible.

Am I not thinking outside the box here?

scrim

[/quote]

You are ignoring the fact that people are afraid of losing money. People make investment decisions based on fear and greed, not logic. The annuity that I use appeals to both fear AND greed. When you're talking about asset allocation, you're coming straight out of your head. They may be smiling, while you talk, but you're not hitting them where it counts.

Jan 27, 2006 12:49 pm

"The annuity that I use appeals to both fear AND greed."

Jan 27, 2006 3:44 pm

Scrim,

I'm afraid that maybe you do live in a vacuum a little bit when it comes to understanding clients needs.

First of all, regarding understanding of product (both you and the client) I really feel that...

#1 you haven't taken the time to TRY to understand the aspects of GMIB VA's.  They aren't that hard to understand.  Instead of posting random questions about them on the board, why don't you call the sales desk at one of the aforementioned companies and learn about them, then make AN EDUCATED DECISION.

#2  You completely disregarded my point, my MAIN point, about how using a VA can hedge a more equity allocated portfolio, and over time net much more than the VA fee anyway!!

#3  Do you really think a client understands "fully" how a mutual fund works?  What the administration costs are, what the trading costs are (these aren't disclosed, do YOU even know what they are?), How the securities are selected, etc.  I submit that if a client can, as you say, "fully" understand a mutual fund, they can "fully" undertstand a VA.  Disagree?

You seem to me to be a purist.  Someone who has unfallible faith in the long term returns of the market.  To a great extent so am I, otherwise why would I be in the business?

HOWEVER, what you must realize it isn't MARKET returns investors care about, its INVESTOR returns investors care about.  They want, they NEED (on an emotional level anyway), to feel safe that their retirement dollars (aka thier lifestyle) will not be hurt by market forces they cannot control.

Many people who retired in the downturn WISH TO GOD they had a way to get those dollars back.  In many VA's, they could have via the guarantees.

Jan 27, 2006 4:06 pm

I guess the real litmus test will be during the next major stock market downturn.    How many relationship will end?

In the 100 or so wrap accounts i've opened I only lost 1 client and that was when her son got her ear and made her go back to a CD.


Since I'm in the bank channel most of my clients are conservative by nature and i've mostly allocated them to cash and bonds while maintanining only about half equities in mostly blue chips stock funds.....a little bit in midcaps, smallcaps and international.

For those who fear loss of principal i'd rather put them in some kind of principal preservation strategy of maybe 60% cash, 20% bonds and 20% stocks.       I really don't see how they can lose principal in any year doing that allocation and they will probably average a 4.5-5% return annually.

Since I'm not "tieing" any money up for my clients I guess liquidity can work against me too.

Thanks to everyone for all the feedback.

scrim

Jan 27, 2006 4:11 pm

[quote=BankFC]

Scrim,

I'm afraid that maybe you do live in a vacuum a little bit when it comes to understanding clients needs.

First of all, regarding understanding of product (both you and the client) I really feel that...

#1 you haven't taken the time to TRY to understand the aspects of GMIB VA's.  They aren't that hard to understand.  Instead of posting random questions about them on the board, why don't you call the sales desk at one of the aforementioned companies and learn about them, then make AN EDUCATED DECISION.

The GMIB is a good recent addition to the guarantees in VAs. Ask your wholesaler to explain it to you.  I'm sure he will be more than happy to and provide you with all kinds of sales materials.

#2  You completely disregarded my point, my MAIN point, about how using a VA can hedge a more equity allocated portfolio, and over time net much more than the VA fee anyway!!

#3  Do you really think a client understands "fully" how a mutual fund works?  What the administration costs are, what the trading costs are (these aren't disclosed, do YOU even know what they are?), How the securities are selected, etc.  I submit that if a client can, as you say, "fully" understand a mutual fund, they can "fully" understand a VA.  Disagree?

You seem to me to be a purist.  Someone who has unfallible faith in the long term returns of the market.  To a great extent so am I, otherwise why would I be in the business?

HOWEVER, what you must realize it isn't MARKET returns investors care about, its INVESTOR returns investors care about.  They want, they NEED (on an emotional level anyway), to feel safe that their retirement dollars (aka thier lifestyle) will not be hurt by market forces they cannot control.

Many people who retired in the downturn WISH TO GOD they had a way to get those dollars back.  In many VA's, they could have via the guarantees.

Exactly.  When the client has a guaranteed income either now or in the future, I find that we can be more aggressive with the portfolio within the annuity and most often beat the guarantee.  The parts of their portfolio outside of the annuity we can then be more careful with to suit the clients real risk tolerance. 

Those clients who lost big, and are still trying to recover, from the market downturn in 2000, really appreciate the safety net and are willing to pay the extra for that safe feeling that the guarantees can provide.

Contrary to what some people think in other threads I am NOT anti VA. I use them all the time.  I am anti deceptive sales practices and inappropriate usage of VAs, fixed annuities and any other product, mutual funds etc.   When the broker puts his needs before the client and sells a high "commish" product, this ultimately comes back to bite us all in the [email protected]@.   These practices are why our industry has a bad name, and why our E&O insurance goes up so much. Also why we have so much more regulatory scrutiny and paperwork  [/quote]

Jan 27, 2006 4:36 pm

I really should call my wholesaler.

So you are saying to get an guaranteed income for life they don't have to annuitize and give up control?

The monthly payments can rise and fall too?

I will check that out.

scrim

Jan 27, 2006 5:24 pm

"So you are saying to get an guaranteed income for life they don't have to annuitize and give up control?"

Scrim, that question shows that you really don't understand some of the basics of annuities.  I don't say that to be negative.  It is very important that you understand how these products work.  Call your wholesaler and also read the actual contracts.  You need to learn so that you know when to steer your clients towards these products when appropriate and away at other times.

Your lack of understanding can harm your clients.

Jan 27, 2006 5:37 pm

I am calling them right now.

I always thought (perhaps mistakenly) to get a payment stream for life  you give up control of the assets when you annuitize.

scrim

Jan 27, 2006 5:56 pm

They explained it to me and I get it better now.

The 6% gmib has really nothing to do with a 6% total return annually.

it's apples and oranges.

I might need to wear more hats and bring VA's into my practice but only when I fully understand the product.

Thanks all!

scrim

Jan 27, 2006 6:41 pm

For those of you who don’t understand GMIB, GMWB, etc.  check out allstates true return, hard to argue with that feature.  They guarantee up to 250% increase in a lump sum.

Jan 27, 2006 7:06 pm

Scrim,

That was a little like pulling teeth, but at least you are open-minded enough to look into learning about the things you were saying were bad without truly understanding them.

Have a great weekend!

Jan 27, 2006 7:19 pm

Are most of you generalists or do you focus on a few main products?

Most of my practice is mutual fund managed money programs using asset allocation models.

The other part of my practice is mutual funds.

Perhaps I will present more insurance products and annuities in the future.

Since many of my clientele are middle aged and moderate income/assets LTC might be a good niche.

Has anyone had much success presenting LTC?

scrim

Jan 27, 2006 8:00 pm

LTC is another much needed product.  I imagine that those who are against annuities due to the high cost and returns may be against LTC.  Do any of you say to the client that they don't need it and they can pay for it out of the high returns on their portfolio?

I have some clients that can't by the cream of the crop LTC so they at least get a little coverage.