[quote=NASD Newbie][quote=knucklehead]

[quote=NASD Newbie]Do the living benefits come at the expense of total return?[/quote]

Absolutely. Just like your home and auto insurance comes at the expense of your total return on your human capital. You didn't know that?

[/quote]

The point is that when a financial advisor grasps for security instead of total return they are short changing their customers.

Most people are anticipating a far greater overall return than you're generating--they are slowly becoming disappointed and will eventually become angry.

[/quote]

If you give the clients informed choices they will be able to make that decision (security at a price or return with risk) on their own.  Setting expectations and educating the client to the pros and cons of investing is a major part of our job.  If you have done this in the very beginning and reinforce the concepts at each review, you will not have angry clients. 

Well... except for the ones that are "too stupid to help" and you should never have done business with them anyway.

As to insurance, it should never ever be sold as an investment.  Insurance is to accomplish other lifetime goals.

[quote=babbling looney]

If you give the clients informed choices they will be able to make that decision (security at a price or return with risk) on their own.  Setting expectations and educating the client to the pros and cons of investing is a major part of our job.  If you have done this in the very beginning and reinforce the concepts at each review, you will not have angry clients. 

Well... except for the ones that are "too stupid to help" and you should never have done business with them anyway.

As to insurance, it should never ever be sold as an investment.  Insurance is to accomplish other lifetime goals.

[/quote]

If they're capable of making informed choices they're capable of moving their account to Vanguard.

If you do a good job of educating them you make them confident enough to move their account to T Rowe Price.

The reality is they think that you folks are the silver bullet that is going to give them a near luxurious retirement.  You know you can't do it, but they don't.

How many of you have the courage to tell a client that even if they save 100% of their income it's doubtful that their self directed plan is going to generate enough income to allow them to retire?

If you really told them the harsh reality of their situation do you think they'd stay with you?

One of the worst things that ever happened in this country was the idea to transfer the obligation of planning for retirement to the individual. 

The average guy is no more qualified to know what to do than he could fly--and neither are 99% of the boys and girls running around with business cards that introduce them as a financial advisor.

Once again, Nimrod, your assertions are meaningless without some kind of empirical data.  Do you have this data?  Or is this your God-given opinion based upon your vast experience at dealing with clients?

You're still a moron.

[quote=NASD Newbie][quote=knucklehead]

[quote=NASD Newbie]Do the living benefits come at the expense of total return?[/quote]

Absolutely. Just like your home and auto insurance comes at the expense of your total return on your human capital. You didn't know that?

[/quote]

The point is that when a financial advisor grasps for security instead of total return they are short changing their customers.

Most people are anticipating a far greater overall return than you're generating--they are slowly becoming disappointed and will eventually become angry.

[/quote]

If I told you what my returns are you'd think I was lying. Don't assume anything about me.

"The point is that when a financial advisor grasps for security instead of total return they are short changing their customers."

This is true if we assume the goal of the client is return on their principle.   If this is the goal, a VA is typically not appropriate.

Often, the #1 goal is return OF their principle with the #2 goal being ON their principle.  In this case, a VA can be a great investment.  It allows a conservative investor the opportunity to invest aggressively thus giving them the chance to outearn what their risk tolerance would normally allow without any chance of loss.

[quote=anonymous]

"The point is that when a financial advisor grasps for security instead of total return they are short changing their customers."

This is true if we assume the goal of the client is return on their principle.   If this is the goal, a VA is typically not appropriate.

Often, the #1 goal is return OF their principle with the #2 goal being ON their principle.  In this case, a VA can be a great investment.  It allows a conservative investor the opportunity to invest aggressively thus giving them the chance to outearn what their risk tolerance would normally allow without any chance of loss.

[/quote]

The word is principal--principle is something like honesty or belief in the Bible.

It's crazy to think that people are paying you kids fees so that they can get their money back.  If that was the goal they'd put their money in a jar under the bed.

These insurance based products with principal guarantees are not what people want--they expect you to show them how to turn $100,000 into $1,000,000 in ten years.

It's not going to happen, hopefully you know that.  You're being dishonest if you don't tell your client that they're expecting too much of you.

And you know damn well you're ripping them off with something that purports to defy the risk reward ratio.

Anonymous…I understand living benefits…for the first time they make owning an annuity inside of an IRA appropriate for those investors that are afraid of losing their money in the market. Every INSURANCE company uses them now as a rider for their annuity product(s). I have used in a few rare situations for people afraid of losing their money. But you know as well as I do, that the “insurance guys” put plenty of people’s money into annuities before these living benefits existed, and they did it for the higher commission. Period. Congradualations on doing lots of WL and DI. I believe DI is extremely important and undersold, because most brokers don’t understand it. I also believe that WL is way oversold. Too many car insurance guys selling the stuff to people that don’t understand.



All of that being said, I am on track at my firm. I am just skeptical that the average advisor at yours makes roughly double the first year.

NASD, they are putting money into annuities because they are not willing to lose any money.  They are not aiming for a zero % return.   They want zero to be the absolute worst case scenario.  I'm surprised that you can't grasp this concept.

For the people whom you reference trying to turn $100,000 into $1,000,000, I agree that a VA is inappropriate.  However, many people want to GUARANTEE that their $100,000 won't be less than $100,000 while at the same time they have a chance of having their money grow.

I tell my clients that they can expect to earn about 1-1.5% less per year, but that they can't lose money.  In my opinion, VAs are not appropriate for aggressive investors.  They are appropriate for conservative investors who need to invest more aggressive to reach their goals.

peanutbroker, thanks for admitting that VAs can be appropriate in qualified accounts.  Personally, I think that they are more appropriate in qualified accounts than in unqualified accounts in general. 

Plenty of people are unethical and do things for the wrong reasons.  We don't need to have a discussion about that because we can all be in agreement that this is wrong.

I've never met a car insurance guy who sells significant amounts of whole life.  Plenty sell UL which takes the worst characteristics of WL and combines it with the worst characteristics of term.

I can make it pretty easy to see how our typical first year guy makes $75,000.  1)They are required to keep a MINIMUM of 15 appointments a week.  2)They do lots of joint work  3)Typically, 50-60% of their income comes from insurance.

Tell me why I would want to use a tax deferral vehicle such as a qualified plan to buy a product that is already tax deferred.

Why not buy something very aggressive in my qualified plan and buy a VA outside of that?

Oh wait, I get it.  Your client doesn't have enough money to do both so you want to get as much chop as you can, while conning the client into thinking you're doing him or her a favor.

As I have said, you children are a compliance problem waiting to happen.  You can't spell, why should you understand things that are more complex than that?

[quote=NASD Newbie]

Tell me why I would want to use a tax deferral vehicle such as a qualified plan to buy a product that is already tax deferred.

Why not buy something very aggressive in my qualified plan and buy a VA outside of that?

Oh wait, I get it.  Your client doesn't have enough money to do both so you want to get as much chop as you can, while conning the client into thinking you're doing him or her a favor.

As I have said, you children are a compliance problem waiting to happen.  You can't spell, why should you understand things that are more complex than that?

[/quote]

I've easily written over 300 VA contracts and have not had ANY customer complaints. It's interesting how a has-been, like YOU, would judge a PRODUCER, like ME.

NASD, you have so much to learn.  I guess that you are also against growth stocks inside of an IRA since they are tax deferred also.

Please explain how the tax treatment that a product gets outside of a qualified plan has any bearing on whether that product is appropriate inside of an IRA.

Personally, I think that annuities get terrible tax treatment outside of a qualified plan and are much more appropriate inside of a qualified plan. Tax deferral of annuities is a negative and not a positive in many circumstances.

I agree w/anonymous…if he is truly doing annuities for the right reasons. Most people have way too much deferred money. Another deferred account is just another taxable event when the person uses the annuity for income. As for you knucklehead, 300+ annuity contracts makes you smell like “one of those insurance guys”. Of course you haven’t had complaints, you people haven’t had them with you long enough. As soon as someone like me reviews their investments, they won’t complain they will just ACAT. Commission, commission, commission.



When I explain you can invest in this mutual fund it will cost “X” per year (in dollar figures not percentages) or we can buy insurance on the mutual fund and it will cost you this per year (again in dollar figures). Very, and I mean very few people choose the annuity. I find annuities good for those people you have been working on for a year or so to get some of their money invested in the market that just wouldn’t without a guarantee. Or, I find them good for those people that you know will be calling you every month because their “stock” lost value. Then I can say remember that return of principle insurance we bought?



I have found so many people invested in annuities that are still in their 20s and 30s!

[quote=anonymous]

NASD, you have so much to learn.  I guess that you are also against growth stocks inside of an IRA since they are tax deferred also.

Please explain how the tax treatment that a product gets outside of a qualified plan has any bearing on whether that product is appropriate inside of an IRA.

Personally, I think that annuities get terrible tax treatment outside of a qualified plan and are much more appropriate inside of a qualified plan. Tax deferral of annuities is a negative and not a positive in many circumstances.

[/quote]

Growth stocks are tax deferred?  How does that work?

If the client is investing within a qualfied plan anything that he does as far as active trading will have no current taxation ramifications--so why not use your qualified plan for agressive trading of individual equities, covered call writing and the like?  Go for the gold, reach for the stars.

Then put more money into a variable annuity for tax deferred growth and relative safety of principal--money above and beyond the limits of your qualified plans.

What is the negative tax treatment that an annuity receives outside of a qualified plan?

"Growth stocks are tax deferred?  How does that work?"

I hope that your question is a joke, but I'll answer it for the fun of it.

ABC Widget Company is a growth stock.  They don't pay dividends.  The client bought it at $10/share.  It is now $15/share.  How much tax has been paid?  None.   The tax is deferred until the client sells. 

According to your logic, this stock should never be purchased in a qualified account because it is tax deferred.

"so why not use your qualified plan for agressive trading.."

I agree if the investor is aggressive.  Try this with a conservative investor and they'll sell once they start losing money.  Try this with an older client and you may put them in a position where they can never retire.

"What is the negative tax treatment that an annuity receives outside of a qualified plan?"

1)Penalty on the gain if money is used before 59 1/2
2)Income tax on all of the gain instead of capital gains
3)On withdrawals that are not annuitized, gains come out first
4)No step up in cost basis at death

Stop thinking of annuities as good or bad.  They are either appropriate or inappropriate based upon the situation.

[quote=peanutbroker]I agree w/anonymous...if he is truly doing annuities for the right reasons. Most people have way too much deferred money. Another deferred account is just another taxable event when the person uses the annuity for income. As for you knucklehead, 300+ annuity contracts makes you smell like "one of those insurance guys". Of course you haven't had complaints, you people haven't had them with you long enough. As soon as someone like me reviews their investments, they won't complain they will just ACAT. Commission, commission, commission.

When I explain you can invest in this mutual fund it will cost "X" per year (in dollar figures not percentages) or we can buy insurance on the mutual fund and it will cost you this per year (again in dollar figures). Very, and I mean very few people choose the annuity. I find annuities good for those people you have been working on for a year or so to get some of their money invested in the market that just wouldn't without a guarantee. Or, I find them good for those people that you know will be calling you every month because their "stock" lost value. Then I can say remember that return of principle insurance we bought?

I have found so many people invested in annuities that are still in their 20s and 30s! [/quote]

How do you ACAT an annuity? You're on salary at a discount broker, aren't you? I can tell. Your words indicate that you aren't really IN this business.

By the way...I made a little over $150,000 in my second year. You're on track to do that in your 15'th year. What a big boy!!!

[quote=anonymous]

"Growth stocks are tax deferred?  How does that work?"

I hope that your question is a joke, but I'll answer it for the fun of it.

ABC Widget Company is a growth stock.  They don't pay dividends.  The client bought it at $10/share.  It is now $15/share.  How much tax has been paid?  None.   The tax is deferred until the client sells. 

According to your logic, this stock should never be purchased in a qualified account because it is tax deferred.

[/quote]

Geezus, not taking gains is a tax deferall strategy in your world?  If you don't sell it when it's worth $15 and wait for it to trade at 7 you can do even better--you'll get a tax loss, eliminate up to $3,000 per year of taxable income!

Not taking profits when you have them is hardly a tax strategy--and you call yourself a financial advisor.  Amazing.

Put the stock in a qualified plan and when it hits $15 sell it.  Granted your capital gain will be withdrawn eventually as ordinary income, but at least you have the gain to work for you for several more years till then.

[quote=anonymous]

"so why not use your qualified plan for agressive trading.."

I agree if the investor is aggressive.  Try this with a conservative investor and they'll sell once they start losing money.  Try this with an older client and you may put them in a position where they can never retire.

[/quote]

What I said was to use the VA for their serious money--but to use the qualified plan to be very aggressive.  How often do you put your clients into a covered call writing program in their qualified plan?  Those are not risk free but they do provide about 25% downside protection-it's going to be a hell of a sell off to hurt them and they have upside potential in the 20 to 30 percent range.  All tax deferred because it's being done in their qualified plan.

Meanwhile, with other dollars they are funding a VA for their retirement.  It sits there and quietly grows tax deferred.

[quote=anonymous]

"What is the negative tax treatment that an annuity receives outside of a qualified plan?"

1)Penalty on the gain if money is used before 59 1/2
2)Income tax on all of the gain instead of capital gains
3)On withdrawals that are not annuitized, gains come out first
4)No step up in cost basis at death

Stop thinking of annuities as good or bad.  They are either appropriate or inappropriate based upon the situation.

[/quote]

Are you saying there is no penalty for withdrawing from a qualified plan prior to age 59 1/2 but there is with a VA?

Are you saying that withdrawals from a qualified plan are not taxed as ordinary income, but that withdrawals from a VA are?

Are you saying that if a VA is in a qualified plan the LIFO accounting method switches to FIFO and the guy doesn't pay taxes on his withdrawl because it's return of his original principal?

Are you saying that heirs who inherit a VA outside of a qualified plan do not get a step up, but they would get a step up if it were inside of a qualified plan?

"Geezus, not taking gains is a tax deferall strategy in your world?"

NASD, last that I checked, Jesus was spelled "Jesus".  I'm not quite sure what or who is a "Geezus". 

You need to work on your reading comprehension.  Did you hear me talk about tax deferral strategies?  (Notice that "deferall" is as much a word as "Geezus".  Keep working on your spelling.  You'll catch on soon enough.)  I simply made the point that a growth stock is tax deferred in the same manner as an annuity.  There is no tax until a sale is made.

You completely misunderstood my non-qualified annuity comparison.  This would have been obvious if you had a better understanding of annuities.  I was comparing non-qualified annuities to other non-qualified investments. 

It would be stupid to compare qualified annuities to other qualified investments because the tax treatment is identical.  An annuity inside of an IRA gets taxed the same as a mutual fund inside of an IRA.

two questions:

1.  If annuity products and mutual funds paid exactly the same to the broker how do we feel sales of these products would change?

2.  What would you put a family member or close friend into:   VA's or Mutual Funds?

scrim

[quote=anonymous]

It would be stupid to compare qualified annuities to other qualified investments because the tax treatment is identical.  An annuity inside of an IRA gets taxed the same as a mutual fund inside of an IRA.

[/quote]

But an annuity outside of a qualified plan does not.  So why not use the qualified plans for investments that do not offer tax deferral such as covered call writing, and use VAs as an additional source of tax deferral?

If you put the client into a VA in his qualified plan what else can you offer him that provides tax deferral outside of the plan?

By the way, it's strutting stupidity to think that a common stock offers tax deferral by refusing to sell it.

Tax deferral is a concept that allows you to sell, realizing a gain while you have it, yet still not pay taxes on it at the time.

Only a sleazy insurance agent--or a stupid one--would ever say that not taking profits is a tax deferral strategy.