ALL investment is about returns. Anything else is just talk.

For some people the VA living guarantees are simply the security blanket that they need to get over their fears.  This security blanket comes with a price.  It's just that the price of this security blanket is less than the price of not having it.  ie. a conservative investor will have more money in the future by investing aggressively in a VA with a guarantee than they would have by investing conservatively outside of a VA.

VA's are not good or bad.  They, like other products, are appropriate or inappropriate. 

It seems we could just about all agree, another tool in the toolbox. In  moderation.

ALL investment is about returns. Anything else is just talk.

It seems like when you are first getting started in the business, it is all about return.

Then, you want to educate your clients about being a good investor and sucking up the bad parts of the market cycle. We'll get there on the roller coaster.

(And this is generally true.)

A little farther down the career road, you realize it is all about return.

Loss of principal sucks.

ALL investment is about returns. Anything else is just talk.

Investments are not about returns. Investments are about helping people to acheive their goals.  This means that for many people return of their principal is much more important than return on their prinicpal. 

[quote=anonymous]

Gad 12, stop listening to wholesalers.  You can listen to them, but your info itself in this area really needs to come from the contract and the prospectus.    ANON, being newer to the forum and not having seen a lot of your posts I'm not sure if your responses are mean spirited or you just think I'm an idiot and really think my questions are that stupid.  (Or both)  But I'll assume that latter and try to give my best response.  I think we are sort of talking about different things as you'll see.

My question is; Why would you not separate the assets classes between annuity companies 

What's the advantage of using multiple contracts? 

Two obvious ones come to mind.  First regardless of improbability there is always a chance of default of an insurance company.  Second let's say you follow my advice split it.  Small caps go up 40% over the 10 years international go down 40%.  You can then take the guarantee on the international without having to annuitize the money in the small caps. 

50% - Fixed income, outside of VA since guarantees against loss are essentially worthless for bonds.  (assuming defferal not needed)

 Since when can't bonds lose value?  They lose value everytime that interest rates go up.  Tax deferral is not a legitimate reason to buy annuities in the vast majority of cases.  This is why my VAs are almost always qualified.   The VA will allow someone to be invested 100% equities thus the 50% fixed income is not needed.

I'm talking about the value of the expensive guarantees.  10 yr losses in a bond fund that then lead to annuitization to "get your principal back"?  C'mon when would that ever happen? 

25% - Large Cap (however you like, personally I think the guarantees unecessary, but who really knows) 

Are you joking?  Large cap can take huge hits.  How can a conservative investor take the huge losses.  If large cap drops 20% a conservative investor is not staying put.

Again I was talking about the value of the guaratee that come with annuitization vs their costs.  If I'm not mistaken there is no ten year period the S&P 500 has lost value.  I see your point on how the guarantee affects investors' actions and am neither agreeing nor disagreeing but essentially you are bashing my post from your point of view vs what I was actually refering to. 

 Go ahead now, tell me the problems with my theory.

It doesn't make much sense to have a theory on a product that you've never sold and your info comes from message boards and wholesalers.  So I should sell the product before I come up with a theory?   Sounds brilliant.

[quote]The insurance companies are not this game to lose money

That's true, but the cost of the riders is not a profit center for the companies.  In fact, there is concern that the riders are underpriced.   The rider is the hook that gets people to invest their money.  The insurance company makes money because they are taking a cut off of the top of the investment.  The riders are designed to be relatively profit neutral.[/quote]

Umm no. The Insurance company is profitable in everything they do. Not for one minute would they intentionally expose themselves to underpriced risk.

[quote]The odds of a losing 10 year period for a 60/40 portfolio of investment grade bonds and a conservative stock protfolio are very low, and any losses are likely to be livable.

Again, this is talking about investment performance instead of investor performance.  It has virtually no meaning.  A conservative investor has a very real possibility of removing their money after just 1 negative year.[/quote]

If you are dealing with people who can't be helped, then you can't help them. My clients are very aware of market risks and basic investment strategy.

[/quote] I.e they  "delta hedge" their annuity liabilities, such that changes in the index values don't affect thier net position.

What are you talking about?  The change in the value of an index has no bearing whatsoever on a VA. [/quote]

My point is that the insurance company isn't taking any risk since they hedge out their exposure to the market.

Internally, the insurance company takes a variable liability (the annuity) and converts it to a fixed liability whose total cost is less than the portfolio returns on the general account.

[quote=anonymous]

ALL investment is about returns. Anything else is just talk.

Investments are not about returns. Investments are about helping people to acheive their goals.  This means that for many people return of their principal is much more important than return on their prinicpal. 

[/quote]

And just how do you propose to help people achieve their goals without returns?  Do you expect them to thank you after you've held their money for 15 years or so, then give the same amount back to them? 

CDs are for the risk averse.  These people are savers, not investors.  If you have a client that tells you that return of his/her principal is more important than returns on their principal, you're an arbitration waiting to happen if you don't a)put them in a CD or b)(the better choice) send them packing.

"Good afternoon ladies and gentlemen, this your captain speaking. Before

we bother with the flight pre-check and locking the main cabin door, I’d like

to call your attention to the certainty of a rough flight today.



I sure hope those of you with dentures have applied extra Poly-Grip this

morning, because you can, no in fact I’m sure you will, be loosing your teeth

on this flight. I can’t tell you if it will happen in the beginning, middle or at

the end of our flight, but it will happen. But remember, as always, flying is

still the safest way to travel to YOUR DESTINATION.“



Thank you for chosing us and we look forward to seein’ ya’ll real soon!”

Holy Moley what a collection of Twits!

Anonymous is right on in almost everything he has said and if you are "just barely 3 years into the business" then maybe you ought to just STFU and listen to someone who knows what the hell he's talking about!

Scrim,

You're a moron! Sorry, but a fact is a fact! There is NO way that you have prepared ANYBODY for ANYTHING given that you don't have the faintest notion of what the 5417 looks like when it's flying! "Oh don't you worry Mr Jones, my magical 40/60 blend will make everything ok in the end." What do you have twelve clients? Each with a 12 IQ? Either your clients aren't smart enough to question your judgement or they're smart enough to have a lot of money someplace else. If they're dumb enough to buy into your little speech about "markets go down" they're dumb enough to pick up the phone when James Sokolov the Lawyer ramps up his "If you've lost money in the stock market..." ads.

You have no idea what it will be like when everything you have done is wrong. Don't forget, somebody is going have been the client you just bought for when the market starts going down (like the next day). That client will not have had the three years of the magic 40/60 elixir to fall back on! You'll be pooping your pants!

The point of this business is that there are billions of ways to get blown up and it is the advisor's job to to try not to be blown up the same way twice. Can I tell you what's wrong with your 40/60 mix? You've been told at least three times already but you won't listen (BTW, one day you might understand that cocksuredness is about the the first million ways to be blown up).

Planr,

You might just as well change your handle to Planet Roach, cause you are OUT THERE! You haven't even the slightest understanding of what the Veteran's Administration is doing running these investments in the first place for! Your "observations" make Emily Latilla look like William F. Buckley! I never say this to people, but I really thought it must be time for you to up the meds, you tried to fly off a cliff in this thread.

Starka,

Save the Business Prevention Unit speech for someone who gives a crapola! Don't try to judge my clients, who you've never spoken to. Leave the long distance diagnosing to professionals like Dr. Frist!

I have a client with a multi million dollar bond portfolio that I put together over the years. ONLY AAA Non AMT Munis! Will his bonds pay for his retirement? I worked out the spread sheet, it depends on what assumptions you want to make. What inflation rate do you want to have? What rate do you want to put on the Munis being reinvested? (How can you come up with a number when Gov't long bonds are trading beneath the rate of inflation?) This client has had bad experiences in the stock market (you want to know why? Because he only wants to invest in the markets AFTER they have been up a number of years and he always wants out when he has a loss!) He has enough money to retire (using the numbers he's comfortable with) so long as he dies at 82.

So what am I supposed to do? Let him run out of money because Starka diagnosed this client as a saver and an "arbitration, waiting to happen"?

The Kid with the "Get An Annuity Per Asset Class" idea

It's not either a bad idea nor a new one. The problem is that you will run afoul of regulators for all of the contract fees.

I forget which company it was where the wholesaler was telling us of how a rep had just signed up a Fortune 500 company's upper management into this idea (it was right after the world remembered that it was a bad thing to have all your 401K in the company stock, and no, they didn't offer this option to all of the rank and file employees) shortly thereafter there was big trouble in the annuity company (I'm sorry, I don't recall the details) and lets just say that this idea was discouraged by the wholesaler from that point on (meaning the next and last time we ever saw him).

You'd die with it in NY and just forget rebalancing; 1035 ville with a uber layer of Reg 60! It's murder!

Well, if you're a poster here and I haven't insulted you, I'm sorry. Lack of attribution should neither be taken as evidence of twit status nor the contrapositive. In general if we agree, you are a genius, and if we disagree you're dumber than dirt.

And if you've been in the business barely three years and think you've got it figured out... We disagree.

Mr. A

[quote=mranonymous2u]

It depends on what the meaning of the word "is" is.

The annuity offers you something that you cannot offer otherwise in the world of equity investing, that something is "IS"... (Actually I'm not 100% on what the annuitization deal is and it dependes on the age of the client at the time of annuitization at the time a male over 75 would have an annuitization rate of about 7.4%)...

 ... Meanwhile, over the last two years I kicked the market's azz net of all fees and commissions inside an American Skandia annuity where they were jiggering around my cash position (I sold them out when I netted people at least 20% profit, and I do it in IRAs so don't gimme crap about taxes or stepped up cost basae)... I'm outperforming the market in the John Hancock, and I'm working on a $1MM case for AXA...and the annuity company got those fees and didn't have to pay out a claim against them so they're happy too... Not to mention... Would the client have bought without the assurance? NO!...what they offer you now is a way to assure investors with an IS. That's important, because every investor IS not certain that nobody IS going to Hijack a Jetliner into the Indian Point Nuclear Power plant, making NYC dark and unliveable for a thousand years (I know that the plant can take a direct 747 hit without imploding, exploding or melting down) The fact is you don't KNOW what IS in the future and the annuity gives you that "suspenders and a belt" of IS.[/quote]

Okay, Gilda.

WOW! What an explosive topic ..

Well it is safe to say that you are all passionate about it..

I guess after reading the 9 pages or so on here I wanted to chime in of course with my take on this..

VA's expensive ..YUP! ..

VA's have restrictions for liquidity YOU BETCHA!

VA's have limits on what investment returns may look like FOR SURE.. but all that being aside the point here are some other factors you might want to consider...

IT IS an insuracne product

and

insurance products are designed to mitigate RISK period.

Boomers are going to live A LONG TIME!

They will NEED guaranteed life time incomes.. that are keeping pace with inflation.

Investment products are great in a magical world where they alway perform like their history paints them.. BUT that is not the case all the time

So what is a client to do if they are caught in the downwind ..are you going to tell them "Oh hey your 40/60 mix of whatever is down ..so now instead of eating where you have for the last 10 years you now have to go to McGrub! cause we have to either sell less of your shares or prepare you for your part time job"

I hate to spell it out for everyone BUT it is about lifestyle NOT YOURS but your clients... IT IS about expectations for your clients ..

I and every other advisor that can read IBBOTSON's or Morningstar can tell you investments ABC are better than DEF or blah blah ETF has done better over 10 years .. but that doesn't matter when you are the client sitting in the chair and your Fund DEF is down 10%-20%-40% (whcih happens in bear markets) and you are going to cut your income accordingly. 

But that won't happen to YOUR clients right??

'cause you are a super advisor/planner/broker that will always rebalance and reallocate for all of them all the time whenever anything wrong happens with 100% correct and efficient execution as if you had the ability to see in the future...(if you are a discretionary advisor that moves money without having to contact your clients then the above statement may not apply..incidently)

Bottom line VA's are here for a reason ..Don't abuse them .. Don't treat them like everyone gets one.. BUT also don't discount them as the scourge of the universe just because you don't get how they work.  READ and learn.. your clients will thank you in the end!

Also note the even with the expenses in a John Hancock VIII .. I have clients that are up about 10-12% and for them and me that is ok considering they have done that with TAX defferal on money (NQ btw) they are waiting to use as additonal retirement income.  (Now mind you all I do work in a very affluent market and so I know I use VA's more than some..but the ideals are still the same)

Mr A, if I cared anything about you I’d probably be insulted.



But I don’t, so I’m not.



Good luck in the arbitration!

[quote=mranonymous2u]

Holy Moley what a collection of Twits!

Anonymous is right on in almost everything he has said and if you are "just barely 3 years into the business" then maybe you ought to just STFU and listen to someone who knows what the hell he's talking about!

Scrim,

You're a moron! Sorry, but a fact is a fact! There is NO way that you have prepared ANYBODY for ANYTHING given that you don't have the faintest notion of what the 5417 looks like when it's flying! "Oh don't you worry Mr Jones, my magical 40/60 blend will make everything ok in the end." What do you have twelve clients? Each with a 12 IQ? Either your clients aren't smart enough to question your judgement or they're smart enough to have a lot of money someplace else. If they're dumb enough to buy into your little speech about "markets go down" they're dumb enough to pick up the phone when James Sokolov the Lawyer ramps up his "If you've lost money in the stock market..." ads.

You have no idea what it will be like when everything you have done is wrong. Don't forget, somebody is going have been the client you just bought for when the market starts going down (like the next day). That client will not have had the three years of the magic 40/60 elixir to fall back on! You'll be pooping your pants!

The point of this business is that there are billions of ways to get blown up and it is the advisor's job to to try not to be blown up the same way twice. Can I tell you what's wrong with your 40/60 mix? You've been told at least three times already but you won't listen (BTW, one day you might understand that cocksuredness is about the the first million ways to be blown up).

Planr,

You might just as well change your handle to Planet Roach, cause you are OUT THERE! You haven't even the slightest understanding of what the Veteran's Administration is doing running these investments in the first place for! Your "observations" make Emily Latilla look like William F. Buckley! I never say this to people, but I really thought it must be time for you to up the meds, you tried to fly off a cliff in this thread.

Starka,

Save the Business Prevention Unit speech for someone who gives a crapola! Don't try to judge my clients, who you've never spoken to. Leave the long distance diagnosing to professionals like Dr. Frist!

I have a client with a multi million dollar bond portfolio that I put together over the years. ONLY AAA Non AMT Munis! Will his bonds pay for his retirement? I worked out the spread sheet, it depends on what assumptions you want to make. What inflation rate do you want to have? What rate do you want to put on the Munis being reinvested? (How can you come up with a number when Gov't long bonds are trading beneath the rate of inflation?) This client has had bad experiences in the stock market (you want to know why? Because he only wants to invest in the markets AFTER they have been up a number of years and he always wants out when he has a loss!) He has enough money to retire (using the numbers he's comfortable with) so long as he dies at 82.

So what am I supposed to do? Let him run out of money because Starka diagnosed this client as a saver and an "arbitration, waiting to happen"?

The Kid with the "Get An Annuity Per Asset Class" idea

It's not either a bad idea nor a new one. The problem is that you will run afoul of regulators for all of the contract fees.

I forget which company it was where the wholesaler was telling us of how a rep had just signed up a Fortune 500 company's upper management into this idea (it was right after the world remembered that it was a bad thing to have all your 401K in the company stock, and no, they didn't offer this option to all of the rank and file employees) shortly thereafter there was big trouble in the annuity company (I'm sorry, I don't recall the details) and lets just say that this idea was discouraged by the wholesaler from that point on (meaning the next and last time we ever saw him).

You'd die with it in NY and just forget rebalancing; 1035 ville with a uber layer of Reg 60! It's murder!

Well, if you're a poster here and I haven't insulted you, I'm sorry. Lack of attribution should neither be taken as evidence of twit status nor the contrapositive. In general if we agree, you are a genius, and if we disagree you're dumber than dirt.

And if you've been in the business barely three years and think you've got it figured out... We disagree.

Mr. A

[/quote] You seem to be making this way more complicated than it needs to be.   When I interview my clients I always ask them two questions:  "When do you need to use the money?" and "How much of a loss are you willing to take year to year?"

Based on these answers I invest their funds.

Combined with great service this will keep my clients happy.

I think you have way too much free time.

Enjoy the game today

scrim

Mr. Anon, Anon and Whitey and other voices of reason....we are wasting our time here.  These young guys know it all.  The magical 60/40 or 40/60 is the answer to everything. Markets won't go down and your clients are going to be bullet proof.

What the heck do we know. After all I've only been a registered advisor for 17 years now and a banker for 10 years before that.  I was dealing with finances when some of these guys were getting their diapers changed.

I bow the the invicible infallability of the young.

we are wasting our time here.  These young guys know it all.  The magical 60/40 or 40/60 is the answer to everything. Markets won’t go down and your clients are going to be bullet proof.

What the heck do we know. After all I've only been a registered advisor for 17 years now and a banker for 10 years before that.

Don't take it personally. A lot of good points were brought up here.

A lot of us have been around as long as you and been through a few down markets with cash, and stocks and bonds. These securities are going to be around for a long, long time.

I feel the passion of 9/11 here and the worry about an exponentially interdependent world. No matter what happens, everyone is going to have to get up and go to work every day. The economy will not run without cash, equity ownership, and lending.

We all need to stay open-minded about helping individual boomers keep from spending their last dollar. Insurance companies will play a growing part to the extent that they can win the responsibility by being competitive - everyone here, young or old, has the intellectual firepower to recognize when that happens.

[quote=babbling looney]

Mr. Anon, Anon and Whitey and other voices of reason....we are wasting our time here.  These young guys know it all.  The magical 60/40 or 40/60 is the answer to everything. Markets won't go down and your clients are going to be bullet proof.

What the heck do we know. After all I've only been a registered advisor for 17 years now and a banker for 10 years before that.  I was dealing with finances when some of these guys were getting their diapers changed.

I bow the the invicible infallability of the young.

[/quote] Markets always go down.  Markets always go up.  That's volatility.  It's part of our jobs to gauge how much volatility they are willing to accept.

Good post BB!

scrim

You seem to be making this way more complicated than it needs to be.   When I interview my clients I always ask them two questions:  “When do you need to use the money?” and “How much of a loss are you willing to take year to year?”

Based on these answers I invest their funds.

Combined with great service this will keep my clients happy.

Scrim, Please tell us that this post is a joke or you're being sarcastic.    

My fear is that this post is for real.  You sound like a sincere guy who is really trying to help, but you simply don't know what you don't know and this lack of knowledge is coming at the expense of your clients.

You need to make a decision for yourself.  Are you going to be an asset gatherer or are you going to be a fincial advisor who makes a significant positive impact in the lives of your clients?

I believe that you have made the choice to be an asset gatherer.  Why do I say that?  We spoke about annuities over a year ago and I told you to read the actual contracts.  I'm willing to bet that you still haven't read a complete annuity contract. 

If your goal as a financial advisor is to do the very best for your clients, you have a responsibility to learn all that you can.  If your goal is to gather assets, you need to learn just enough to get the prospects to sign on the dotted line.

Your above questions will certainly allow you to put clients into predetermined portfolios, but by themselves, they are close to useless if your clients are to be treated as individuals.

I definitely took your advice and read the contract.

Wow, lots of legaleeze and such!

I honesty feel I'm putting my clients first.    I am foregoing big annuity commissions just for this reason.

scrim

I'm coming off as a guy who is an annuity pusher on this thread.  For the record, annuities are a relatively minor part of my practice.  Last year, about 4% of my revenues came from annuities.   This year, my guess is that it will be around the same and certainly under 10%.

VAs with guarantees are usually not the appropriate answer.   That being said, there are times that they are absolutely part of the best solution for the client's problem.  If an advisor is never using them, the client is paying the consequences. 

In case anyone I thinks that I sell them for the compensation, the reality is that I'd make more money not using the VA and putting the client into an advisory account with a 1% fee.

[quote=anonymous]

 If many advisors don't understand how can we ever expect the average investor to?  

Advisors don't understand them because annuities are a contract and advisors don't bother to read the contract.   Don't ask a wholesaler.  Go to the source...the contract!  Don't read marketing materials.  Read the contract!

If the advisor understands the contract, it is easy to help the investor understand.

Explanation for a 58 year old client of a 5% 10 year GMIB

Mr. Client, The insurance company is giving us a minimum guarantee on this product.  Even if the investments completely tank, the insurance company promises to give you a monthly income of $4,493.67 starting at age 68 for the rest of you life if you choose to annuitize the contract.  After age 68, this amount will be higher.  The cost of this benefit is x % which will be a drag on performance, but we have removed the risk of loss. (notice that I don't mention 5% since it is B.S.)

Explanation of a 10% GMAB

Mr. Client, the contract has a one day guarantee.  On February 2nd 2017, if the value of your investments is less than the $330,000 that you are investing, the insurance company will make up the difference.  For example if on 2/2/17, the value is $230,000, the insurance company will add $100,000 to the contract. The cost of this benefit is x % which will be a drag on performance, but we have removed the risk of loss.

[/quote]

You provide specific analysis and are passionate, and apparently do good work for your clients.

This is an insurance product. The burden of proof to convince is on the manufacturer, and the representative.

Not being sold on the concept does not make a good or bad planner.

From a financial planning point of view, we are not just looking at the investmensts, or future income streams. For example, some planners are passionate about selling long term care, and will require the client to sign off on not taking coverage.

Many would say the verdict is still out on the overall cost effectiveness of long term care insurance. Especially if you sold policies a decade ago, and now your clients are getting notices for increasing premiums. Of course, everyone needs to consider risk transfer in this area.

My point is, when you look at a total planning strategy, buying a whole bunch of different insurance policies (like annuities) might be one course, and keeping it simple (ETFs in wrap at 1%), along with laddered guaranteed certificates - and self insuring - might be another, depends on the client.

Obviously we influence our clients, and our practices start to look like our philosophy.

Do you buy each and every individual product warranty on the new car, big screen, movie camera, and twenty other kinds of insurance? Since the American savings rate is negative, this kind of potential financial loss also matters.

At the vey least, not selling annuities, or even struggling through the contract language (when I see broker dealers use the same payout rate for annuity producers and non-producers, cut out the wasteful incentives, simplify the product) does not make you a good or bad advisor. If you want to school us in planning, you will need to try harder.