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Feb 5, 2007 8:53 pm

[quote=planrcoach]

Would you like to buy an annuity?

No thanks. I might need the immediate annuity, though. Had too many adventures in my youth.

I'll bet you could help me think of something smarter to do with the cash, though.

[/quote]

Buy LSE.


Feb 5, 2007 9:17 pm

[quote=AllREIT]
The insurnace company takes $100,000 from the customer who is sold on the idea that he will get more than $100,000. They pay 6% to the salesman, leaving $94,000 for themselves. And the insurance company expects to payout less than $94,000 with a reasonable margin of safety.
[/quote]

Is this really what you meant to say?  Of course the insurance company expects to pay AT LEAST $100,000 back to the client. I would guess that the vast majority of VA's are sold with the death benefit rider which "forces" the insurance company to pay out the greater of amount invested ($100,000) or current account value (not to mention high water mark, etc.).  If the client chooses this rider, how could the insurance company NOT pay back $100,000 or more?

Feb 5, 2007 9:51 pm

There is this one potential client I've been trying to bring on board for a year.   Today I changed my approach and showed him both a VA with living benefit guarantees so he could never ever lose principal OR the same conservative asset allocation I've been showing him for a year outside the VA wrapper.

Coincidence or not,  he finally got off the fence today and signed up with me using the latter.

Perhaps actually showing him a VA got him to get off the fence even though he chose (what I think the smarter choice was) to invest outside the contract.

scrim

Feb 5, 2007 9:57 pm

The insurance company collects M & E + cost of riders + possibly a policy fee.  They then have to pay their expenses.  These expenses include salaries, commissions, mortality, miscellaneous expenses, payment on riders, etc.  The insurance company wants the client to make as much money as possible.  The more money that the client makes, the higher the annual expenses of the annuity.

This is no different than a wrap account from the point of view that the greater the dollars in the account, the greater the annual fee.

The insurance company does bear some risk and for this risk, they charge a fee.  In general, an annuity makes sense for people who like the idea of transferring this risk.  If the risk does not need to be transferred, an annuity is probably not appropriate.

Feb 5, 2007 10:03 pm

Scrim,

It is the client's money.  Lots of time, there are several good options for him.  Show him more than one good choice and let him decide. 

I never let a VA be the only choice that I give to a client.  I give several options and paint a realistic picture of all of the pluses and minuses of each option.  Clients need choices.  If you only give them one choice, they need to decide whether to work with you or not.  Give them several choices, and the decision becomes one of deciding on a particular solution.  Regardless of which choice they make in this scenario, you become their rep.

Feb 5, 2007 10:13 pm

[quote=anonymous]

Scrim,

It is the client's money.  Lots of time, there are several good options for him.  Show him more than one good choice and let him decide. 

I never let a VA be the only choice that I give to a client.  I give several options and paint a realistic picture of all of the pluses and minuses of each option.  Clients need choices.  If you only give them one choice, they need to decide whether to work with you or not.  Give them several choices, and the decision becomes one of deciding on a particular solution.  Regardless of which choice they make in this scenario, you become their rep.

[/quote] In my mind I was already giving them a choice since my wrap accounts have many different portfolios to choose from.   I have always left VA's out of the mix only because I'm not comfortable with the whole VA premise.

scrim

Feb 5, 2007 10:23 pm

[quote=AllREIT] [quote=mranonymous2u]

"An annuity is gamble with someone much smarter than you and who has already taken a 6% handicap and still thinks they will win."

This makes absolutely zero sense.[/quote]

No wonder you are so good at hawking annuities.


Wait a second, let me get my Planet Roached secret decoder ring so I can try to understand what in the blue blazes you are talking about! 

 
The insurnace company takes $100,000 from the customer who is sold on the idea that he will get more than $100,000. HORRORS! They've been "SOLD" on and IDEA that they are going to get back more money than they invested! They pay 6% to the salesman, leaving $94,000 for themselves."For themselves" What the figtree does that mean? Have you ever heard of B shares? When someone buys a B share, do they have less than the money they invested working for them as a result of the commission paid the rep? And the insurance company expects to payout less than $94,000 with a reasonable margin of safety.This decoder ring isn't working, there is no way to make that statement make sense. If the client keels over the next day, how much does the Annuity company have to pay the Bene? The full $100,000. The rub against the guarantees is that the market, let alone often grows over a 10 yr period at a rate greater than 6%(or whatever the guaranteed rate is with the AXA Accumulator, which it the subject of this thread, it's 6%). While that is undisputed here, the depths of your ignorance and Scrimp's arrogance have yet to be fully plumbed.

There are alot of very smart people on the other side of the table, and you and your clients can pick better spots than to gamble with them on their chosen turf. WTF? Are you only comfortable when the people on the other side of the table are stupider than you? Is that why GWB is in Washington? Because you feel comfortable that way? And given that there are smart people working at Annuity companies, doesn't it follow (in a free market) that they would face competition from each other and that that competition fuels market efficiency? Yeah, you still have a role in sussing out the best, but being afraid because there are smart people over there is juvenile!

[quote]Further, the average investor has no idea, beyond the superficial, how a REIT works. How exactly does an ETF work? Do you know? How does a cell phone work? Do you know? How does GE work? Do You KNOW? Do your clients KNOW how a leveraged muni bond fund works? Do YOU? Do you know how MBIA transfers the risk of underwriting Munibonds? Are you comfortable with that whole process? And what about all those fees you're paying for all those insured Munis (not to mention that the market has discounted the importance of insurance on munis, as evidenced by the spread between insured and non)

[/quote]

I get paid the big bucks to know all of this, (except for the cell phone part.)And yet you don't get paid the "big bucks" to understand the proper application of Variable Annuities? Queer, that! Meanwhile, how about you explain to the class how a mortagage reit decides which mortagages to write and which ones to pass over? How do they hedge themselves against sub prime borrowers and what rubric they use to determine the proper spread between the risk inherant in their portfolio versus the premium they'd need to pay to shift that risk to a speculator? Point is, you don't know! And I thought we were talking about VA's not insured muni's. Don't cloud the argument just as you are losing. Argumentation here is not about "winning" and "losing" it's about three or four experienced brokers offering to help some whelps find their way (some whelps are chronological, some and retarded in their understanding)

Insured Muni's are a marketing scheme, as usful as flight insurance since the default rate on investment grade muni's is nil (or very close to it. You know, when I used to go to the Mensa Meetings, one of the "funniest" lines that geeks used to yell at each other whenever someone said something dumb was "ReTest!" as in the IQ test must have been wrong. "Insured Muni's are a marketing scheme" is one of the stupider things I've ever heard! But don't worry, some of those Brainiacs at the Mensa meetings said some dumber stuff.

I'm not going to explain to you why it's a stupid thing to say in this thread. But let me say to you that from the statement, any reasonable person would assume that you have no appreciation of the concept of degrees of risk. If I was the geeky type I'd be all about yelling that you ought not be in the business of advising people about money. I'm not that sort of guy so I'll just pat you on the head gently and say "Go away kid, you stink of bubble gum and lollipops!"

Mr. A

[/quote]

Feb 5, 2007 10:37 pm

[quote=now_indy]

[quote=AllREIT]
The insurnace company takes $100,000 from the customer who is sold on the idea that he will get more than $100,000. They pay 6% to the salesman, leaving $94,000 for themselves. And the insurance company expects to payout less than $94,000 with a reasonable margin of safety.
[/quote]

Is this really what you meant to say?  Of course the insurance company expects to pay AT LEAST $100,000 back to the client. I would guess that the vast majority of VA's are sold with the death benefit rider which "forces" the insurance company to pay out the greater of amount invested ($100,000) or current account value (not to mention high water mark, etc.).  If the client chooses this rider, how could the insurance company NOT pay back $100,000 or more?

[/quote]

Does the insurance company expect to make a profit on the annuity? Yes or no? If they make a profit, then the client paid too much for the economic benefits of the annuity.

I'm really not going to teach a class on the pricing of embeded options inside of annuity contracts, annuity company ALM and the present value of cash flows.

Sufice it to say that:

PV of expected cash outflows to annuitant << PV of net cash inflow paid to insurance company.

And you do not understand that, then be thankful you are selling annuities and not writing them.
Feb 5, 2007 10:45 pm

Does the insurance company expect to make a profit on the annuity? Yes or no? If they make a profit, then the client paid too much for the economic benefits of the annuity.

How does your quote differ from:

Does the mutual fund company expect to make a profit on the mutual fund?  Yes or no?  If they make a profit, then the client paid too much for the economic benefits of the mutual fund.

Feb 5, 2007 10:48 pm

[quote=mranonymous2u]There are alot of very smart people on the other side of the table, and you and your clients can pick better spots than to gamble with them on their chosen turf. WTF? Are you only comfortable when the people on the other side of the table are stupider than you? [/quote]

Yes!!!

Of course. Gambling with people who are better than you is sure way to lose money. Conversely gambling with people who are dumber than you is a likely way to win money. That’s how value investing, poker, and annuity sales works.

[quote]And given that there are smart people working at Annuity companies, doesn’t it follow (in a free market) that they would face competition from each other and that that competition fuels market efficiency? Yeah, you still have a role in sussing out the best, but being afraid because there are smart people over there is juvenile! [/quote]

I can get you free air fare and cab fare to any good sized poker game in the country right now.

As for annuities being effeciently priced, an effecient market is only possible when all participants are equally informed. Otherwise the more informed (i.e the insurance company’s) take advantaged of the less informed (the annuitants)

Meanwhile, how about you explain to the class how a mortagage reit decides which mortagages to write and which ones to pass over? How do they hedge themselves against sub prime borrowers and what rubric they use to determine the proper spread between the risk inherant in their portfolio versus the premium they’d need to pay to shift that risk to a speculator? Point is, you don’t know!

I’m not going to teach you credit analysis and credit risk pricing untill you pass annuity pricing and embeded options pricing.

[quote] “Insured Muni’s are a marketing scheme” is one of the stupider things I’ve ever heard! [/quote]

So why are muni’s insured if not to make them more marketable?
Feb 5, 2007 10:54 pm

Your problem.... One of your problems, is that you are looking at this as immediate annuitization.

Nobody but you is talking about an immediate annuity. We're talking about annuities as an investment vehicle. We're talking about letting the annuity grow for a number of years, in the AXA case the company will "guarantee" the the lowest rate of growth you will have is 6%. However, in order for you to get that 6% rate, you will first have to take distributions that will reduce your contract value and then you will have to annuitize once your contract has been almost depleted.

The company does expect to make money on this transaction, yes. The Schweinhunds! Capitalist PIGDOGS!  How dare they?

Further, your simplistic emboldened type statement is wrong ALSO.  More correct would be a statement as such.

PV of expcted cash outflows to annuitant < PV of (Premium paid + earnings on premiums received) -Costs of doing business.

Mr A.

Feb 5, 2007 11:13 pm

let me get my Planet Roached secret decoder ring so I can try to understand what in the blue blazes you are talking about! 


After all those Mensa meetings, you won't need my ring. I admire your energy level.

Feb 5, 2007 11:17 pm

[quote=mranonymous2u]

Further, your simplistic emboldened type statement is wrong ALSO.  More correct would be a statement as such.

PV of expcted cash outflows to annuitant < PV of (Premium paid + earnings on premiums received) -Costs of doing business.

Mr A.

[/quote]

You missed the part of about net cashflows?

Would you like to buy an annuity?
Feb 5, 2007 11:29 pm

[quote=AllREIT] [quote=mranonymous2u]There are alot of very smart people on the other side of the table, and you and your clients can pick better spots than to gamble with them on their chosen turf. WTF? Are you only comfortable when the people on the other side of the table are stupider than you? [/quote]

Yes!!!!!!!!  Let me put this as gently as I know how... There are damn few tables you ought to feel comfortable at!

Of course. Gambling STOP RIGHT THERE! Investing is NOT gambling! these are two SEPARATE, definable activities. Gambling is a zero net sum activity and investing is not. It's bad enough when we have to deal with the public's misconception in this area without people like you, in the industry thinking the terms are interchangable. 

 

[quote]And given that there are smart people working at Annuity companies, doesn't it follow (in a free market) that they would face competition from each other and that that competition fuels market efficiency? Yeah, you still have a role in sussing out the best, but being afraid because there are smart people over there is juvenile! [/quote]

I can get you free air fare and cab fare to any good sized poker game in the country right now. OP CIT!

As for annuities being effeciently priced, an effecient market is only possible when all participants are equally informed. Otherwise the more informed (i.e the insurance company's) take advantaged of the less informed (the annuitants) If everything is so simplistic to you, does that mean that you are a simpleton? What is there, a conspiracy among annuity to rip off the unwitting public?

If someone comes into my office and says "Hey! I got this great annuity for your customers, and it has a ytb of 6%!"

I ask, "What's the CDSC?"

He says "15,14,13,12,11,10,10,10,99,10,10,8,7,6,5,4,3,2,1. I'll tell ya to look out for that 9th year, some other guys wouldn't tell you so, but that's the higher level of service you can expect from me!"

I ask "What are the total expenses?"

He says "Just the usual low low 6% per year"

I ask "Annual death bene step up?"

"Heck no!"

Me "Choice of sub advisors"

He "Just our's, we're great, did you know that one star morningstar rated funds outperformed five star funds in one, three and five years?"

Me "No, I didn't know that."

He "I don't know if it's true, but I heard it and it would be way cool for us cause all our funds are one stars so we're bound to hit it big one of these days!"

I "Got a GMIB?"

He, "No. We're plain and simple, the way it used to be in annuities before they got all complicated. We don't hire those smarty pants MBAs cause we know we can get people to buy our product anyway!"

I'm gonna say "Thank you very little, the door's over thata way!" 

Who needs to be informed before an efficient market can exist? The annuitant? That's the only way there's going to be market efficiency? Balderdash! (note the brown font)


So why are muni's insured if not to make them more marketable? It doesn't matter vis a vis your statement because you project that you think that all grades of "investment grade" paper carry the same amount of risk (given that they rarely default anyway).[/quote]

Feb 5, 2007 11:33 pm

"You missed the part of about net cashflows?"

The problem you got right there is that your statements leading to this flubbed joke of a statement said that the annuity company was looking to pay out less than $94,000 on a $100,000 annuity. This overrides your claim to have included earnings.

Mr A.

Feb 5, 2007 11:58 pm

[quote=AllREIT] [quote=now_indy]

[quote=AllREIT]
The insurnace company takes $100,000 from the customer who is sold on the idea that he will get more than $100,000. They pay 6% to the salesman, leaving $94,000 for themselves. And the insurance company expects to payout less than $94,000 with a reasonable margin of safety.
[/quote]

Is this really what you meant to say?  Of course the insurance company expects to pay AT LEAST $100,000 back to the client. I would guess that the vast majority of VA's are sold with the death benefit rider which "forces" the insurance company to pay out the greater of amount invested ($100,000) or current account value (not to mention high water mark, etc.).  If the client chooses this rider, how could the insurance company NOT pay back $100,000 or more?

[/quote]

Does the insurance company expect to make a profit on the annuity? Yes or no? If they make a profit, then the client paid too much for the economic benefits of the annuity.

I'm really not going to teach a class on the pricing of embeded options inside of annuity contracts, annuity company ALM and the present value of cash flows.

Sufice it to say that:

PV of expected cash outflows to annuitant << PV of net cash inflow paid to insurance company.

And you do not understand that, then be thankful you are selling annuities and not writing them.
[/quote]

You may want to stick with REITs. Oh Wait, those capitalist pigs who manage the buildings want to make a PROFIT!!! I guess you're screwed.  Maybe you can sell some Peace Corp Structured Notes.

Feb 6, 2007 2:29 am

[quote=mranonymous2u]

“You missed the part of about net cashflows?”

The problem you got right there is that your statements leading to this flubbed joke of a statement said that the annuity company was looking to pay out less than $94,000 on a $100,000 annuity. This overrides your claim to have included earnings.

Mr A.

[/quote]

Make the $94,000 a proxy for PV of the Annuities net cash flows.

===
And that is my last post in this thread. VA's aren't worth the time wasted on them in this thread.
Feb 6, 2007 2:39 am

'And that is my last post in this thread. VA's aren't worth the time wasted on them in this thread."

Nor is your intellectual virtue!

Mr A.

Feb 7, 2007 12:18 pm

WOW!

Feb 7, 2007 10:09 pm

Does anyone invest in individual stocks anymore?

Why not invest in 50 stocks that have increased dividends for 10+ years and put a limit order on them for say 8% less than the puchase price. Then add some amount into bonds or SPIA for "guarantees". You could up the limit order each year for growth.

That would provide "downside" protection with no surrender charges, no M&E and a likely rising income stream, tax-advantages...

Just another angle.