[quote=scrim67]

The most simplified analogy regarding VA's is the same feeling I get when I buy an appliance or car and I decline the extended warranties, rustproofing, etc.

[/quote]

But what if your potential clients are the type that do buy the extended warranties, rustproofing, etc.?  The point people here are trying to make and that you don't seem to get is that some investors need the feeling of security that insurance provides, even if it is likely not needed.

And here is a little insurance 101 for you:  the majority of the people that buy insurance (of any kind, house, auto, life, annuities, etc.) have wasted their money in doing so.  That is the very nature of insurance - you are transferring the risk to the company and they are spreading it among the masses.  A few people will get a windfall, but most will pay for insurance that they never use.  If the majority of the people that bought insurance ended up money ahead by doing so, the insurance companies would all go broke.

[quote=scrim67]

Of course in our world we are dealing with someone's assets and life's dreams so it's a very weak analogy ...

[/quote]

Exactly. 

great points law.

the only difference is perhaps car insurance, house insurance you have to buy......there is no choice I don't think.

Does that have any validity?

scrim

[quote=scrim67]

great points law.

the only difference is perhaps car insurance, house insurance you have to buy......there is no choice I don't think.

Does that have any validity?

scrim

[/quote]

Perhaps, but only with the bottom feeders that are barely scrapong by in life - not the people we are typically working with.  Personally, I would have car and house insurance regardless of whether it was required.  And I have life insurance even though it isn't. 

I re-read my post and it sounded a bit combative for my taste.  I hope you didn't take it as such.  I just think that, based on your posts, you are either losing out on business or putting clients in investments that won't meet their goals.  Annuities have a place, and I think you are missing out if you don't take the time to learn where that place is.

Let's try to keep this as simple as possible. 

1)Annuities are not appropriate in many cases. 

2)In other cases, they are one of many options. 

3)If a person needs a high rate of return, but can't take market risk, a VA with a living benefit (GMIB, GMAB) may be their only option.

Scrim, you've already admitted that if a client needs a high rate of return, but can't take market risk, you can't help him.  Bring VA's into your bag of tricks and you'll be able to service this type of client.

A basic argument against VA's is that they are more expensive than mutual funds.  That may be true.  What the argument misses is that we are not comparing a MF that is 100% equities to a VA that is 100% equities.  A VA will allow an investor whose risk tolerance would put him 20% bonds/80% equities into a portfolio that is 100% equities.  Over a 10+ year period of time, which investor is going to do better?

anonymous,

I don't think it's a given that a 100% equities will beat a 80% equities portfolio all the time.   Especially when you consider the extra cost and tax treatment at withdrawal of a VA.

scrim

Scrim,

To give you an example of how an annuity death benefit can be powerful, let's use a real life example:  AXA/Equitable Accumulator.

Clint puts in $400,000 with a 6 percent withdrawl coming off every year ($24,000).  This money can be invested as aggressively as they want.

Market has some ups, some downs, but at death the client has taken say 10 years worth of income ($240,000), and the account value is, say, $210,000.

At death, the annuities beneficiares would recieve THE ORIGINAL AMT INVESTED...in other words, equitable will cut them a check for the account value plus another $190,000 to get them back to $400,000.

This death benefit has sold a lot of annuities.  

Bank,

That appears to be a very good benefit.

scrim

I was mistakenly under the impression that you always subtracted any withdrawals.

What is this benefit called and how much does it cost?

Thanks in advance.

Scrim

You were mistaken and you weren't...you do suntract withdrawls, but the amount you subtract equals the guaranteed growth of the death benefit.

It is a really fancy name...it's called "Enhanced Death Benefit."  It costs 0.60%, and you get a 6% guaranteed increase on your death benefit (worst case) OR the annually ratcheted amount (over time probably will be higher).

You do subtract withdrawls, but if you take 6% income and are guaranteed to make 6% worst case on the death benefit, then you see how worst case senario your bene's get at least your original investment back.

It is the best annuity death benefit in the industry IMO.

Scrim, I (hopefully obviously) meant to say 20% equities and 80% bonds.  Heck, maybe we are talking about someone whose risk tolerance suggests 50% bonds and 50% cash.  My point is that the guarantee in the VA can allow someone to invest more aggressively than their risk tolerance will allow.

So they are paying over ten years $24,000 for this benefit.    

Is there any study on how often this benefit is actually advantageous to them?

I would guesstimate it can't be very often.   10%?

scrim

You know what part of my problem is?   I play too much texas hold 'em.

Let's say there's only one card in the deck that can make my hand on the river so the chances are around 2%.    If I have to call a $10 bet to win a pot with $100 in it the pot odds are 10-1.        Since I have a 49-1 chance to make my hand I always fold.

Yes, bad analogy but that's the way my mind works.    I need to think more like a client or quit playing cards!

Have a good weekend.

scrim

Nope, incorrect.  Scrim, with respect I must say for an advisor of your tenure, I don't understand why you have to be hand held on some pretty basic concepts.

You multiplied $400,000 (.006) = $2,400 

then $2,400(10 yrs) = $24,000

That is most likely a significant overestimate based on my example.  The 0.60% is only charges on the account value, so if the account value was $300K it would be $3,600, if it was $200K it would be $1,200. 

So the aggregate amount over 10 years would be LESS than $24,000 based on my example.  Okay?

Now, as far as "guesstimates" go, I do hope you are not one of those people (whom I cannot stand) who pull actuarial numbers out of thin are as if they are fact. 

You (and I) have no idea how many folks will use that benefit, but it sure is nice to say to a couple who need income:

"YES, I can GUARANTEE you X amount of income for the rest of your life regardless of the market, regardless of what happens.  And YES, you still will be investing trying to grow your money, taking advantage of the good times.  And YES, no matter what, you still will be able to leave AT LEAST this much to your children, I GUARANTEE it."

You can make up (aka guesstimate) as many actuarial figures on the likelihood of needing this as you want, but the fact is, you cannot GUARANTEE them anything.

What is the price of peace of mind?  In this case its 0.60%.

Good thread and a great VA education for you, scrim...I see a tiny crack in your anti-VA armor...

You have a good weekend also...

You're right Scrim...terrible analogy. 

If THAT's how your mind works (whatever that meant) then maybe your better off just selling your proprietary wrap account to anyone and everyone that somehow (magically) compensates you 3% while charging the client 1.5%.

Isn't that how it works Scrim?  And is that a MF wrap or indiv stocks/bonds?

75% of my business in a mutual fund wrap product that has thousands of different combinations.    20% is in mutual funds  the rest if split between individual securites and annuities.  

Total fees for the wrap product are around 2.2% which is comparable to many VA's.     The accounts are 100% liquid just in case they need to use any of the funds.

scim

[quote=scrim67]The accounts are 100% liquid just in case they need to use any of the funds.[/quote]

I don't think anyone would advocate putting anywhere close to 100% of a retiree's money into a VA.  Yes, annuities have surrender charges (and most good VA's are in the 3-6yr range), but what are the odds that a person would need all of their money liquid at a specific time?  That's why you leave some in cash and other more liquid accounts... they can draw off of there should the need come up and leave the annuity alone. 

Plus, these insurance companies know that one fear these seniors have is needing large sums of liquid assets available for LTC needs and many of the annuities available today have the ability to get as much cash out as they need (even all of it) w/o surrender charges for LTC specific needs.  Other than long-term care, it would be rare for a client to need all of their money at one time.

[quote=STL Indy]

[quote=scrim67]The accounts are 100% liquid just in case they need to use any of the funds.[/quote]

I don't think anyone would advocate putting anywhere close to 100% of a retiree's money into a VA.  Yes, annuities have surrender charges (and most good VA's are in the 3-6yr range), but what are the odds that a person would need all of their money liquid at a specific time? [/quote]

Maybe just stating the obvious here, but most reputable VA products have 0 CDSC versions offering the immediate liquidity to clients, but MUCH less commission (up front) to reps- trails are better, tho.

[quote=scrim67]

75% of my business in a mutual fund wrap product that has thousands of different combinations.    20% is in mutual funds  the rest if split between individual securities and annuities.  

Total fees for the wrap product are around 2.2% which is comparable to many VA's.     The accounts are 100% liquid just in case they need to use any of the funds.

scim

[/quote]

so 75% of your clients/GC are paying the same as they would for a VA, but without the added protection of insurance on the principal-- the VA also auto-rebalances and can provide protected annual Income withdrawals and 0% CDSC options (100% liquidity)-- yet you believe that ALL clients are better off in the wrap account?

what about the < $50,000 to < $100,000 rollover client who (as your book grows) gets increasingly neglected in the grand scheme of things? not all, but certainly some would be better off in the VA-

just for full disclosure any IRA assets are charged about 50 basis points less.

So IRA assets are being charged around 1.7% total which includes mutual fund fees.

scrim