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FINET Annuity changes makes mockery of the term "independent."

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Mar 30, 2011 1:56 am

[quote=iceco1d]

No, noobie McNoobstain, that's NOT what I'm talking about. 

If a client is going to hold a fund for 3, 6, 8 years, C-shares are the cheapest.

With variable annuities (I know, this is a foreign concept to you, since EDJ spoon feeds you "special," dumbed down products), there is NO TIME FRAME where L-shares are the cheapest.  NOT EVER. 

There is a big difference.  Again, I know the EDJ in you doesn't want to believe it, but try to think outside the big green box on this one. 

[/quote]Man, things got ugly here in a hurry. x7, don't worry, it is evident that Puts is only 6/63 so that is why he won't utilize the benefits of annuities. Anyone here that was licensed around Y2K knows the benefits these annuities are now spitting out. Probably safe to say most here were in jr. high around Y2K.

Ice, you cherry picked the 3,6,8 year periods for the C share being the best option and most productive.  Fact is as soon as you get beyond 7.5 to 8 years you have surpassed the break-even period for paying the "A" load vs. higher "C" share expenses. The A's win going forward for any fund.  Don't believe me? Go to the FINRA website, mutual funds, and utilize the analyzer.  When you campare the A share to the C share of the same fund the break even seems to always land in the 8 year range when the fund is indifferent as to whether the A or C should have been purchased. Fact is that the avg holding period of any mutual fund is just over 3 years. Ask any of your MF wholesalers.

Once you have seen this fact from the FINRA website, you can apply the same methodology to "L" vs."B" annuities even though you cannot run it on the analyzer. Setup an excel spread sheet, put in the formulas starting at 100k, zero mkt growth, 1.4% expense for the "B" share and 1.75% for the "L" share. Most "L"s are .35bps higher than their "B" option of the same annuity. If done correctly, you will see the break-even point across both share classes to be right about 5 years once you factor in the remaining CDSC of 3% for the "B" share. After 5 years, the "B" is clearly the cheaper going forward. No question about it.

The next fact is, things can change quickly in peoples lives and finances and investments need to be geared around having short surrenders even if there are a little higher expenses involved.  Money has to be nimble and available with the loosest of handcuffs while trying to help the client achieve their objective.  That comes at a little higher expense.  Same as buying a car vs. leasing or paying points or not on a new mortgage. 

Ice, the next fact is the L share would be cheaper if the planets line up nicely as they do sometimes. I have had it happen a few times.  Client starts at 100k. Market is up 3 out of the 5 years. Current value at year 5 is 135k. No CDSC left on L share and client pulls out half to buy that highly underpriced property in Florida. He still would have had the the 3-4% CDSC with the "B" share.   L share CDSC is 7,7,6,5 & the B share is 7,7,6,5,4,3,2 from most annuities.

This thread is not about suitability it is about these animals constantly dicking around with the comp schedule which has already occurred this year. 

Mar 30, 2011 2:18 am

You may be correct on the Life License for the VA's.  I was thinking the 7 was required. But then again things have changed quite a bit and it was last century when I went thru all of that.

Bottom line with the annuity is if there is any concern with the annuity liquidity, yes do the C share or no annuity at all. They are considered to be long term products but clients liquidity needs can change on a dime.

And if a client ever said they needed liquidity at a specific year, say 4, then a high quality corp bond or cd with the same maturity would be the appropriate solution. Not a 4 year annuity that could be down 40% on cash value due to market conditions.

Mar 30, 2011 2:50 am

On May 2nd they drop the L share. They will call it the B share with a 4 year CDSC option that has an M&E which is the same as the current L share. They drop the pay to me on it from 3/1 down to 2/1. The firm takes no haircut with what they get paid from the annuity co, which is at least 5%.  I get a 33.3% haircut on May 2nd.  The clients M&E will drop by about .35bps+- after year 4.  The firm gets a 33.3% raise on May 2nd.  I guess they can put it in their arbitration envelope.

Mar 31, 2011 6:25 pm

We have another major concern about this change that hasn't been discussed yet:  TRAIL PORTABILITY.  I'm not sure everyone understands how trails are determined on existing product when an advisor changes firms.  Many annuity vendors simply "map" trails to the trails that were in place at the firm that the advisor just moved to without regard to what trails were at the prior firm.  So, for instance, let's use Pacific Life as an example, because I know for a fact that they do this.  You were doing L shares and getting a 1 percent trail at your old firm.  Then you move to the new firm, and it turns out that the new firm was only paying 50 basis points trail on that product BACK WHEN you were doing the Pacific Life product with a 1 percent trail at your old firm.  You say, "wait a second; that product is paying a 1% trail at my new firm right now."  And Pacific Life comes back as says "it doesn't matter:  back in 2005 or 2006, your new firm was only paying 50 basis points back then, and since we map your trails to the history of your new firm, that's what you will be paid."  Worse yet, if you happen to move to a firm that paid zero trails on that product "back then," you will get no trails - even if the new firm is currently paying trails on the product. 

So let's move the discussion to this new Wells "B" share.  It doesn't even exist anywhere else.  It probably forever and always will be a proprietary structure for Wells.  So, a few years from now, you decide to move to another firm after yet another "bank channel" policy is rammed down your throat, and guess what? There is no "B" share pricing like the Wells structure anywhere else.  So, in this example, Pacific LIfe may not pay any trail at all.  Or, maybe they say, "back then, the "B" share option at XYZ (your new firm) paid 25 basis points, so we will pay you 25 basis points.  Either way, it is a tremendous risk to trail portability. And you know what? I bet you Wells knows this. 

Now I am not certain that all annuity companies do what I have outlined above. But I am positive that Pacific Life does it, and I am pretty sure Prudential does it too. Unless we all feel that we will definitely stay at Wells for the rest of our careers, it would behoove all of us at FINET to understand how, at very least, our preferred vendors handle trail portability.

Mar 31, 2011 6:57 pm
Longtimeplayer, I think trail portability is the biggest issue here.. at least facing me with my firms upcoming changes. It harms the client and the advisor.  What if the client wants to fire the advisor .. they have to stay with the same firm?  Advisor wants to leave but the product is not portable.  Heck will your new b/d even hold it?

These custom products are scary to me... I sure mang. thinks they are sticky, I think they are lead boots.

Mar 31, 2011 7:30 pm

Superman,

I'm sure the product will be portable inasmuch as you can change the broker and dealer of record, as long as the vendor has a relationship with the new broker/dealer.  You just won't get paid.

Mar 31, 2011 8:03 pm

I asked a wholesaler that services my firm if they would be portable - he said it's uncharted territory since they creating a new annuity share class for Edward Jones, the O share.

Probably not an issue and it does not appear to be with a hybrid B that you guys have... but worth thinking about. IMO, firms are doing this for two reason - they want to get ahead of industry regulation and they want to make it harder for brokers to leave.

Apr 1, 2011 6:21 am

Mr. Icecold,

Believe it.  It is firsthand information.  Trails are part of the selling agreement, and at least some vendors will tell you that the selling agreement is with the firm, not the broker.  Pacific Life, for example, will tell you that you that when you move you become part of the historical selling agreement of the new firm.  This is not speculation. Ask them.   They will tell you that it cuts both ways.  As if it should be any consolation to a broker who is losing trail revenue, they will tell you that a change of firms can cause a mini windfall for some brokers who go to a firm that has paid higher trails in the past  than the firm that you just left.  But they will also tell you that there are brokers that go to firms that have not paid trails at all on particular contracts, and in that case Pacific Life will make a one time, lump sum payment based on some arbitrary formula. 

Again, I am not certain how widespread the practice is, but I do know that Pacific Life is not the only vendor that does it.   I'm still researching the issue.  It would be wise for all annuity producers to fully understand annuity trail portability, especially when faced with selling a product that is unique to the street.  You'll be able to service it in any event as long as the firm you go to has a selling agreement with the vendor.  You just might not get paid. Now I have read, repeatedly, of your righteous indignation toward the "L" share, but I assume, at some level, with some share class, you would still like to get paid.

Apr 1, 2011 3:37 pm

I wanted to address the issue of trail portability.  I left WFA in the past year, and I ran into the issue of trails on annuities.  I didn't have a huge annuity business, but the way this issue was explained to me by one of the annuity companies is that whether the trails would map over was a product of the agreement your b/d had with the annuity company.  If the b/d had taken a lump sum from the annuity company up-front, the trails were essentially being paid by your b/d from that point forward, so that when you move you may just be out of luck because, of course, your former b/d won't keep paying you a trail.  In my case, my trails from Jackson came over in full on the contracts I had and so I didn't have to pursue this issue any further, but I hope the information is helpful.

May 4, 2011 12:43 am

The reason the share class was changed is because the majority of the L share annuities had living benefits designed for long term products.   The firm knows this is a hot button for FINRA.  Annuity suitability is coming up on several of the audits.  Raymond James got sued in a class action suite years ago and has put several restrictions on their annuities.  

Remember as a FINET owner your getting paid 90% on annuties so it's still an awsome deal when you compair it to PCG..22% of the first 10K then 50%.  The entire annuity world is changing very soon.  Soon there will only be advisory shares with zero surrender and 1 and 1.   

Don't work with FINET if you dont think its a good deal. I don't understand the anger.  

May 4, 2011 1:43 am

Folks...the key here is portability.  I didnt do much with annuities...mostly a pim guy but Im telling you the

bank is aggressively tying up your clients whether its bank products or  a different annuity.  In sr management meetings they are prepared for 40% attrition to own the other 60% of aum in the wfa side.  Make no mistake that is the goal.  Pvt bankers are already calling wfa clients in Minn.  Every wf teller probably 100k of them worldwide can see all the details and positions of your clients....do your clients know this?  There will be a mass exodus of most of the remaining AGE advisors over the next 12-15 mos and even some of the comatose wach advisors who are use to this abuse are starting to wake up.  Time to run...and run quickly.  Tad's place and  SF seem to be the choice for the AGE side.  I hear Tad has 7-8 new offices coming this summer...SF has already pillaged wfa on the west coast.  Wait to the revenue sharing is rolled out this month to you guys who discount advisry business...you are looking at up to 20% paycuts.....its about to get real ugly ...2 more regionals will be cut soon as well.

May 5, 2011 1:15 pm

Ice-

If a broker was driven solely by commission wouldn't they take all upfront and trail after 7 years?

At LPL we offer all share classes. And we just introduced a no surrender fee based annuity with all the bells and whistles with M and E around 50 bps. I have contacted several CPA's who felt that this might be the fit for them to embrace. I have always felt that for those who need guaranteed income in retirement an annuity product is the fit. Most of my contracts are L and C (approximately 25% of my assets).I expect that going forward that the fee based version will ultimately be the primary product. Current vendors are Pru, Lincoln, Sun Life, Met and Allianz. More carriers are expected in the future.

As for the comments regarding  Finet and independence. You can't really be truly independent if they box you in. Ray Jay did it and now FINET. This is not intended to be a commercial for LPL (I am now at the point where I am questioning whether or not its worth it to move to a smaller B/D or go the RIA route...LPL is too big and can't support the reps to the level they used to. There is no easy answer today.

Ice is correct about the haircuts. At Jones they used to take 1.5 off the top and split the remaining 60/40. I assume that is still the case. I don't need to tell you who got the higher figure do I?

May 14, 2011 6:16 pm

How anyone used Protective Life's C-share VA? It has a 3% gross comp with a 1% trail and the M&E is only 1.65%. Living Benefits looked ok too, any thoughts on this product?