unethical behavior and/or sales practices

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Greenbacks's picture
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Well so much for this thread!
 
It was going ok untill people started putting others down!
 
 

theironhorse's picture
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Sorry greenbacks, never had words with anyone on this board, but figured when someone comes right out and calls me a liar and has no idea what they are talking about I need to clarify.  I do apologize for carrying on.

Hobby Bull's picture
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theironhorse wrote:Hobby Bull wrote: theironhorse wrote:i love the insurance agents who drop a 300,000 ticket into a VA one year and then take the 10% each year after that and go to another VA or A share funds, all under the guise of diversification.
also love the ROTH VA's i see with monthly auto contributions by a 28 year old single guy.
or the 150,000 VUL being funded at $50-$75/month.
when i joined my prior b/d i inherited roughly 50-100 annuity contracts all sold by the previous agent.  slowly but surely i saw most of these contracts being moved away, all usually taking 3-8% cdsc's.  most were invested in af subaccounts, but were being moved due to "poor performance" according to current policyholders.  always killed me how policyholders would accept a cdsc after being promised greener pastures elsewhere.You've just proven yourself to be a liar. We don't "see these contracts being moved away." They are in our book of business one day and gone the next. We can't see whether or not it was surrendered or if the client only did an agent change.
 
you are a complete idiot or jackass, whichever you prefer.  if someone was replacing a variable annuity on my books, i was notified via email, asked whether I wanted to try to "save" it by taking the allowed time frame to process, which was 30 days I believe, and I knew well in advance if an annuity was leaving.  But nice try.  It might work differently for annuities sold via wirehouse, where a change of agent (as you call it, but is actually a change of b/d) can be done, but when sold through an agency, such as met, ny life, nml, etc you cannot do an agent change, so someone gets notification.  Try to change agent on an NML VA (which you cannot do anyway), or simply replace it, and see if your client gets a call from the NML agent trying to keep it on the books.  Maybe you've just proven yourself to have no experience and willing to speak out his/her ass on topics they don't understand.You are a liar. You don't have an insurance license. People who don't have the license don't inherit annuity clients. Jackass will be fine.

Hobby Bull's picture
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theironhorse wrote:Sorry greenbacks, never had words with anyone on this board, but figured when someone comes right out and calls me a liar and has no idea what they are talking about I need to clarify.  I do apologize for carrying on.I accept your apology.

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rankstocks wrote:deekay posted:

1.  Disclose, in bold font, commission paid to brokers on annuities that a client must sing off on.  Does your supermarket tell you their mark up and profit on the stuff they sell?  No, supermarkets don't.  But you also don't hold an ear of corn for 7 years with CDSC's if you don't.  There is a direct correlation of the level of commissions to returns on investment long term.  The client should know what the commission is when agents say, "You don't pay me anything Mr and Mrs client, the insurance company pays me for finding them business."
 
If the client doesn't see it, and the vehicle is appropriate and has all the pros and cons disclosed, what does it matter?  In fact, I have had my fair share of clients say to me, "Are you sure you're making money on this deal?  I want to make sure you're well-compensated."  Why?  Because I do that good of a job for them.
 

3.  Disclose, in bold font, the probability that a fixed annuity bought from a bank or insurance agent with a great rate the first year will drop near the floor the next year and have the client sign off on it.  So, you are suggesting insurance companies predict what future interest rates will be?  Are you retarded?  Please name an annuity that has not dropped substantially from the initial teaser rate?  I would love to know of one, because I have seen a hundred that dropped, and NONE that have stayed the same or were raised.
 
Current Yield Annuities.  NEXT!
 

6.  Reduce the surrender period on all annuities to 5 years or less and reduce the CDSC.  Why is liquidity a good thing for everybody?  You give more liquidity, you lose guarantees.  Simple as that.  Your client already pays for these riders by tacking on BIP's to the overall contract cost.  How would guarantees be effected if the client is already paying for them?  If you are concerned with a client switching out of this annuity short term, maybe it isn't the best investment for them at the time you sell it to them?
 
The longer the surrender period, the more certainty the insurance company has.  As a result, they can offer stronger guarantees to a policy holder.  How hard a concept is that?
 

7.  Outlaw all "Senior Designations" as well as "scare tactic" seminars.  Emotion gets a client to act.  Logic does not.  As far as designations go, there is no guarantee a CFP will be any more or less honest than one who has, say, a CSA.  Nice try.   Wow, if this is how you sell these products, maybe you need an ethics refresher course.  If you are using emotion to get a client to purchase an investment, you will have even more success using information about the investment that is objective, show the client how it fits in their overall portfolio, and describe the benefits of the investment while pointing out there are a some weaknesses.  Managing a clients expectations will always provide you with a much better long term client.  Taking a weekend course to get a Senior designation so you can put it on a business card is very dishonest.  Even though there is no guarantee of honesty, at least with the CFP there is substantial coursework, a 2-day supervised test, a background check, and CE.
 
FTR, I am not a CSA.  Nor a CFP.  I don't have alpabet soup after my name.  That is by choice.  I stand by my body of work, not some initials on my business card.  I get my clients to take action on ideas and concepts that make sense for them and me.  I don't take "Let me think about it" from my clients.  And I don't need some 50-page report that most CFP's use for me to convince a client to take action.
 
For someone who seems to have been in the business for a while, you have no clue how it really works.  Not that I'm shocked at all about it, but this boilerplate complaining has no real basis for discussion.  If you still think I have no clue, read a few of my previous posts.  It's obvious to me, as well as most of the participants on this forum that annuity slinging is your primary occupation.  Just a suggestion, get your series 7 and study up on some different sales tactics.
 
Oh really?  I just looked at my book of business.  Guess what?  5% of my book is annuity (mostly VA).  And I have my Series 7.  And 66.  And life/health/variable annuity license.  Strike three, buck-o.  My sales tactics are ethical in every way.  Just because you can't sell yourself out of a wet paper bag doesn't give you the right to point accusatory fingers at those of us who can sell.  By the way, since when is having the 7 the end-all be-all in this business?  The 7 is a joke. 
 

snaggletooth's picture
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Nice work D, nice work.

Spaceman Spiff's picture
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OK, what is (beyond the obvious) a currient yield annuity.  I thought I'd heard just about every term imaginable with annuities, but that's a new one.  

Indyone's picture
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Sounds like rate for term like the Hartford CRC.

deekay's picture
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Spaceman Spiff wrote:
OK, what is (beyond the obvious) a currient yield annuity.  I thought I'd heard just about every term imaginable with annuities, but that's a new one.  
 
It's a fixed annuity who's rates are tied to overall interest rates.

anonymous's picture
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Rankstocks, I'm going to respond to your post to deekay because I think that you are holding some commonly held beliefs that simply aren't true or make no logical sense. 
 
1.  Disclose, in bold font, commission paid to brokers on annuities that a client must sing off on.  Does your supermarket tell you their mark up and profit on the stuff they sell?  No, supermarkets don't.  But you also don't hold an ear of corn for 7 years with CDSC's if you don't.  There is a direct correlation of the level of commissions to returns on investment long term.  The client should know what the commission is when agents say, "You don't pay me anything Mr and Mrs client, the insurance company pays me for finding them business."
 
I can't think of any benefit to the client knowing the commission.  It's useless information. 
 
If it's a fixed product, what matters is how interest is going to be credited.  If it is a variable product, the expenses matter. 
 
Can you name one product in any field where the commission of the person selling the product is disclosed?  I can't. 
 
Tell me about this direct correlation between commission paid and performance.  If I sell a fixed product to someone, my commission will be 3-4 times as high as a wirehouse rep who has to put it through the grid.  How will this change the results to the client?  It won't. 
 
Insurance products often pay commissions exceeding 100%.  Why do the products that pay no commissions underperform?  Commissions are irrelevant.  What matters is the expenses.  The good products that pay bigger commissions have lower total expenses.
 
Clients need to know the expenses that effect the performance of their products.  How much of these expenses end up in my pocket doesn't matter.  Not only doesn't it matter, but in selling thousands of products, I've never had a client ask me how much I made.  They don't ask because they don't care.   They just want to know what the expenses are.  They would prefer that as much as these expenses end up in my pocket instead of somewhere else.
 

3.  Disclose, in bold font, the probability that a fixed annuity bought from a bank or insurance agent with a great rate the first year will drop near the floor the next year and have the client sign off on it.  So, you are suggesting insurance companies predict what future interest rates will be?  Are you retarded?  Please name an annuity that has not dropped substantially from the initial teaser rate?  I would love to know of one, because I have seen a hundred that dropped, and NONE that have stayed the same or were raised.
 
If it is a teaser rate, it usually will drop.   The insurance company can't put odds on this.  The fact that it is a teaser rate does need to be disclosed and it is disclosed.
 
 

6.  Reduce the surrender period on all annuities to 5 years or less and reduce the CDSC.  Why is liquidity a good thing for everybody?  You give more liquidity, you lose guarantees.  Simple as that.  Your client already pays for these riders by tacking on BIP's to the overall contract cost.  How would guarantees be effected if the client is already paying for them?  If you are concerned with a client switching out of this annuity short term, maybe it isn't the best investment for them at the time you sell it to them?
 
The client isn't paying for a guarantee in a fixed annuity any more than they are paying for a guarantee in a CD.   What would pay a higher rate...a 1 day CD or a 10 year CD?  It's the same thing with a fixed annuity.  The longer the surrender charges, the higher the rate that the insurance company can guarantee.  
 
Let's look at this in the extreme.   Company A sells annuities with no surrender charges.  Company B sells annuities with a 20 year surrender charge.  Who can offer a higher guaranteed rate?  Obviously Company B.  Why?  The longer time horizon allows them to invest their money in a more aggressive way.  Shorter surrender periods= lower guarantees.
 
 

7.  Outlaw all "Senior Designations" as well as "scare tactic" seminars.  Emotion gets a client to act.  Logic does not.  As far as designations go, there is no guarantee a CFP will be any more or less honest than one who has, say, a CSA.  Nice try.   Wow, if this is how you sell these products, maybe you need an ethics refresher course.  If you are using emotion to get a client to purchase an investment, you will have even more success using information about the investment that is objective, show the client how it fits in their overall portfolio, and describe the benefits of the investment while pointing out there are a some weaknesses.  Managing a clients expectations will always provide you with a much better long term client.  Taking a weekend course to get a Senior designation so you can put it on a business card is very dishonest.  Even though there is no guarantee of honesty, at least with the CFP there is substantial coursework, a 2-day supervised test, a background check, and CE.
 
Designations don't buy integrity or take it away.  Emotion sells.   We're salespeople and we need to do everything in our power to get people to take action.   The key is that the salesperson has integrity so that we are getting the clients to take the action that they should be taking.  You spend all day, everyday, becoming an expert on financial matters.  Do you really think that the client has a complete understanding of how it fits into their plans?  Even to the extent that they do, they have no clue if it is the best for them.  They buy because they trust you.
 
For someone who seems to have been in the business for a while, you have no clue how it really works.  Not that I'm shocked at all about it, but this boilerplate complaining has no real basis for discussion.  If you still think I have no clue, read a few of my previous posts.  It's obvious to me, as well as most of the participants on this forum that annuity slinging is your primary occupation.  Just a suggestion, get your series 7 and study up on some different sales tactics.
 
If it is obvious to you that deekay is an "annuity slinger", you need to re-read his posts.   I doubt that you are going to get much agreement from anyone.  It would not surprise me if deekay, like myself, has never sold an EIA, but he can recognize the B.S. in the anti-annuity crowd.

snaggletooth's picture
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anonymous wrote:the anti-annuity crowd.
 
This is my favorite crowd.  They don't realize this is what clients want and sometimes need.  The wirehouse guys especially miss the mark on this stuff.  No worries, I'll take care of it.

Hobby Bull's picture
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snaggletooth wrote:anonymous wrote:the anti-annuity crowd.
 
This is my favorite crowd.  They don't realize this is what clients want and sometimes need.  The wirehouse guys especially miss the mark on this stuff.  No worries, I'll take care of it.Let's not be fooled...If the non-independent brokers were paid 90% commish with NO haircut, they'd love annuities. They are pressured to charge people, based on a percentage of assets. They eventually make WAY more money by NOT doing the right thing and putting their clients into annuities. I think they should be forced to disclose THIS fact.

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Thanks for the great response, anon.  For the record, you are correct.  I have never sold an EIA.  I do not have a problem with them at all.  The problem lies with those producers who use them inappropriately.
 
I've said it before, and I'll say it again.  99% of the arguments against EIAs and VAs have zero thought behind it.  If they bothered to peel back some layers, they would find that annuities have their place, just like other products. 

Hobby Bull's picture
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The real problem is that too many people sit around, bemoaning what others are doing, and using that as an excuse for why they can't compete in the marketplace. You hate EIA's? Great. How many people have EVER lost money in an EIA? None. How many people are happy making 5-7% tax deferred? LOT AND LOTS. I'll take the big EIA ticket and let you have the small brokerage account all day long.

rankstocks's picture
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Here's the facts.  With rare exception, fixed annuities with teaser rates, index annuities,  and Variable annuities with exotic riders are nothing more than smoke an mirrors.  Here's a few reasons: 7-15 year CDSC's, bait and switch rates, 80 BPs cost on a rider a client has no chance of using or coming out ahead on, limited investment choices in a Variable, floors of 3% on fixed rates that earn 3% from year 2 to 10, ticking tax time bombs to heirs, ordinary income rates on distributions instead of capital gains and dividend tax rates, penalties if you withdraw prior to 59 1/2, limited participation rates on index annuities, insurance company keeps the dividends on index annuities, overall returns capped on index annuities, high surrender penalties, 3% annual total cost in a variable, and so on.
If you really want to debate this issue, start a new thread and we'll see who comes out ahead.

Hobby Bull's picture
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rankstocks wrote:Here's the facts.  With rare exception, fixed annuities with teaser rates, index annuities,  and Variable annuities with exotic riders are nothing more than smoke an mirrors.  Here's a few reasons: 7-15 year CDSC's, bait and switch rates, 80 BPs cost on a rider a client has no chance of using or coming out ahead on, limited investment choices in a Variable, floors of 3% on fixed rates that earn 3% from year 2 to 10, ticking tax time bombs to heirs, ordinary income rates on distributions instead of capital gains and dividend tax rates, penalties if you withdraw prior to 59 1/2, limited participation rates on index annuities, insurance company keeps the dividends on index annuities, overall returns capped on index annuities, high surrender penalties, 3% annual total cost in a variable, and so on.
If you really want to debate this issue, start a new thread and we'll see who comes out ahead.Do you have homeowners insurance? The reason you're losing accounts to annuities is that people WANT them and they aren't buying that "were on the same side of the table" crap that you're pushing.

Dark Knight's picture
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Hobby Bull wrote:The real problem is that too many people sit around, bemoaning what others are doing, and using that as an excuse for why they can't compete in the marketplace. You hate EIA's? Great. How many people have EVER lost money in an EIA? None. How many people are happy making 5-7% tax deferred? LOT AND LOTS. I'll take the big EIA ticket and let you have the small brokerage account all day long.
 
Are you insane?  Yeah and no one ever lost money in a bond right? 
 
Liquidity problems have caused many to take losses on these products.  Don't be such an idiot

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Some annuities work very well for some clients, and a portion of their investable assets.  What's amusing is the EIA salesmen masquerading as advisors, who pretend that everybody should have one.  Frankly, were the commissions not outrageously high, they wouldn't be sold at all.  I've yet to hear of a single example where the EIA was the best investment.  But when all you sell is hammers, then every problem looks like a nail.  And isn't it funny how so many of these seminars all point the attendees in the same direction?EIA's are junk.

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Back on topic, I believe that every dime of commission a broker will receive should be divulged to the client, both orally and in writing.  I'm almost all fee-based, and my fees are stamped on the front page of every client statement, every quarter.  It drives me absolutely nuts when I ask a prospect why he owns this mutual fund or that one, and I hear that since it's a B- or a C-share, there were no sales charges or commissions involved.  That should be a prosecutable offense, IMO.I had a prospect last year who was considering rolling his entire $500k retirement plan into an EIA, because of the guarantees, and the bonus he would receive up front.  I showed him the commission schedule on the annuity and asked him, "How is it possible for the insurance company to make money?  After all, with the 10% commission, and the 12% upfront bonus, they're already out 22%, and the markets haven't even opened yet."  I answered my question by saying that this particular company was one of the richest in the world, and is profitable by locking up clients' money for years and years.Well, he did it anyhow.  A fool and his money are lucky to get together in the first place, and EIAs is yet another instrument designed to remedy that.

Borker Boy's picture
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EIA salesmen operate the financial services equivalent of a shoe store that only sells brown shoes.
Guess who's about to look good in brown...EVERYBODY!!

troll's picture
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Dark Knight wrote:Hobby Bull wrote:The real problem is that too many people sit around, bemoaning what others are doing, and using that as an excuse for why they can't compete in the marketplace. You hate EIA's? Great. How many people have EVER lost money in an EIA? None. How many people are happy making 5-7% tax deferred? LOT AND LOTS. I'll take the big EIA ticket and let you have the small brokerage account all day long.
 
Are you insane?  Yeah and no one ever lost money in a bond right? 
 
Liquidity problems have caused many to take losses on these products.  Don't be such an idiotWHo triggered the loss? The product or the client?

troll's picture
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Bodysurf wrote:Some annuities work very well for some clients, and a portion of their investable assets.  What's amusing is the EIA salesmen masquerading as advisors, who pretend that everybody should have one.  Frankly, were the commissions not outrageously high, they wouldn't be sold at all.  I've yet to hear of a single example where the EIA was the best investment.  But when all you sell is hammers, then every problem looks like a nail.  And isn't it funny how so many of these seminars all point the attendees in the same direction?EIA's are junk.
Would it help you to know that the EIA that I use has a 5 year surrender and a 5% commission? By the way...EIA's are terrible investments, but they are great alternatives to CD's and money market. That's why the tickets are so big.

troll's picture
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Bodysurf wrote:Back on topic, I believe that every dime of commission a broker will receive should be divulged to the client, both orally and in writing.  I'm almost all fee-based, and my fees are stamped on the front page of every client statement, every quarter.  It drives me absolutely nuts when I ask a prospect why he owns this mutual fund or that one, and I hear that since it's a B- or a C-share, there were no sales charges or commissions involved.  That should be a prosecutable offense, IMO.I had a prospect last year who was considering rolling his entire $500k retirement plan into an EIA, because of the guarantees, and the bonus he would receive up front.  I showed him the commission schedule on the annuity and asked him, "How is it possible for the insurance company to make money?  After all, with the 10% commission, and the 12% upfront bonus, they're already out 22%, and the markets haven't even opened yet."  I answered my question by saying that this particular company was one of the richest in the world, and is profitable by locking up clients' money for years and years.Well, he did it anyhow.  A fool and his money are lucky to get together in the first place, and EIAs is yet another instrument designed to remedy that.
You lied to the client about having to PAY the bonus? Sounds unethical to me. If the agent gets paid an average of 1%/year, how is he making an outrageous amount of money compared to what you will charge him?

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My point was that the agent was getting paid 10%, and the client was getting a "bonus" of 12%.  Both of those came from the insurance company.  So how could it be a profitable transaction to the insurer, if they (the insurance company) is already down 22% on the day the contract is signed?By locking up the money is how.  Which is why there is such a big difference between surrender value and the so-called "contract value"--which takes forever to get.  And the money I charge the client is to manage their money on a day-to-day basis.  Pray tell--just what does an EIA salesman do, besides get a big commission from the insurance company to lock up clients' funds for years?

troll's picture
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Bodysurf wrote:My point was that the agent was getting paid 10%, and the client was getting a "bonus" of 12%.  Both of those came from the insurance company.  So how could it be a profitable transaction to the insurer, if they (the insurance company) is already down 22% on the day the contract is signed?By locking up the money is how.  Which is why there is such a big difference between surrender value and the so-called "contract value"--which takes forever to get.  And the money I charge the client is to manage their money on a day-to-day basis.  Pray tell--just what does an EIA salesman do, besides get a big commission from the insurance company to lock up clients' funds for years?
I can't speak for everyone, but when you're spending your time managing money, I'm either looking for more people who are tired of having their money "managed" to sell annuities to or I'm busting caps at the gun range.

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Well, maybe that's the difference.  Obviously you see yourself as a salesman.  No harm in that, probably.

troll's picture
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Bodysurf wrote:Well, maybe that's the difference.  Obviously you see yourself as a salesman.  No harm in that, probably.
Do you have a problem with salesmen?

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VA Salesman wrote: I can't speak for everyone, but when you're spending your time managing money, I'm either looking for more people who are tired of having their money "managed" to sell annuities to or I'm busting caps at the gun range.
 
I like your style.  I like your moves.

Bodysurf's picture
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Nope.  Ultimately I'm a salesman myself.  In my case, the product and service is me.

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Bodysurf wrote:My point was that the agent was getting paid 10%, and the client was getting a "bonus" of 12%.  Both of those came from the insurance company.  So how could it be a profitable transaction to the insurer, if they (the insurance company) is already down 22% on the day the contract is signed?
 
The insurance company makes a good deal of money from the spreads in the bonds they buy.
 
Who cares how they make their money though, when the product is fulfillling its purpose when used correctly?
 
Bodysurf, it seems like you are very close-minded about EIA's.  I'm not saying they're great, but your reasoning doesn't factor how people feel about their investments.  It's too important to overlook.  Some people don't want to get market returns and take market risk and your managed money platform can't save them all.

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You're right.  I am very closed-minded when it comes to EIA's, whose main purpose is to generate enormous reserves for insurance companies, and huge commissions to those who sell them.  You're also right about the fact that managed money isn't for everyone.  I only deal with people who are serious about making money, and who know that the best way to do so is to divorce your feelings about temporary market swings.  Over time, the risk of a diversified portfolio of stocks goes to zero; for everything that's "fixed"--let alone those instruments that lock up principal for 10 years or more--it's slow-motion suicide.  How anyone can lock in their money at 3% in a world of $3.50 gasoline and skyrocketing medical and nursing home costs and feel good about it is beyond me, so I don't bother.   Plenty of hungry CD and annuity salesmen out there to pick off those people, and I suppose they have to make a living too.A doctor isn't concerned about a patient's feelings about his prognosis--if they don't take their medicine, they're going to die.  Invested in CD's or most EIA's, the client is losing money, every single day, against inflation and taxes.  That's the reality, and I would be doing a disservice to the client to sell them a product that is bad for them, just because they feel good about it today.

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Bodysurf wrote:You're right.  I am very closed-minded when it comes to EIA's, whose main purpose is to generate enormous reserves for insurance companies, and huge commissions to those who sell them.  You're also right about the fact that managed money isn't for everyone.  I only deal with people who are serious about making money, and who know that the best way to do so is to divorce your feelings about temporary market swings.  Over time, the risk of a diversified portfolio of stocks goes to zero; for everything that's "fixed"--let alone those instruments that lock up principal for 10 years or more--it's slow-motion suicide.  How anyone can lock in their money at 3% in a world of $3.50 gasoline and skyrocketing medical and nursing home costs and feel good about it is beyond me, so I don't bother.   Plenty of hungry CD and annuity salesmen out there to pick off those people, and I suppose they have to make a living too.A doctor isn't concerned about a patient's feelings about his prognosis--if they don't take their medicine, they're going to die.  Invested in CD's or most EIA's, the client is losing money, every single day, against inflation and taxes.  That's the reality, and I would be doing a disservice to the client to sell them a product that is bad for them, just because they feel good about it today.
Your ignorance is not one of your best kept secrets.

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Uh huh.  For the record, I use VA's a lot.  But EIA's are one of the scourges of this industry, as are the people who sell them.Don't pay any attention to me, though.  Don't you have an "elderly issues" seminar to put on?  Or is today your day at the gun range?

troll's picture
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Bodysurf wrote:Uh huh.  For the record, I use VA's a lot.  But EIA's are one of the scourges of this industry, as are the people who sell them.Don't pay any attention to me, though.  Don't you have an "elderly issues" seminar to put on?  Or is today your day at the gun range?
It's tempting, but I'm not going to the range today. I've only got two guns and I carry both of them. Since I just cleaned them yesterday and won't have time to clean them again, I'm gonna do something else today. What are you doing today? Figuring out a new explanation for why people should continue to pay you to lose money for them? Does that "we're on the same side of the table" line still work?

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I'm playing in a tennis tournament today.YTD I'm down in only two accounts.  I do all equities with covered call writes, with fairly high minimums.  Not for everyone, I know.I do like VA's.  When doing the optimum asset allocations, I determine what the client's exposure to fixed income should be, and invest those proceeds into Variable Annuities.  They work like bonds--which I'm not a fan of either--with far better returns and guarantees.  I did about $5mm worth last year, primarily with ING and Met.  I reserve almost all my harsh criticism for EIA's, and guys who see every sale as a 10% commission opportunity.

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Bodysurf wrote:Over time, the risk of a diversified portfolio of stocks goes to zero
 
I don't think you can say any equity portfolio ever bears zero risk, even if it's diversified.  There is always some risk.
 
Plenty of hungry CD and annuity salesmen out there to pick off those people, and I suppose they have to make a living too.
 
There are no CD salesmen here.  There are people here who try to get CD investors out of CD's and sometimes the only thing to get them out of a CD is a fixed annuity or EIA.

snaggletooth's picture
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Bodysurf wrote:I do like VA's.  When doing the optimum asset allocations, I determine what the client's exposure to fixed income should be, and invest those proceeds into Variable Annuities.  They work like bonds--which I'm not a fan of either--with far better returns and guarantees. 
 
I'm interested to know how you explain this to the client.  Because I know of people that look at VA's like bonds, and they misrepresent the product extensively.
 
How do you explain it?

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Bodysurf wrote: I do like VA's.  When doing the optimum asset allocations, I determine what the client's exposure to fixed income should be, and invest those proceeds into Variable Annuities.  They work like bonds--which I'm not a fan of either--with far better returns and guarantees. Optimum?  How exactly do you determine one's "optimum" asset allocation?

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Well, it's the very core of my belief system that only equities can deliver the long-term performance, price appreciation, diversification, and dividend growth that today's investor needs to ensure that inflation doesn't demolish his retirement portfolio.  So I begin with a long-term horizon and outlook.  For such people, EIA's, CD's, munis--are a guaranteed money loser after inflation and taxes.  (And yes, I'm aware that annuities defer taxes.)I demonstrate to the client, however, that it's always wise to keep a percentage of their post-retirement income guaranteed.  One way to do this is show how their Social Security, their pensions, and some money invested in VA's will guarantee--to the best extent possible, anyhow--a given level of income.  Every dime above that needs to be invested in instruments that historically outperform.  The real "risk" you need to concern yourself with, is outliving your money.Most prospects disagree.  Most like the temporary security and comfort that fixed-income investments provide.  It's only later, when they run out of money courtesy of a 25-year retirement and soaring costs, that they wish they'd done something--anything--differently.  Not my problem.  It's always baffled me how anyone hears the term "fixed income" and doesn't run in the opposite direction.  There are no expenses I know of that are fixed, but we pretend we're doing people a favor by helping them down a slope from which many will never recover.  Our job is not to tell people what they want to hear, or to modify our investment advice based on their "feelings"--it's to deliver cold, hard doses of the truth.  And the truth is that there are NO investors who bought into a diversified portfolio of stocks years ago, and would've been better off in bonds, or CD's, or these abominations called EIA's.

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Bodysurf wrote:Well, it's the very core of my belief system that only equities can deliver the long-term performance, price appreciation, diversification, and dividend growth that today's investor needs to ensure that inflation doesn't demolish his retirement portfolio.  So I begin with a long-term horizon and outlook.  For such people, EIA's, CD's, munis--are a guaranteed money loser after inflation and taxes.  (And yes, I'm aware that annuities defer taxes.)I demonstrate to the client, however, that it's always wise to keep a percentage of their post-retirement income guaranteed.  One way to do this is show how their Social Security, their pensions, and some money invested in VA's will guarantee--to the best extent possible, anyhow--a given level of income.  Every dime above that needs to be invested in instruments that historically outperform.  The real "risk" you need to concern yourself with, is outliving your money.Most prospects disagree.  Most like the temporary security and comfort that fixed-income investments provide.  It's only later, when they run out of money courtesy of a 25-year retirement and soaring costs, that they wish they'd done something--anything--differently.  Not my problem.  It's always baffled me how anyone hears the term "fixed income" and doesn't run in the opposite direction.  There are no expenses I know of that are fixed, but we pretend we're doing people a favor by helping them down a slope from which many will never recover.  Our job is not to tell people what they want to hear, or to modify our investment advice based on their "feelings"--it's to deliver cold, hard doses of the truth.  And the truth is that there are NO investors who bought into a diversified portfolio of stocks years ago, and would've been better off in bonds, or CD's, or these abominations called EIA's.
How do you explain to people why they should continue to pay you to lose money for them? Are the reps at your b/d  even allowed to sell EIA's? Tell the truth.

troll's picture
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How do you explain to people why they should continue to pay you to lose money for them?
 
Ahh, the old paying to lose money pitch.  I think most brokers would agree that clients act on emotion and generally do the wrong thing at the wrong time.  So lets highlight volatility and encourage emotional behaviour for personal gain.  NICE!!  Of course, you are not paying anything for that VA as the person who sold it to you works pro bono.
 
Edit: sorry I didn't answer your question.  I run a hypo of the competing annuity in the same equity/fixed income mix for the same time frame as they have had an account with me and compare.  Guess who wins.  If the appicable time frame is not available, as it often is not, I run the longest historical time frame I can and then compare.  Guess who wins.  Then I point out that the returns the annuity salesperson showed them are not historical as I have just done, the are hypothetical, as the disclosure states cleary.  What?  He did not give you a disclosure.  I wonder why?

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Primo wrote:
 
Edit: sorry I didn't answer your question.  I run a hypo of the competing annuity in the same equity/fixed income mix for the same time frame as they have had an account with me and compare.  Guess who wins.  If the appicable time frame is not available, as it often is not, I run the longest historical time frame I can and then compare.  Guess who wins.  Then I point out that the returns the annuity salesperson showed them are not historical as I have just done, the are hypothetical, as the disclosure states cleary.  What?  He did not give you a disclosure.  I wonder why?
 
I think it's funny how we always come down to this "slight of hand" sales tactic.  For the non-VA guys, you might play the hypothetical vs. historical card, or say their money is locked up, or the fees are excessive.
Then for the non-managed money guys, someone could say, "Well your advisor told you it would be 1.25% per year, but let's look at fund expenses and the unknown trading fees".
 
Either way, it's all sales, and with any given situation, we can always bring out another "factoid" to put one way down or prop up our own plan.
 
The fact of the matter is that if you sit down and present your plan to a prospect, and they go to another guy and hear their plan, the first guy will probably lose if it is known what his plan was.
 
 

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It is not slight of hand, it is comparing actual returns to actual returns.  Nothing tricky about it.  What is slight (shouldn't there be an "e" in there?) of hand sales is showing a hypothetical "this is the way it could work" illustration as opposed to a historical "this is the way it would have worked" illustration.  Ever ask yourself why that is?  As far as fees are concerned, my fees are disclosed in bold type upfront, and then the client gets a quarterly reminder.  VA fees are buried in a prospectus.  At the end of the day, I charge less all in than a VA.  Quick question, how do you know about "unknown trading fees" if they are unknown?

troll's picture
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Primo wrote:It is not slight of hand, it is comparing actual returns to actual returns.  Nothing tricky about it.  What is slight (shouldn't there be an "e" in there?) of hand sales is showing a hypothetical "this is the way it could work" illustration as opposed to a historical "this is the way it would have worked" illustration.  Ever ask yourself why that is?  As far as fees are concerned, my fees are disclosed in bold type upfront, and then the client gets a quarterly reminder.  VA fees are buried in a prospectus.  At the end of the day, I charge less all in than a VA.  Quick question, how do you know about "unknown trading fees" if they are unknown?One thing you rookies don't understand is that we know that the more we disclose, the easier it is to close the sale. Unfortunately for you, one of the words that we can use is "guarantee."

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Primo wrote:It is not slight of hand, it is comparing actual returns to actual returns.  Nothing tricky about it.  What is slight (shouldn't there be an "e" in there?) of hand sales is showing a hypothetical "this is the way it could work" illustration as opposed to a historical "this is the way it would have worked" illustration.  Ever ask yourself why that is?  As far as fees are concerned, my fees are disclosed in bold type upfront, and then the client gets a quarterly reminder.  VA fees are buried in a prospectus.  At the end of the day, I charge less all in than a VA.  Quick question, how do you know about "unknown trading fees" if they are unknown?
 
Investors should concern themselves with "historical" past performance to an extent.  But how often do you think funds like the Magellan fund are shown to an investor, but the investor never knows that Peter Lynch doesn't run it anymore? 
 
I would be willing to bet that more often than people realize, the "historical" track record doesn't truly represent the fund they are buying today.
 
 
 Quick question, how do you know about "unknown trading fees" if they are unknown?
 
What is unknown is how much they are (hidden).  What is known is that they exist.  This fact can be found buried in the prospectus.

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VA Salesman wrote:One thing you rookies don't understand is that we know that the more we disclose, the easier it is to close the sale. Unfortunately for you, one of the words that we can use is "guarantee."
 
That's exactly right.

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I have no idea how much or little you disclose Tom.  Being that we live in different parts of the country, we most likely will never see the same prospect.  IF (and that is a big if) you pitch annuities like you post here, you are the poster child for the scorn given to annuities.  I base my opinions of annuities on what I see in my market.  EIA's are pitched as no downside equity products instead of fixed annuities with a different crediting method.  I would be willing to bet EIA sales will drop tremendously when they are regulated as equity products (if it happens).  I'm not a big fan of regulation, but I would welcome this particular piece.
As far as VA's, if a VA is needed to change client behaviour, i.e. client needs equity type returns but has no tolerance for volatility, then absolutely sell them a VA.  Every prospect I speak to is asked if they need a gaurantee.  The problem with the gaurantee is that it is very expensive and (using a very broad general definition) is unlikely to be needed.  I give the client the choice.  I use an investment outside the annuity and the like subaccount in an annuity to show the cost of the vehicle.  The investment I use to illustrate isn't cherry picked, in fact the returns have been very pedestrian.  The majority of the time, clients chose the non-gauranteed investment.  The two emotions that drive people when investing is fear and greed.  I will take the greedy ones any day of the week and send the fearful ones elsewhere.
 

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Primo wrote:I have no idea how much or little you disclose Tom.  Being that we live in different parts of the country, we most likely will never see the same prospect.  IF (and that is a big if) you pitch annuities like you post here, you are the poster child for the scorn given to annuities.  I base my opinions of annuities on what I see in my market.  EIA's are pitched as no downside equity products instead of fixed annuities with a different crediting method.  I would be willing to bet EIA sales will drop tremendously when they are regulated as equity products (if it happens).  I'm not a big fan of regulation, but I would welcome this particular piece.
As far as VA's, if a VA is needed to change client behaviour, i.e. client needs equity type returns but has no tolerance for volatility, then absolutely sell them a VA.  Every prospect I speak to is asked if they need a gaurantee.  The problem with the gaurantee is that it is very expensive and (using a very broad general definition) is unlikely to be needed.  I give the client the choice.  I use an investment outside the annuity and the like subaccount in an annuity to show the cost of the vehicle.  The investment I use to illustrate isn't cherry picked, in fact the returns have been very pedestrian.  The majority of the time, clients chose the non-gauranteed investment.  The two emotions that drive people when investing is fear and greed.  I will take the greedy ones any day of the week and send the fearful ones elsewhere.
 Fear is stronger than greed. I'll take that side of the equation any day.

troll's picture
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Nice to finally come to an understanding.

troll's picture
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VA Salesman wrote:
Primo wrote:I have no idea how much or little you disclose Tom.  Being that we live in different parts of the country, we most likely will never see the same prospect.  IF (and that is a big if) you pitch annuities like you post here, you are the poster child for the scorn given to annuities.  I base my opinions of annuities on what I see in my market.  EIA's are pitched as no downside equity products instead of fixed annuities with a different crediting method.  I would be willing to bet EIA sales will drop tremendously when they are regulated as equity products (if it happens).  I'm not a big fan of regulation, but I would welcome this particular piece.
As far as VA's, if a VA is needed to change client behaviour, i.e. client needs equity type returns but has no tolerance for volatility, then absolutely sell them a VA.  Every prospect I speak to is asked if they need a gaurantee.  The problem with the gaurantee is that it is very expensive and (using a very broad general definition) is unlikely to be needed.  I give the client the choice.  I use an investment outside the annuity and the like subaccount in an annuity to show the cost of the vehicle.  The investment I use to illustrate isn't cherry picked, in fact the returns have been very pedestrian.  The majority of the time, clients chose the non-gauranteed investment.  The two emotions that drive people when investing is fear and greed.  I will take the greedy ones any day of the week and send the fearful ones elsewhere.
 Either you're lying about selling annuities to people who don't like volatility or you're lying about sending them elsewhere. Which one is the lie? Fear is stronger than greed. I'll take that side of the equation any day.

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