Index Annuities

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Hank Moody's picture
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Joined: 2008-11-10

Did anyone lose any money in an index annuity today? 

gspy's picture
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Joined: 2008-12-02

Hank we haven't lost a dime all year thanks to you.
 
Sincerely,
 
Your clients

rankstocks's picture
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Joined: 2005-02-10

Most of my clients have taken a hit, but at least they........
-Don't have an annual cap
-Don't have a participation rate
-Get to keep their dividends
-Aren't locked in for 10-15 years
-Don't have a surrender charge
-Have an advisor with a securities license

Dick Butkus's picture
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Joined: 2008-12-02

rankstocks wrote:
Most of my clients have taken a hit, but at least they........
-Don't have an annual cap.  It's for money that doesn't need market risk.  Reaching the annual cap would be icing on the cake.
-Don't have a participation rate.  Same as above.
-Get to keep their dividends.  Get to keep their interest.
-Aren't locked in for 10-15 years.  5, 7, and 10 year contracts.  The client chooses the length of the contract.
-Don't have a surrender charge.  A surrender charge is only a problem when taking out more than 15% per year.  Although, come to think of it, had a client needed to liquidate the entire account, would they rather pay a 9% penalty on 85% of the money or would they be better off selling out when they are down 40% in the market?
-Have an advisor with a securities license.  Ahhh, something we have in common.

etj4588's picture
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Joined: 2008-08-18

rankstocks wrote:
-Have an advisor with a securities license
 
And what has that done for your clients exactly?  You lost them only 45% or their portfolio instead of 50%?  LOL!
 
I thought this market should've put an end to the naysayers of EIAs, apparantly not.

snaggletooth's picture
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Joined: 2007-07-13

etj4588 wrote: 
I thought this market should've put an end to the naysayers of EIAs, apparantly not.
 
Quite frankly, I would like FIA's to continue to fly under everyone else's radar.  For selfish reasons of course.

Indyone's picture
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Joined: 2005-05-30

snaggletooth wrote:etj4588 wrote: 
I thought this market should've put an end to the naysayers of EIAs, apparantly not.
 
Quite frankly, I would like FIA's to continue to fly under everyone else's radar.  For selfish reasons of course.
 
+1 to that.  The rest of you guys and gals out there, annuities are BAD...ALL ANNUITIES...variable, indexed, fixed.  When you hear the word "annuity", RUN the other direction and FAST!!!

snaggletooth's picture
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Joined: 2007-07-13

Indyone wrote:snaggletooth wrote:etj4588 wrote: 
I thought this market should've put an end to the naysayers of EIAs, apparantly not.
 
Quite frankly, I would like FIA's to continue to fly under everyone else's radar.  For selfish reasons of course.
 
+1 to that.  The rest of you guys and gals out there, annuities are BAD...ALL ANNUITIES...variable, indexed, fixed.  When you hear the word "annuity", RUN the other direction and FAST!!!
 
I am going to a CPA's office today that is looking to move $280k in a fixed annuity of his father's money into a FIA.  You can be sure I'll mention the fact that MER, SB, UBS, MS, and EDJ, can't help there clients this way.  He understands the concept, which I taught to him, so the possibility for me to move to Referral City is alive and kicking...
 
 

jkl1v1n6's picture
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Joined: 2008-10-06

S&P 500

1989
31.69%

1990
-3.11%

1991
30.47%

1992
7.62%

1993
10.08%

1994
1.32%

1995
37.58%

1996
22.96%

1997
33.36%

1998
28.58%

1999
21.04%

2000
-9.11%

2001
-11.89%

2002
-22.10%

2003
28.68%

2004
10.88%

2005
4.91%

2006
15.79%

2007
5.49%

2008
-37.00%
 
Could someone tell me how many years an EIA pegged to the S&P 500 would have outperformed the S&P 500 over the last 20 years and by how much.  If I'm capped at 10% and have a 80% participation rate and a floor of 3%, if the S&P does 28% like in 2003 were does the rest of that go? 

snaggletooth's picture
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Joined: 2007-07-13

jkl1v1n6 wrote:

S&P 500

1989
31.69%

1990
-3.11%

1991
30.47%

1992
7.62%

1993
10.08%

1994
1.32%

1995
37.58%

1996
22.96%

1997
33.36%

1998
28.58%

1999
21.04%

2000
-9.11%

2001
-11.89%

2002
-22.10%

2003
28.68%

2004
10.88%

2005
4.91%

2006
15.79%

2007
5.49%

2008
-37.00%
 
Could someone tell me how many years an EIA pegged to the S&P 500 would have outperformed the S&P 500 over the last 20 years and by how much.  If I'm capped at 10% and have a 80% participation rate and a floor of 3%, if the S&P does 28% like in 2003 were does the rest of that go? 
 
Oh Lord.  There are different crediting methods, so you're 80% of 10% isn't really a valid comparison.  If you are independent, just call up your JNL guy and have him explain it to you.  They have all those side by side comparisons that you can plot on Excel all day long if you want.

B24's picture
B24
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Joined: 2008-07-08

Geez.  In defense of EIA's (and I don't use them), they really shouldn't be used for people trying to beat the market (or even "match" the market).  They should be used for people that want guarantees and a little better rate than fixed interest investments.
If that's what a client wants, and if they COMPLETELY understand the drawbacks (surrenders, caps, etc.), then what's wrong with giving it to them?
 
But you need to compare them to alternatives.  If an EIA's cap is 8, it's floor is 3, and it has all the long surrenders and everything, and other fixed investments are paying 6.5%, I'm not sure the EIA is the best alternative.  However, right now, when fixed investments are paying 0.5 - 5% (unless you are OK with a long bond), an EIA might make a whole lot of sense.  Of course (here comes the slam...) they wouldn't pay you guys 8%, so "some advisors" might "overlook" other options.

snaggletooth's picture
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Joined: 2007-07-13

B24 wrote:
Geez.  In defense of EIA's (and I don't use them), they really shouldn't be used for people trying to beat the market (or even "match" the market).  They should be used for people that want guarantees and a little better rate than fixed interest investments.
If that's what a client wants, and if they COMPLETELY understand the drawbacks (surrenders, caps, etc.), then what's wrong with giving it to them?
 
But you need to compare them to alternatives.  If an EIA's cap is 8, it's floor is 3, and it has all the long surrenders and everything, and other fixed investments are paying 6.5%, I'm not sure the EIA is the best alternative.  However, right now, when fixed investments are paying 0.5 - 5% (unless you are OK with a long bond), an EIA might make a whole lot of sense.  Of course (here comes the slam...) they wouldn't pay you guys 8%, so "some advisors" might "overlook" other options.
 
Given the fact that the government is killing capitalism, I'm just trying to do my part to keep it alive.

Hank Moody's picture
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Joined: 2008-11-10

You kids can say what you want about EIA's, but when the client hears that their money can only go up and never down, they like the way it sounds. It makes them want to move money from guy who loses money to guy who won't lose them any money. In other words, from the guy who believes in putting their money at risk to the one who believes in keeping it safe. 

theironhorse's picture
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Joined: 2007-03-03

Dick Butkus wrote:rankstocks wrote:
Most of my clients have taken a hit, but at least they........
-Don't have an annual cap.  It's for money that doesn't need market risk.  Reaching the annual cap would be icing on the cake.
-Don't have a participation rate.  Same as above.
-Get to keep their dividends.  Get to keep their interest.
-Aren't locked in for 10-15 years.  5, 7, and 10 year contracts.  The client chooses the length of the contract.
-Don't have a surrender charge.  A surrender charge is only a problem when taking out more than 15% per year.  Although, come to think of it, had a client needed to liquidate the entire account, would they rather pay a 9% penalty on 85% of the money or would they be better off selling out when they are down 40% in the market?
-Have an advisor with a securities license.  Ahhh, something we have in common.
 
i guess i don't see how this is so earth shattering.  for my clients who need me to manage money which is NOT suppose to be subject to market risk, it can definitely be done without an EIA. 
the problem lies with the advisors out there selling the EIA as an alternative to those $ which SHOULD be at market risk.  i have no problem with EIA, but they should not be used to compete with equities.  sell them against a fixed annuity, 30 year bond, or crappy CD's.
 
i have NO PROBLEM with an EIA.  i have a problem with an advisor who sells them in every case, no matter how old the client or how long the time frame.  if my book is 100% individual stocks, i would bet i have a few people in an inappropriate investment, same goes for the EIA.

jkl1v1n6's picture
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Joined: 2008-10-06

These posts have sort of answered a question that I have.  Most of the time I have ever heard of someone selling an EIA it was to have the upside potential of the market with no downside risk, same old story regardless of what the objective or who the client was. 
 
My question about how an EIA fares against the index was an honest question.  I'm open to new ideas and that is why I asked if over time my clients would be better off in an EIA versus another investment.  If so I would definately look at them.    I've never heard a definitive answer from anyone including a wholesaler.  I'd like to see actual results.  Guess I'll call JNL.

jkl1v1n6's picture
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Joined: 2008-10-06

snaggletooth wrote:jkl1v1n6 wrote:

S&P 500

1989
31.69%

1990
-3.11%

1991
30.47%

1992
7.62%

1993
10.08%

1994
1.32%

1995
37.58%

1996
22.96%

1997
33.36%

1998
28.58%

1999
21.04%

2000
-9.11%

2001
-11.89%

2002
-22.10%

2003
28.68%

2004
10.88%

2005
4.91%

2006
15.79%

2007
5.49%

2008
-37.00%
 
Could someone tell me how many years an EIA pegged to the S&P 500 would have outperformed the S&P 500 over the last 20 years and by how much.  If I'm capped at 10% and have a 80% participation rate and a floor of 3%, if the S&P does 28% like in 2003 were does the rest of that go? 
 
Oh Lord.  There are different crediting methods, so you're 80% of 10% isn't really a valid comparison.  If you are independent, just call up your JNL guy and have him explain it to you.  They have all those side by side comparisons that you can plot on Excel all day long if you want.
 
And to me this is part of the problem with EIA's.  Too many ways to credit.  I feel the insurance companies do this on purpose.  I admit I truly do not understand these but if I just go back and look what the market did over the last 20 years I see 6 years on an individual year by year basis where being in the EIA would have been better than just the index.  Please correct me. 

Hank Moody's picture
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Joined: 2008-11-10

jkl1v1n6 wrote:snaggletooth wrote:jkl1v1n6 wrote:

S&P 500

1989
31.69%

1990
-3.11%

1991
30.47%

1992
7.62%

1993
10.08%

1994
1.32%

1995
37.58%

1996
22.96%

1997
33.36%

1998
28.58%

1999
21.04%

2000
-9.11%

2001
-11.89%

2002
-22.10%

2003
28.68%

2004
10.88%

2005
4.91%

2006
15.79%

2007
5.49%

2008
-37.00%
 
Could someone tell me how many years an EIA pegged to the S&P 500 would have outperformed the S&P 500 over the last 20 years and by how much.  If I'm capped at 10% and have a 80% participation rate and a floor of 3%, if the S&P does 28% like in 2003 were does the rest of that go? 
 
Oh Lord.  There are different crediting methods, so you're 80% of 10% isn't really a valid comparison.  If you are independent, just call up your JNL guy and have him explain it to you.  They have all those side by side comparisons that you can plot on Excel all day long if you want.
 
And to me this is part of the problem with EIA's.  Too many ways to credit.  I feel the insurance companies do this on purpose.  I admit I truly do not understand these but if I just go back and look what the market did over the last 20 years I see 6 years on an individual year by year basis where being in the EIA would have been better than just the index.  Please correct me.  Here's what you do: If you want to put people's money into the index, buy the index. If you want to put people's money into an EIA, buy an EIA.

snaggletooth's picture
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Joined: 2007-07-13

jkl1v1n6 wrote:
And to me this is part of the problem with EIA's.  Too many ways to credit.  I feel the insurance companies do this on purpose.  I admit I truly do not understand these but if I just go back and look what the market did over the last 20 years I see 6 years on an individual year by year basis where being in the EIA would have been better than just the index.  Please correct me. 
 
And here is the problem with the general public and some advisors.  Jkl1v1n6, I will give you the benefit of the doubt here because you admitted you don't know enough about the FIA.
 
When comparing the index to a FIA, you are comparing apples to oranges, two very different things.
 
You are also looking at it in a vacuum.  What happens in "real life", when client emotions are involved, and what happens in a text book are completely different. 

jkl1v1n6's picture
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Joined: 2008-10-06

Hank you are absolutely zero help. 
Snags, I agree that I am looking at it in a vacuum, especially with what has happened in in the last 8 years with two significant bear markets.   

Hank Moody's picture
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Joined: 2008-11-10

jkl1v1n6 wrote:Hank you are absolutely zero help. 
Snags, I agree that I am looking at it in a vacuum, especially with what has happened in in the last 8 years with two significant bear markets.    Correct. You have overestimated my level of interest in helping you. I don't give a damn if you like EIA's or not. I don't feel anything that happens to you.

jkl1v1n6's picture
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Joined: 2008-10-06

Then why do you feel compelled to comment?  Next time if you don't give a damn don't comment!
 
Selling those EIA's must give you a ton of time to watch this forum.  Joined Novemeber 10, 2008 and already 489 posts.  Do you actually do anything for your clients?  "Here you go Mr. Jones I can guarantee you, you will never loose any money and you can participate in the market.  See you in 10 years when this matures and we'll put you in another.  Don't worry in 30 years when your 500m rollover is now at 2mm, you'll be dead and your heirs will have to worry about taxes not you. 
 
This will be my last response to you.  Because I don't give a damn about your opinion if you are not helpful to myself or others. 
 
You're like the sweat on my balls, you're annoying and you stink, you're not really a problem but when I wash you away I always feel much better. 

Hank Moody's picture
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Joined: 2008-11-10

jkl1v1n6 wrote:Then why do you feel compelled to comment?  Next time if you don't give a damn don't comment!
 
Selling those EIA's must give you a ton of time to watch this forum.  Joined Novemeber 10, 2008 and already 489 posts.  Do you actually do anything for your clients?  "Here you go Mr. Jones I can guarantee you, you will never loose any money and you can participate in the market.  See you in 10 years when this matures and we'll put you in another.  Don't worry in 30 years when your 500m rollover is now at 2mm, you'll be dead and your heirs will have to worry about taxes not you. 
 
This will be my last response to you.  Because I don't give a damn about your opinion if you are not helpful to myself or others. 
 
You're like the sweat on my balls, you're annoying and you stink, you're not really a problem but when I wash you away I always feel much better.  Managing annuities is not a laborious undertaking and it pays really well. It affords me the ability to enjoy getting under the skin of pikers, like you.

Sam Houston's picture
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Joined: 2008-12-01

I don't have an issue with EIA's.  I have an issue with how they are sold.  I can only rely on my own experience to form this opinion.  Last fall I had a prospect bring in his "investment" statements for review.  Seven different EIA's.  I asked him why did he purchase these "investments".  He told me that the broker who sold them to him said he would get all the upside to the market with none of the downside.  This is not what an EIA does.  Maybe I am only talking to prospects who are unhappy with their EIA.  But this example is typically what I hear from people that own EIA's.  Long story longer, one of the EIA's was money the client had put away for college for his son.  He says he told the broker this.  Client is 46, son is going to college this fall, EIA comes out of surrender in two years.  Nice.

Hank Moody's picture
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Sam Houston wrote:I don't have an issue with EIA's.  I have an issue with how they are sold.  I can only rely on my own experience to form this opinion.  Last fall I had a prospect bring in his "investment" statements for review.  Seven different EIA's.  I asked him why did he purchase these "investments".  He told me that the broker who sold them to him said he would get all the upside to the market with none of the downside.  This is not what an EIA does.  Maybe I am only talking to prospects who are unhappy with their EIA.  But this example is typically what I hear from people that own EIA's.  Long story longer, one of the EIA's was money the client had put away for college for his son.  He says he told the broker this.  Client is 46, son is going to college this fall, EIA comes out of surrender in two years.  Nice.I think you're lying. Noone would do the paperwork for 7 EIA's. I just looked at an annuity statement (Masterdex5) where my client has averaged +6.6% over the last 3 years 4 months. Not all of the upside, but none of the downside. Over the exact time, the S&P returned -11.2%. This so-called client of yours should be on his knees, thanking that broker for not cutting his son's college money in half.

Sam Houston's picture
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Joined: 2008-12-01

On his knees?  Considering he bought it in 2003, the return on the EIA is far behind an equity investment.  Plus, if he cashes is out WHEN HE NEEDS IT THIS FALL, it will be at a loss.  At least he will not have to pay the penalty being he is not 59 1/2.  Like I said, in my own experience, EIAs are sold as market upside, CD downside as opposed to a lower gaurantee than a fixed annuity in exchange for the possibility of higher returns.  But I am sure you are different Hank as your posts scream integrity.

Hank Moody's picture
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Sam Houston wrote:On his knees?  Considering he bought it in 2003, the return on the EIA is far behind an equity investment.  Plus, if he cashes is out WHEN HE NEEDS IT THIS FALL, it will be at a loss.  At least he will not have to pay the penalty being he is not 59 1/2.  Like I said, in my own experience, EIAs are sold as market upside, CD downside as opposed to a lower gaurantee than a fixed annuity in exchange for the possibility of higher returns.  But I am sure you are different Hank as your posts scream integrity.Again, you are a LIAR. Name a date in 2003 where the S&P is lower than it is right now. I can't believe that you are stupid enough to post lies without checking your facts. I OWN YOU.

Sam Houston's picture
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Joined: 2008-12-01

You have made a false assumption.  If I invested my clients exclusively in the S&P, you would be correct.  I can only deduct from your statement that this is the extent of your investment expertise outside of annuities.  Might want to check into some of the other available investments Hank.  You rely on a weak product by preying on fear because you lack the ability and desire to make people real money.  I am thrilled to have brokers like you in the business.  It makes differenciating (sp?) myself so much easier.  Thanks Hank!

rankstocks's picture
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Joined: 2005-02-10

Hank,
    I've brought this up before, but here it goes.  If you have your client's best interest at heart, why not impart this strategy:
 
Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k)  Take the other 45k and buy the SPX ETF.  In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF.  Why wouldn't this work better?
 
Oh, I forgot, your not licensed.

Hank Moody's picture
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Joined: 2008-11-10

rankstocks wrote:Hank,
    I've brought this up before, but here it goes.  If you have your client's best interest at heart, why not impart this strategy:
 
Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k)  Take the other 45k and buy the SPX ETF.  In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF.  Why wouldn't this work better?
 
Oh, I forgot, your not licensed.I don't feel like it.

snaggletooth's picture
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Joined: 2007-07-13

rankstocks wrote:Hank,
    I've brought this up before, but here it goes.  If you have your client's best interest at heart, why not impart this strategy:
 
Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k)  Take the other 45k and buy the SPX ETF.  In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF.  Why wouldn't this work better?
 
Oh, I forgot, your not licensed.
 
I'm going to put this in caps so you can clearly understand it:  SOME PEOPLE DON'T WANT THEIR MONEY INVESTED IN THE MARKET WHERE THEIR PRINCIPAL IS AT RISK. 
 
I think you're at EDJ.  Your strategy along with the only "safe" thing you can do at EDJ (CD's) is exactly what I sell against all the time.  Just today, I had a prospect about to go to EDJ to put their retirement account in a CD.  But after quickly explaining the FIA, I should be getting about $100,000 next week.  It's almost too easy...
 
When someone doesn't want to lose anymore money, it means they DON'T WANT TO LOSE ANY MORE MONEY. 
 
 

HymanRoth's picture
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snaggletooth wrote:rankstocks wrote:Hank,
    I've brought this up before, but here it goes.  If you have your client's best interest at heart, why not impart this strategy:
 
Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k)  Take the other 45k and buy the SPX ETF.  In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF.  Why wouldn't this work better?
 
Oh, I forgot, your not licensed.
 
I'm going to put this in caps so you can clearly understand it:  SOME PEOPLE DON'T WANT THEIR MONEY INVESTED IN THE MARKET WHERE THEIR PRINCIPAL IS AT RISK. 
 
I think you're at EDJ.  Your strategy along with the only "safe" thing you can do at EDJ (CD's) is exactly what I sell against all the time.  Just today, I had a prospect about to go to EDJ to put their retirement account in a CD.  But after quickly explaining the FIA, I should be getting about $100,000 next week.  It's almost too easy...
 
When someone doesn't want to lose anymore money, it means they DON'T WANT TO LOSE ANY MORE MONEY. 
 
 So you carry Hank's briefcase and fetch his coffee for him now?

snaggletooth's picture
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HymanRoth wrote: So you carry Hank's briefcase and fetch his coffee for him now?
 
No, haven't had to do that for 3 weeks now...thanks for asking though, Hyman.

etj4588's picture
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Sam Houston wrote:You have made a false assumption.  If I invested my clients exclusively in the S&P, you would be correct.  I can only deduct from your statement that this is the extent of your investment expertise outside of annuities.  Might want to check into some of the other available investments Hank.  You rely on a weak product by preying on fear because you lack the ability and desire to make people real money.  I am thrilled to have brokers like you in the business.  It makes differenciating (sp?) myself so much easier.  Thanks Hank!Sam, please explain to us how you personally outperformed the best investment managers and stockpickers on and off wall street.  How did you outperform the guys at American Funds?  How did you outperform the best hedge fund managers?We're all pretty much aware that the best of the best lost their clients on average about 40-50%.  Do we have an unknown Warren Buffet in our midst?

SB No more's picture
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rankstocks wrote:Hank,
    I've brought this up before, but here it goes.  If you have your client's best interest at heart, why not impart this strategy:
 
Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k)  Take the other 45k and buy the SPX ETF.  In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF.  Why wouldn't this work better?
 
Oh, I forgot, your not licensed.
 
 
Say your the client and year 5 you have an emergency liquidity event and NEED your money, in the EIA you have principal guarantee so you loose the CDSC, now your way, how much is available???...
 
Some clients can have NO MARKET RISK...I don't sell EIA currently, (last one I sold was about 6 years ago, but I do see their benefits.
 
 

Sam Houston's picture
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Joined: 2008-12-01

etj4588 wrote: Sam Houston wrote:You have made a false assumption.  If I invested my clients exclusively in the S&P, you would be correct.  I can only deduct from your statement that this is the extent of your investment expertise outside of annuities.  Might want to check into some of the other available investments Hank.  You rely on a weak product by preying on fear because you lack the ability and desire to make people real money.  I am thrilled to have brokers like you in the business.  It makes differenciating (sp?) myself so much easier.  Thanks Hank!Sam, please explain to us how you personally outperformed the best investment managers and stockpickers I am not a stock picker.  I put my clients in equities when the probablilities are in their favor, take them out of equities when the probabilities are not in their favor. on and off wall street.  How did you outperform the guys at American Funds? I am not required to be fully invested during bear markets.  People forget AFs were very average during the 90s.  Why?  They are value investors heavy in financials.  They did very well during the last bear for this same reason.  They are doing very poorly during this bear for the same reason.  How did you outperform the best hedge fund managers? I don't suffer from hubris, nor do I try and predict where the market is going.We're all pretty much aware that the best of the best lost their clients on average about 40-50%. If you remained fully invested in equities, this is true.  However, if you decreased your equity exposure in Jan 2008 because the market went into a negative trend and the probablities of making money in equities were against you, you are not down 40-50% Do we have an unknown Warren Buffet in our midst? Buffet is also down hard in this market, the difference is he has cash on hand to buy at these price levels.  I did not remain fully invested, nor am I telling clients to jump in because stocks are cheap.  Whenever the next bull starts, I will miss the beginning which is ok because I missed most of the bear.

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iceco1d wrote: 
I smell some green kool-aid in this statement! 
 
Haven't had an AF ticket in over 4 years.  But yes, at the beginning of my career I sought to invest money the old-school way... solid mutual funds, blue-chip stocks, investment grade bonds, insured munis.  Nothing overly high risk and nothing fancy like reverse convertables or structured notes.  In the last 8 years, these investments have near decimated some of my clients.  On the flip side, I also invested some of my clients in VAs with living benefits and EIAs... these people are extremely happy with their investments.I've said it before, and I'll say it again... clients don't care so much that they make money as much as they care about losing it.  In the end, EIAs don't lose clients money.  You can tell them all day long (when their portfolio took a 40% hit this past year) that investing is a long term thing.  But tell that to the client that started investing 10 years ago and are now right back to where they started.

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Sam Houston wrote: I don't suffer from hubris, nor do I try and predict where the market is going.  I did not remain fully invested, nor am I telling clients to jump in because stocks are cheap.  Whenever the next bull starts, I will miss the beginning which is ok because I missed most of the bear. 

Please, I'm not picking on you, I'm honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
 
Again, please do not misunderstand the intent of the question, I'm just curious...

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Sam Houston wrote:Sam, please explain to us how you personally outperformed the best investment managers and stockpickers I am not a stock picker.  I put my clients in equities when the probablilities are in their favor, take them out of equities when the probabilities are not in their favor. on and off wall street.  How did you outperform the guys at American Funds? I am not required to be fully invested during bear markets.  People forget AFs were very average during the 90s.  Why?  They are value investors heavy in financials.  They did very well during the last bear for this same reason.  They are doing very poorly during this bear for the same reason.  How did you outperform the best hedge fund managers? I don't suffer from hubris, nor do I try and predict where the market is going.We're all pretty much aware that the best of the best lost their clients on average about 40-50%. If you remained fully invested in equities, this is true.  However, if you decreased your equity exposure in Jan 2008 because the market went into a negative trend and the probablities of making money in equities were against you, you are not down 40-50% Do we have an unknown Warren Buffet in our midst? Buffet is also down hard in this market, the difference is he has cash on hand to buy at these price levels.  I did not remain fully invested, nor am I telling clients to jump in because stocks are cheap.  Whenever the next bull starts, I will miss the beginning which is ok because I missed most of the bear.So you are actively managing client portfolios and essentially timing the market.  To me, this is not smart, but even more risky.  You are lucky.  One day you will not be.

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I've said it before, and I'll say it again... clients don't care so much that they make money as much as they care about losing it.  In the end, EIAs don't lose clients money.  You can tell them all day long (when their portfolio took a 40% hit this past year) that investing is a long term thing.  But tell that to the client that started investing 10 years ago and are now right back to where they started.
 
A sophisticated client realizes the effects of inflation on money.  An unsophisiticated client just looks at the balance of their account.  Investing is not easy nor does it go in a straight line.  You need better clients.  If your goal is to have a higher account balance on every statement, you should buy a fixed annuity or a cd.  If you want the possiblility of growth over inflation, but need a gaurantee, buy a VA.  If you want the possiblility of retiring with a lifestyle equal of better than what you have now, call me.

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Sam Houston wrote:If you want the possiblility of retiring with a lifestyle equal of better than what you have now, call me.Uhh... okay... but you still haven't answered the questions of timing
the market or how you manage to outperform the markets.  And as for sophisticated
clients, I doubt there are many people out there that wouldn't have like to been in some sort of guaranteed product over the last 10 years than at risk in the market.

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Sofisticated clients hmm, you mean like hedge funds, investment banks, international commercial banks or RIA's...call Madoff Securities, I believe they had some!!!

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rankstocks wrote:Hank,
    I've brought this up before, but here it goes.  If you have your client's best interest at heart, why not impart this strategy:
 
Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k)  Take the other 45k and buy the SPX ETF.  In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF.  Why wouldn't this work better?
 
Oh, I forgot, your not licensed.

 
Can you guarantee the S&P 500 will be positive 10 years from the initial investment?  If you can, this strategy may work better.  Who knows?  Ask those who invested in the S&P for the last ten years and see what they say.  Who knows if dividend and LTCG tax rates will go up in the future? (Gun to head, I think they are - Thanks Barry!)
 
As snags put it, some people want ZERO market risk but like the potential for a better rate of return than a traditional fixed annuity.  For those clients, an EIA may be appropriate.  Hell, even for some of YOUR clients, an EIA may be appropriate.  Oh, that's right.  You're at EDJ.  You can't sell EIAs.  No wonder you bash them.

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snaggletooth wrote:HymanRoth wrote: So you carry Hank's briefcase and fetch his coffee for him now?
 
No, haven't had to do that for 3 weeks now...thanks for asking though, Hyman.
 
It would have been funnier if you'd said "...thanks for asking though, Hymen."

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Please, I'm not picking on you, I'm honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
 
Again, please do not misunderstand the intent of the question, I'm just curious...
 
I have no idea where the market will be next week, next month, or next year.  Nor do I give it much thought.  It will be where it will be, I have no control over it.  What I do know is that markets tend to move in one direction or the other for extended periods of time (trends).  When the market is in an uptrend, the probabilities are in your favor to make money.  When the market is in a downtrend, the opposite is true.  You (and every one of my clients) have access to the same information I have.  I simply have the discipline to act on it.  In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008.  Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage.
 
So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios?  If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%.  I expose my clients to risk when the environment rewards risk (bull markets).  I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky.  I have heard this before.  It is often the excuse people use to justify their own malaise. One day you will not be.  Great point.  In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market).  Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes.  Unsuccessful?  Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level.  It did not help linear returns, but helped manage clients from their own worst enemy, their gut.

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Indyone wrote:No, haven't had to do that for 3 weeks now...thanks for asking though, Hyman.
 
It would have been funnier if you'd said "...thanks for asking though, Hymen."
 
That was my intention, but I guess there are some vaginal parts I can't spell correctly.

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rankstocks wrote:Hank,
    I've brought this up before, but here it goes.  If you have your client's best interest at heart, why not impart this strategy:
 
Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k)  Take the other 45k and buy the SPX ETF.  In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF.  Why wouldn't this work better?
 
Oh, I forgot, your not licensed.
 
I'll take a shot at it and I'll start by saying that I'm not opposed to either strategy so long as you understand the costs and benefits.  I think the benefits to the strategy outlined above are obvious, so I'll point out a couple of negatives you may or may not have thought of.
 
1.  By using 55% of your principal for principal protection, you've just locked in 45% market participation.  Most EIAs offer more participation than that.  If you line up against the 5-year contract I prefer, you're going to need more like 80% for principal protection, setting yourself up for a paltry 20% participation rate.  I'm confident I can do better than that with most any reasonable EIA contract.
 
2.  You're guaranteeing your principal protection with a state or municipality where the triple A rating may be heavily dependent upon an insurer which may run into unforeseen problems like AMBAC did.  Even good uninsured bonds can quickly go south in the hands of the wrong administration.
 
Before you even say it, yes, I understand that insurers may also fail which is why I'm pretty particular about who I offer EIAs through.  For now, I'm offering mostly fixed annuities, but I have found suitable sitautions for EIAs, although I prefer 5-year contracts, vs. the ten year "contract" in your example.
 
...and having a pretty good idea of who Hank is, I'm confident that he's just as licensed as you are.  You're not obligated to agree with him, but he's not stupid.

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Sam Houston wrote:Please, I'm not picking on you, I'm honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
 
Again, please do not misunderstand the intent of the question, I'm just curious...
 
I have no idea where the market will be next week, next month, or next year.  Nor do I give it much thought.  It will be where it will be, I have no control over it.  What I do know is that markets tend to move in one direction or the other for extended periods of time (trends).  When the market is in an uptrend, the probabilities are in your favor to make money.  When the market is in a downtrend, the opposite is true.  You (and every one of my clients) have access to the same information I have.  I simply have the discipline to act on it.  In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008.  Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage.
 
So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios?  If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%.  I expose my clients to risk when the environment rewards risk (bull markets).  I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky.  I have heard this before.  It is often the excuse people use to justify their own malaise. One day you will not be.  Great point.  In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market).  Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes.  Unsuccessful?  Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level.  It did not help linear returns, but helped manage clients from their own worst enemy, their gut.
 
 
Thank you for your response, seems very reasonable.  By the way, do you charge clients a fee when their money is all cash, or do you charge a flat rate 100% of the time?
 
Again, just curious, there are many ways to run a practice and I, for one, am not familiar with ALL of them.
 
 

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Open question to those who choose the EIA option....What is the exit strategy for the client who wants his/her money when it's all said and done?  Is there a walk away option where the client keeps his/her gains (whether capped or not, etc.), or is it always and only going to be an annuitized payout, with a penalty on any lump sum distribution?  Does the client keep all gains with a lump sum distribution once the contract is out of surrender?  I ask this wanting to understand more fully how these work.

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Beemer, I've seen some that force annuitization, but the one I used last year (Jackson) had an absolute 5-yar walk away.  In fact, you could walk away whole sometime between years 3 & 4 if I recall correctly, even if the market was complete junk and negative the entire time.

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SB No more wrote:Sam Houston wrote:Please, I'm not picking on you, I'm honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
 
Again, please do not misunderstand the intent of the question, I'm just curious...
 
I have no idea where the market will be next week, next month, or next year.  Nor do I give it much thought.  It will be where it will be, I have no control over it.  What I do know is that markets tend to move in one direction or the other for extended periods of time (trends).  When the market is in an uptrend, the probabilities are in your favor to make money.  When the market is in a downtrend, the opposite is true.  You (and every one of my clients) have access to the same information I have.  I simply have the discipline to act on it.  In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008.  Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage.
 
So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios?  If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%.  I expose my clients to risk when the environment rewards risk (bull markets).  I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky.  I have heard this before.  It is often the excuse people use to justify their own malaise. One day you will not be.  Great point.  In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market).  Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes.  Unsuccessful?  Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level.  It did not help linear returns, but helped manage clients from their own worst enemy, their gut.
 
 
Thank you for your response, seems very reasonable.  By the way, do you charge clients a fee when their money is all cash, or do you charge a flat rate 100% of the time?
 
Again, just curious, there are many ways to run a practice and I, for one, am not familiar with ALL of them.
 
 
 
I don't go to all cash.  Just as I don't go 100% equities.  Diversification is still important.  What I do is weight various asset classes including cash.  I am paid on AUM.

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Sam Houston wrote:SB No more wrote:Sam Houston wrote:Please, I'm not picking on you, I'm honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
 
Again, please do not misunderstand the intent of the question, I'm just curious...
 
I have no idea where the market will be next week, next month, or next year.  Nor do I give it much thought.  It will be where it will be, I have no control over it.  What I do know is that markets tend to move in one direction or the other for extended periods of time (trends).  When the market is in an uptrend, the probabilities are in your favor to make money.  When the market is in a downtrend, the opposite is true.  You (and every one of my clients) have access to the same information I have.  I simply have the discipline to act on it.  In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008.  Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage.
 
So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios?  If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%.  I expose my clients to risk when the environment rewards risk (bull markets).  I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky.  I have heard this before.  It is often the excuse people use to justify their own malaise. One day you will not be.  Great point.  In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market).  Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes.  Unsuccessful?  Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level.  It did not help linear returns, but helped manage clients from their own worst enemy, their gut.
 
 
Thank you for your response, seems very reasonable.  By the way, do you charge clients a fee when their money is all cash, or do you charge a flat rate 100% of the time?
 
Again, just curious, there are many ways to run a practice and I, for one, am not familiar with ALL of them.
 
 
 
I don't go to all cash.  Just as I don't go 100% equities.  Diversification is still important.  What I do is weight various asset classes including cash.  I am paid on AUM.Liar, when are you going to tell us how an EIA would underperform equities since 2003?

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