Invest a rollover!

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newnew's picture
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for fun-- please share an investment stategy for an avg 500k r/o invested for the avg 65 retiree in the 25% bracket who will not tap it for income in the foreseeable future and has a moderate risk tolerance, and hopes to have much of it to pass on if possible. Please do not attack the way the question is phrased; have not given it much thought.

troll's picture
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Variable Annuity.

noggin's picture
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Its called rule 405...........

CreditOnion's picture
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I agree with Frank. I would put a large portion in VA and the remainder in laddered CD's for emergency spending.

troll's picture
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troll's picture
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Married? Children?  Life insurance in place?  LTC policy in place?  Why doesn't he need income now?  If working, how much current income?  How is health?  Any other retirement income sources (pension, part time work)?  How much income does client feel he needs? How many obligations does client have? When (foreseeable future in no specific enough)is client needing income for the rollover?  Is client charitable?  Which is more important, comfortable retirement or legacy gift?  This is some of the information needed to to answer your question. 

BBQ's picture
BBQ
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VA would be about the last place I'd consider putting an IRA Rollover.

troll's picture
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BBQ wrote:VA would be about the last place I'd consider putting an IRA Rollover.Why?

snaggletooth's picture
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BBQ wrote:
VA would be about the last place I'd consider putting an IRA Rollover.
 
Please do tell.

rankstocks's picture
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I'll tell,
 
How about:
1.  7 year surrender penalty
2.  Limited investment choices
3.  Average M&E expenses of 1.4%
4.  Rider expenses averaging 0-1.5%
5.  no access to CD's, individual bonds, individual stocks, money market, or any other investment other than the limited mutual fund choices allowed in the variable annuity.
6.  considering the main reason annuities are justified is tax-deferred growth, buying a VA inside an IRA would be like putting two diapers on a baby.
7.  Considering asset allocation is 90% of long-term investment success and this client has a significant time frame, the death benefit wouldn't be a good reason to buy a VA inside an IRA, especially since most VA hucksters flip these ever 5-7 years anyway.
8.  Because the client will not be taking an income for the foreseeable future, a GMIB would not be a justification to buy a VA.
9.  Increased regulatory scrutiny has made it extremely difficult to justify VA's inside IRA's, and regulators have touched just the tip of the iceburg on this one.
 
If you want a couple more reasons, let me know.....I'll list them. 

troll's picture
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Joined: 2004-11-29

While a VA is usually not my first choice, I disagree with some of your reasoning.  On a side note, newnew is clowning you guys.  Any ethical advisor could not fathom to make a recomendation off the limited client information given.
 
 
 
rankstocks wrote:I'll tell,
 
How about:
1.  7 year surrender penalty There are VAs with no surrender, 4yr surrenders etc.
2.  Limited investment choices Agree
3.  Average M&E expenses of 1.4% True
4.  Rider expenses averaging 0-1.5% True
5.  no access to CD's, individual bonds, individual stocks, money market, or any other investment other than the limited mutual fund choices allowed in the variable annuity. Agree, although this area has improved, i.e. ETFs, UITs etc.
6.  considering the main reason annuities are justified is tax-deferred growth, buying a VA inside an IRA would be like putting two diapers on a baby.  I disagree that tax deferal is a feature.  The expenses cancel out the benefit of tax deferal. 
7.  Considering asset allocation is 90% of long-term investment success and this client has a significant time frame, the death benefit wouldn't be a good reason to buy a VA inside an IRA, especially since most VA hucksters flip these ever 5-7 years anyway.  You only "flip" an annuity if it is in the best interest of the client.  If the death benefit is higher than the account value, you don't move it.  A death benefit could be a reason.
8.  Because the client will not be taking an income for the foreseeable future, a GMIB would not be a justification to buy a VA.  This is just dead wrong.  Many contracts have annual step ups of the GMIB, you get the better of market action or the auto step up.  THIS is the main reason to consider an annuity for this person assuming at some point they will need income.
9.  Increased regulatory scrutiny has made it extremely difficult to justify VA's inside IRA's, and regulators have touched just the tip of the iceburg on this one.  True, although I do not give the regulators much credit for their intelligence.
 
If you want a couple more reasons, let me know.....I'll list them. Please do.

newnew's picture
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oh well, I tried. OF COURSE I didn't list every KYC particular. It's just a friggin' forum--have some fun

troll's picture
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Not a criticism, I think it's funny people are answering it.

snaggletooth's picture
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rankstocks wrote:I'll tell,
 
How about:
1.  7 year surrender penalty
2.  Limited investment choices
3.  Average M&E expenses of 1.4%
4.  Rider expenses averaging 0-1.5%
5.  no access to CD's, individual bonds, individual stocks, money market, or any other investment other than the limited mutual fund choices allowed in the variable annuity.
6.  considering the main reason annuities are justified is tax-deferred growth, buying a VA inside an IRA would be like putting two diapers on a baby.
7.  Considering asset allocation is 90% of long-term investment success and this client has a significant time frame, the death benefit wouldn't be a good reason to buy a VA inside an IRA, especially since most VA hucksters flip these ever 5-7 years anyway.
8.  Because the client will not be taking an income for the foreseeable future, a GMIB would not be a justification to buy a VA.
9.  Increased regulatory scrutiny has made it extremely difficult to justify VA's inside IRA's, and regulators have touched just the tip of the iceburg on this one.
 
If you want a couple more reasons, let me know.....I'll list them. 
 
Rank, these are the same reasons that most out of touch senior advisors in wirehouses give against annuities.  Some of your points are just dead wrong.
 
Annuities are actually having more inflow into tax-deferred accounts than non-qualified these days, and it's for the same reasons that they used to be shunned in qualified accounts:  tax treatment is the same.
 
The purpose for buying most of today's annuities is for the living benefit.  I do hope you understand how these riders work, both tangible and intangible.  I'm sure you haven't read any of Moshe Milevsky's reports or Ibbotson's studies.
 
I have not had any trouble from regulators or compliance about putting a VA in an qualified account.  On the topic of regulators and VA's, we had FINRA in our office checking up on things.  The FINRA person asked, "Why would you do a 1035 exchange of this client's annuity?  Why would you create a taxable event?  This client might have a huge tax liability".
 
Obviously the regulators don't know what they are talking about.
 
Another point, people aren't buying annuities for the death benefit anymore either.  Again, it's for the living benefits that I'm sure you know very well.
 
And while we're on the subject, if you want to talk about costs, let's go for it.  How much do you charge?  Do you charge a fee and wrap mutual funds?  A shares?  C shares?  If you add on the fund expenses and trading costs of the fund, you're easily at 2%.  Depending on the sub-accounts you use in the annuity, you can easily keep ALL expenses at 3% max.  So it's only 1% more for an insurance guarantee of income.
 
Like Primo, I'd enjoy your other reasons.
 
I'd also like to know how some advisors still think annuities are the same as they were in the 1990's.  And how they are doing right by their clients by not staying updated on these changes. 

babbling looney's picture
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Well, Like Primo and annuity wouldn't be my first choice especially at the age of 65.  However, I could see it for a portion of a qualifed roll over
rankstocks wrote:I'll tell,
 
How about:
1.  7 year surrender penalty.   Some are as short as 4 years and fee advisors can sell no load no CSDC annuities
2.  Limited investment choices  Not necissarily.  Multiple fund families availability is attractive if the client isn't in a fee based account
3.  Average M&E expenses of 1.4%  True, but the pay off is some guarantees for the client's beneficaries.  Many find this appealing and worth the extra cost.
4.  Rider expenses averaging 0-1.5% True again. The extra fees are purchasing guarantees such as a guaranteed income stream after a period of time no matter what the market does.  In qualified money, this is a plus since NO ONE is planning to take large lump sums out of their IRA in any case.
5.  no access to CD's, individual bonds, individual stocks, money market, or any other investment other than the limited mutual fund choices allowed in the variable annuity.   No shit Sherlock. 
6.  considering the main reason annuities are justified is tax-deferred growth, buying a VA inside an IRA would be like putting two diapers on a baby.  Not if you are interested in the guarantees.   Having had a child....sometimes the two diapers is a very very wise thing when you are traveling long distance.
7.  Considering asset allocation is 90% of long-term investment success and this client has a significant time frame, the death benefit wouldn't be a good reason to buy a VA inside an IRA, especially since most VA hucksters flip these ever 5-7 years anyway.  Now you are talking about unscrupulous advisors who would sell away the death benefit.  I assume you aren't considering that any of US would do such a thing.  What makes you think that you  cannot use asset allocation strategy within a VA?
8.  Because the client will not be taking an income for the foreseeable future, a GMIB would not be a justification to buy a VA.  Maybe...maybe not.  There are other guarantees that would justify.  In addition with the safety net of some of the guarantees the client just might be persuaded to invest a little more agressively than they would outside of the annuity to generate more growth to overcome the  downside of the expenses.
9.  Increased regulatory scrutiny has made it extremely difficult to justify VA's inside IRA's, and regulators have touched just the tip of the iceburg on this one.  Actually the regulators have conceeded that the guarantees may be of benefit to the client in a qualifed roll over annuity.  Not so much for flipping annuities, however.
 
If you want a couple more reasons, let me know.....I'll list them. 
 
I have quite a few clients that have rolled out of profit sharing plans and 401ks who are not taking income at this time. Some because they are not 591/2 others because they just don't need the income.  I put a good portion 30 to 40% into a VA with the GRIB and 7% step up on the income pool.  The rest are in either fee based accounts using funds, stocks, bonds, etfs and some covered call trading or in a commission account and parked in rather conservative portfolios.  The VAs we are aggressively investing and so far (with the exception of this last quarter) have easily beaten a 7% annual return.
 

troll's picture
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Met Life offers a product which (i could be wrong but i dont think so) is only offered thru the wirehouse i am associated with.
It is no surrender charge, period, wide choice of fund families, about 3 1.4% all in, and asset allocation models that are reblanced automatically. As i've stated before, i am not a big fan of VA's for everyone, being mindful of the high expenses. But there are situations in which they are totally appropriate, and as snags said, with the living benefits, that goes for qualified money as well as non qual. With no surrender, easy in easy out, it almost comes down to a simple question of what is the clients risk tolerance and is he willing to pay the extra 1-1.25% for insurance.

troll's picture
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pratoman wrote:Met Life offers a product which (i could be wrong but i dont think so) is only offered thru the wirehouse i am associated with.
It is no surrender charge, period, wide choice of fund families, about 3 1.4% all in, and asset allocation models that are reblanced automatically. As i've stated before, i am not a big fan of VA's for everyone, being mindful of the high expenses. But there are situations in which they are totally appropriate, and as snags said, with the living benefits, that goes for qualified money as well as non qual. With no surrender, easy in easy out, it almost comes down to a simple question of what is the clients risk tolerance and is he willing to pay the extra 1-1.25% for insurance.How much does it pay YOU?

rankstocks's picture
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Snaggletooth stated, "The purpose for buying most of today's annuities is for the living benefit.  I do hope you understand how these riders work, both tangible and intangible.  I'm sure you haven't read any of Moshe Milevsky's reports or Ibbotson's studies."
 
An exerpt from Milevsky's key study "The Titanic Option; Valuation of the Guaranteed Minimum Death Benefit in Variable Annuities and Mutual Funds", by Milevsky, Moshe and Steven Posner, as published in the Journal of Risk and Insurance, 2001, Vol. 68. No. 1, 91-126, Professor Milevsky thoroughly demonstrates the cost solely associated with the mortality guarantee (GMDB) is typically less than 15 basis points.  Therefore, while the GMDB is worth only 15 basis points or less, the Mortality and Expense charged by the insurance company (M&E) is usually greater than one hundred basis points and is invariant to factors which affect mortality risk."
 
Also, which living benefit's are you talking about?  GMIB, GMWB, or GMAB.  All are different, all but the GMAB are smoke and mirrors.  You have to Annuitize to capture the GMIB, and the GMIB annuitization tables used for this calculation are significantly worse than a lump sum immediate annuitization using cash.  GMWB's usually are offered at 4-5% annually unless you are over 65 or 70, at which point the chances of your account value going to 0 is almost non-existant.
 
After all, if we're using fear tactics to sell these annuities, keep in mind that these guarantees (which are smoke and mirrors) are only as good as the company backing them........

troll's picture
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Of course GMIB rates are lower than an immediate annuitization.  Of course, immediate ann does not have a death benefit or the possiblility of rising income.  That might be why.  Oh yeah, income benefits do not require annuitization in most contracts unless you run the value to zero, which you stated the chance are small (or did you say non-existant).  And you haven't looked at annuities lately, 65 yr old is pulling 6% and a 70 yr old is getting 7%.

rankstocks's picture
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Here's the conversation I envision from a snake oil, I mean annuity salesman.
"What if your account value at that other firm goes to 0?
We're probably in the next great depression!
I don't want to see you run out of money before you die.
You've seen the stock market the last year, I think it could go to zero, don't you want to guarantee an income and your principal?
Do you wan't your money insured, or uninsured?
Let's cash out of that investment strategy you've got and buy this great variable annuity with all these guarantees.  Don't worry, there's no commission because the insurance company pays me  for finding them business.  Let's not discuss costs, because their irrelevant anyway, after all your money is guaranteed, and so is this income at a guaranteed rate of 7% annually compounded.  You can take plenty of income out of this annuity at anytime, just try and keep it below 10% for a few years.  You might not hear from me again for a while (5-7 years), but when I do talk to you again, all these guarantees will be bad because there will me much better ones available then.  I know the choices seem somewhat limited, and I know you wanted some bonds and CD's, but trust me, that doesn't matter with the guarantees."
 
.....If the client only knew that the chances of them needing to use the GMIB's or GMWB's was actually smaller than the chances of the insurance company going out of business and not being able to honor those same guarantees.

troll's picture
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rankstocks wrote:Here's the conversation I envision from a snake oil, I mean annuity salesman.
"What if your account value at that other firm goes to 0?
We're probably in the next great depression!
I don't want to see you run out of money before you die.
You've seen the stock market the last year, I think it could go to zero, don't you want to guarantee an income and your principal?
Do you wan't your money insured, or uninsured?
Let's cash out of that investment strategy you've got and buy this great variable annuity with all these guarantees.  Don't worry, there's no commission because the insurance company pays me  for finding them business.  Let's not discuss costs, because their irrelevant anyway, after all your money is guaranteed, and so is this income at a guaranteed rate of 7% annually compounded.  You can take plenty of income out of this annuity at anytime, just try and keep it below 10% for a few years.  You might not hear from me again for a while (5-7 years), but when I do talk to you again, all these guarantees will be bad because there will me much better ones available then.  I know the choices seem somewhat limited, and I know you wanted some bonds and CD's, but trust me, that doesn't matter with the guarantees."
 
.....If the client only knew that the chances of them needing to use the GMIB's or GMWB's was actually smaller than the chances of the insurance company going out of business and not being able to honor those same guarantees.I'm sorry that you assume that people are stupid. Did you know that the best way to close a deal is to explain all the "bad" stuff up front? It makes people trust you immediately and they will do business with you.

babbling looney's picture
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So Rankstocks, having never sold a VA has a "vision" of how they are sold. 
 
Me.....having been a EDJ rep for about 5 years , I don't need a "vision" to know how the company slams people into low rate long term bonds without explaining fully that the "call feature" is most likely never to be used.   Most of the new brokers swallowed the EDJ story hook line and sinker and never questioned or even understood the relationship between a low interest rate long term bond and the likelyhood of it being called in a rising rate environment, much less the effect on the market price of that bond.   Just call and "if you have some money available I think you should buy this bond TODAY!".  Woo hooo Super Shamrock calling sessions!!   Made me sick and was one of the main reasons I left.
 
My clients know how the markets and interest rates work IF we buy a bond.  They know just exactly the costs of a VA are . They also know how the various guarantees work before they commit to a VA and decide if they are valuable to them are not.   VA's represent about 10% of my book of business and are mostly IRA and 401K Rollovers precisely for the income guarantees.   No one in their right mind or who isn't in DIRE financial straits is planning to take a lump sum from qualified money and generally is looking for that supplimental income stream in retirement.   My clients also clearly understand the concept of an "income pool" versus the actual contract value.   If they forget, we go over it at their semi annual account reviews.
 
Are there sleazy VA sales people out there?  Of course. But they are the minority of our profession since most of us do more than just sell annuities and you can't keep your clients or get new ones if your reputation is garbage.
 
So, Rank....until you stop having "visions" and know WTF you are talking about I suggest you discuss things you know.
 

troll's picture
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babbling looney wrote:So Rankstocks, having never sold a VA has a "vision" of how they are sold. 
 
Me.....having been a EDJ rep for about 5 years , I don't need a "vision" to know how the company slams people into low rate long term bonds without explaining fully that the "call feature" is most likely never to be used.   Most of the new brokers swallowed the EDJ story hook line and sinker and never questioned or even understood the relationship between a low interest rate long term bond and the likelyhood of it being called in a rising rate environment, much less the effect on the market price of that bond.   Just call and "if you have some money available I think you should buy this bond TODAY!".  Woo hooo Super Shamrock calling sessions!!   Made me sick and was one of the main reasons I left.
 
My clients know how the markets and interest rates work IF we buy a bond.  They know just exactly the costs of a VA are . They also know how the various guarantees work before they commit to a VA and decide if they are valuable to them are not.   VA's represent about 10% of my book of business and are mostly IRA and 401K Rollovers precisely for the income guarantees.   No one in their right mind or who isn't in DIRE financial straits is planning to take a lump sum from qualified money and generally is looking for that supplimental income stream in retirement.   My clients also clearly understand the concept of an "income pool" versus the actual contract value.   If they forget, we go over it at their semi annual account reviews.
 
Are there sleazy VA sales people out there?  Of course. But they are the minority of our profession since most of us do more than just sell annuities and you can't keep your clients or get new ones if your reputation is garbage.
 
So, Rank....until you stop having "visions" and know WTF you are talking about I suggest you discuss things you know.
 Rankstocks is an EDJ broker?

babbling looney's picture
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Oh.... Is he not?   I thought he was from this statement about being on a Diversification Trip.  Maybe other broker dealers call their prizes for selling Diversification Trips?
 
Sorry everyone, I was out of the country on a Div Trip.  Hammered out over 50 calls each of the last 2 days though.
Either way, my statement about the unscrupulous EDJ bond sales and his total lack of understanding about VAs stands.

troll's picture
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babbling looney wrote:Oh.... Is he not?   I thought he was from this statement about being on a Diversification Trip.  Maybe other broker dealers call their prizes for selling Diversification Trips?
 
Sorry everyone, I was out of the country on a Div Trip.  Hammered out over 50 calls each of the last 2 days though.
Either way, my statement about the unscrupulous EDJ bond sales and his total lack of understanding about VAs stands.I'm not arguing. I really didn't know that he was with EDJ. That explains a lot. Doesn't EDJ put a cap on annuity commissions to the broker, regardless of the GDC (haircut)?

babbling looney's picture
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Frank Marino wrote: babbling looney wrote:
Oh.... Is he not?   I thought he was from this statement about being on a Diversification Trip.  Maybe other broker dealers call their prizes for selling Diversification Trips?
 
Sorry everyone, I was out of the country on a Div Trip.  Hammered out over 50 calls each of the last 2 days though.
Either way, my statement about the unscrupulous EDJ bond sales and his total lack of understanding about VAs stands.I'm not arguing. I really didn't know that he was with EDJ. That explains a lot. Doesn't EDJ put a cap on annuity commissions to the broker, regardless of the GDC (haircut)?
They did when I was there.  Annuity at Jones =2.5 or 3% % commission  vs same annuity outside of Jones 5 to 7%.   I believe that Jones kept the difference in pay out.  In addition they limited the sub accounts in some annuities to reflect the "prefered" funds.  I lost a 2 million dollar 403B group annuity account because the Hartford Annuity that EDJ allowed me to present was pitiful next to the very same Hartford annuity presented by another broker.    Maybe this has changed now, but possibly this is why Rank has such a dim view of VAs.  He has only seen the  shitty crippled ones that EDJ allows them to sell.   
 
Also the fixed annuities (not EIAs which were the devil's spawn) sucked big time.  The rates were not competetive at all.  I sold a couple of them and after going Indy have found out that they were a "special" annuity just for Jones and I couldn't be agent of records.  Ah well... they are reaching maturity and nose diving to the minimum interest rate now. 
 
I've been licensed to sell insurance for about 20 years now and have some basis of comparison.  EDJ  insurance sucks.  Annuities or life insurance.

snaggletooth's picture
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rankstocks wrote:Snaggletooth stated, "The purpose for buying most of today's annuities is for the living benefit.  I do hope you understand how these riders work, both tangible and intangible.  I'm sure you haven't read any of Moshe Milevsky's reports or Ibbotson's studies."
 
An exerpt from Milevsky's key study "The Titanic Option; Valuation of the Guaranteed Minimum Death Benefit in Variable Annuities and Mutual Funds", by Milevsky, Moshe and Steven Posner, as published in the Journal of Risk and Insurance, 2001, Vol. 68. No. 1, 91-126, Professor Milevsky thoroughly demonstrates the cost solely associated with the mortality guarantee (GMDB) is typically less than 15 basis points.  Therefore, while the GMDB is worth only 15 basis points or less, the Mortality and Expense charged by the insurance company (M&E) is usually greater than one hundred basis points and is invariant to factors which affect mortality risk."
 
Also, which living benefit's are you talking about?  GMIB, GMWB, or GMAB.  All are different, all but the GMAB are smoke and mirrors.  You have to Annuitize to capture the GMIB, and the GMIB annuitization tables used for this calculation are significantly worse than a lump sum immediate annuitization using cash.  GMWB's usually are offered at 4-5% annually unless you are over 65 or 70, at which point the chances of your account value going to 0 is almost non-existant.
 
After all, if we're using fear tactics to sell these annuities, keep in mind that these guarantees (which are smoke and mirrors) are only as good as the company backing them........
 
You are a little out of date.  I do use GMWB riders which do not require annuitization as previously stated and guarantee income higher than what you said.
 
Also, regarding Moshe Milevsky's article, maybe you should find "Confessions of a VA Critic", which is more current reading than what you have been doing.  In it, he believes that some of the living benefits on the annuities might actually be undervalued. 
 
For the complete Ibbotson report, you might be able to google Ibbotson Morningstar Variable Annuity + GMWB and find it.  You are missing out and will lose clients to advisors who do have this in their toolbox. 
 
I am utterly amazed that you have locked yourself up in a bomb shelter and have seemed to avoid civilization regarding annuities.  Is it for selfish reasons in that you don't get paid as much on them?

snaggletooth's picture
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babbling looney wrote:So Rankstocks, having never sold a VA has a "vision" of how they are sold. 
 
Me.....having been a EDJ rep for about 5 years , I don't need a "vision" to know how the company slams people into low rate long term bonds without explaining fully that the "call feature" is most likely never to be used.   Most of the new brokers swallowed the EDJ story hook line and sinker and never questioned or even understood the relationship between a low interest rate long term bond and the likelyhood of it being called in a rising rate environment, much less the effect on the market price of that bond.   Just call and "if you have some money available I think you should buy this bond TODAY!".  Woo hooo Super Shamrock calling sessions!!   Made me sick and was one of the main reasons I left.
 
My clients know how the markets and interest rates work IF we buy a bond.  They know just exactly the costs of a VA are . They also know how the various guarantees work before they commit to a VA and decide if they are valuable to them are not.   VA's represent about 10% of my book of business and are mostly IRA and 401K Rollovers precisely for the income guarantees.   No one in their right mind or who isn't in DIRE financial straits is planning to take a lump sum from qualified money and generally is looking for that supplimental income stream in retirement.   My clients also clearly understand the concept of an "income pool" versus the actual contract value.   If they forget, we go over it at their semi annual account reviews.
 
Are there sleazy VA sales people out there?  Of course. But they are the minority of our profession since most of us do more than just sell annuities and you can't keep your clients or get new ones if your reputation is garbage.
 
So, Rank....until you stop having "visions" and know WTF you are talking about I suggest you discuss things you know.
 
 
Babs, do you want to have my baby?

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I swear, these annuity salesman just don't know when to quit.
 
I opened an email today from Raymond Ohlson in which he proclaims to possess a little-known annuity strategy. His latest scheme is to convince folks who own annuities 
that they are holding a "ticking tax bomb." *Keep in mind that this is coming from one of the biggest proponents of convincing people to buy annuities that exists.
 
Here's a summary of his little-known strategy:
 
1. Sell annuities to as many people as possible by emphasizing all the woderful benefits of tax deferral, guarantees, income benefits, death benefits, etc.
2. Call those clients after a few years and explain to them that they are holding a ticking tax bomb, and upon their death, they will very likely bump their heirs into a higher tax bracket if they don't take immediate action.
3. Convince them to buy a single premium life policy with a 10% "upfront bonus" to help offset surrender penalties and taxes on the gains.
4. Get a fat commission for selling the life insurance policy.
5. Repeat over and over and over until you don't have to work anymore because flipping annuities has made you extremely wealthy. 
 
Just when you think you've seen it all...
 
 

rankstocks's picture
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snaggletooth,
    You stated, "You are a little out of date.  I do use GMWB riders which do not require annuitization as previously stated and guarantee income higher than what you said."
 
Of course GMWB's don't require annuitization. GMIB's generally do.  So I really don't understand what you are trying to say. 
 
Babbling Looney:  I will concede to your point that some advisors at Jones sell the call date on long term paper.  I'm glad you disclose everything I have been talking about on VA's.  If a few other advisors were selling the call and that was one of the main reasons you left Jones, it must not take much to set you off.
 
Borker Boy: I've got a subscription to Annuity Monthly (or something like that, can't remember the exact title) that comes to my office.  I literally feel like I need a shower after I skim through it.  It's got more sleeze than Hustler magazine.

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rankstocks wrote:snaggletooth,
    You stated, "You are a little out of date.  I do use GMWB riders which do not require annuitization as previously stated and guarantee income higher than what you said."
 
Of course GMWB's don't require annuitization. GMIB's generally do.  So I really don't understand what you are trying to say. 
 
 
I was just saying that it seems you might be out of date a little bit based on some things you've said, and in regards to Milevsky's article, it isn't one of his more current writings.
 
As far as GMWB, you had asked which living benefit I was talking about, and I said the GMWB is what I use.

babbling looney's picture
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rankstocks wrote:snaggletooth,
    You stated, "You are a little out of date.  I do use GMWB riders which do not require annuitization as previously stated and guarantee income higher than what you said."
 
Of course GMWB's don't require annuitization. GMIB's generally do.  So I really don't understand what you are trying to say. 
 
Babbling Looney:  I will concede to your point that some advisors at Jones sell the call date on long term paper.  I'm glad you disclose everything I have been talking about on VA's.  If a few other advisors were selling the call and that was one of the main reasons you left Jones, it must not take much to set you off.
 
Thank you.  Will you also concede my point that the Variable annuities that Jones allows (allowed? maybe it has changed since I left Jones) were crippled and tailor made just for Jones?  And that the reason you probably don't do VAs is that you haven't been educated or exposed to "good" products.  Also that the fixed annuities were specially made for Jones and are non competetive in the real world.
 
Again, VAs comprise only about 10% of my product mix so don't go thinking that I'm in "love" with the product and sell them at the expense of more suitable investments.   It's just that as an advisor, it is incumbent upon you to be aware of and educated about ALL the available strategies and avenues for your clients.  If you blindly refuse to be a well rounded advisor, you can be doing considerable harm .
 
What ticked me off was the training of the new IRs by people who should have known better or who were deliberately deceptive.  Encouraging the new IR who was a former beer truck driver or RV salesman to slam people into an investment WITHOUT even bothering to educate the IR of the consequences.  It became abundantly clear to me that Jones itself, didn't give doo squat about the ramifications on the client or the IR's reputation or future when these investments were to go sour.  
 
The poor deluded but well meaning IR was just doing what he/she was trained to do.    I met many very fine people while at Jones.  Jones, the company, doesn't care how many IRs they burn out or really what happens to their clients. It's all about profit.......as it should be in any business.  But puleeeeze......give up the holier than thou, sainthood pretense that EDJ cares  more about its clients than others or even  that it really cares about its employees. 
 
Borker Boy: I've got a subscription to Annuity Monthly (or something like that, can't remember the exact title) that comes to my office.  I literally feel like I need a shower after I skim through it.  It's got more sleeze than Hustler magazine.
 
I have to agree here.  The worst are the EIA salesmen and their publications.  Again.  It's all about being educated about all products and all of the techniques being used whether you use them or not.
 
Nobody ever learned anything with a closed mind.

FA238's picture
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Joined: 2007-07-25

I am an EDJ advisor, and I love VA's in qualified contracts for the Lifetime Income Guarantee. Believe me, it helps our clients sleep better at night. I always explain
they are sacrificing some performance, when compared to a Mutual fund due to
the internal costs carried by the VA for the guarantees, but most people that I am
talking with that are at the Retirement stage, when chosing between investing
the equity portion of their portfolio in mutual funds vs VA's with Lifetime income
guarantees are choosing the VA. It gives them more peace of mind in an uncertain
and unstable world. Sure it costs something, but for many people the price is worth
it.

Borker Boy's picture
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Does anyone have a good analogy for explaining the marketlock-like features of the different VAs, i.e., show one column as the "walk-away" amount and one column as the "pension" amount, etc.?
 
I've never developed a good analogy for the GMIB, and most folks glaze over 45 seconds into my presentation.

ExPropTrader's picture
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Borker Boy wrote: ..................and most folks glaze over 45 seconds into my presentation.Are you focusing too much on the numbers and too little on the emotions (client will never outlive their $$$)?

snaggletooth's picture
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Borker Boy wrote:Does anyone have a good analogy for explaining the marketlock-like features of the different VAs, i.e., show one column as the "walk-away" amount and one column as the "pension" amount, etc.?
 
I've never developed a good analogy for the GMIB, and most folks glaze over 45 seconds into my presentation.
 
We've already discussed multiple sales stories, analogies, etc. for the VA's living benefits on the more productive site, RegRepsDotCom.  You should check those out.
 
If people are glazing over in the first 45 seconds, you're talking at them and not finding their pain.
 
Nick Murray says it best.  "It's not a principle problem, it's an income problem".  Get people to understand how income distribution works in accounts.  Use dollars so they understand it.  $50,000 means more to most people than 5%. 
 
If you use a hypothetical illustration, you can write "mutual funds" above the contract value column and "Pension" above the MGWB or whatever rider column.  They need to know the contract value is their "take the money and run after surrender period" amount and they will get a $ figure for life from their pension side.
 
If you're good enough to not use a hypothetical illustration, then draw it out on a piece of paper, or describe it using your hands (one hand is contract value, the other is the pension). 
 
Also, if you start by describing a worst case scenario, it makes it easier to understand how real returns factor into it.

Spaceman Spiff's picture
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Rank - from one Jones guy to another, you need to have your AIG guy take you to lunch and have him explain the living benefits to you.  They make total sense for a portion of your clients portfolio if they are taking income.  Even if they aren't taking it yet, that 7% step up, guaranteed for 15 years is a big benefit.  Is there another investment we have access to that will GUARANTEE your clients can get an automatic raise?  I can't find one.  They're not for everyone.  But you'll lose clients to the bank or other advisors who your clients come into contact with.  I lost a $1 mil referral to the bank last year because she was shopping for an advisor and he showed her one before I got the chance to.  And it was a B share, not an A share.  You talk to a prospect or client that has an old B share annuity and you can come awfully close to guaranteeing not just their death bene, but an income bene for the expense they are already paying. 
 
I don't know that I have a large IRA that my client is using for income that we haven't had a discussion about living benefits.  Some say no thanks, some say sign me up.  All of them are thankful.  And all of them have heard about it from me first. 
 
Think about it like the LTC discussion.  You HAVE to talk to you clients about it or else their kids may haul your  butt to arbitration.  What if you have an strategy to GUARANTEE income for the rest of your clients life, but choose to use traditional funds instead.  20 years down the road, the worst case actually happens and that client is out of money.  Now the kids have to use their retirment plans to supplement that income.  Somehow they find out about annuities with living benefits and ask you why you didn't offer their parents one?  You hem and haw, but at the end of the day you don't have a great answer other than you didn't think they were appropriate.  Well, the next week you get  a letter in the mail inviting you to an arbitration hearing.  I'll bet it wouldn't go very well. 
 
Just my thoughts, but you might want to at least have lunch with one of our vendors (I'd recommend the AIG product) and get the details.   

anonymous's picture
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I put a fair amount of qualified money into VA's.  However, I don't try to sell VA's.  Instead, they are just an option that I give to my clients.  They have pluses and minuses.  It makes no difference to me whether they buy one because I'm going to get paid regardless of the investment. 
The worst case scenario with a VA is much better than the worst case scenario with mutual funds.  The client needs to know this.   On the other hand, the expenses can be a big drag on performance and the client also needs to know this.  Present a fair picture of annuities and you'll make plenty of annuity sales.

Anonymous's picture
Anonymous

Some of you guys are really petrified of arbitration aren't you?  It's actually kind of sickening, no offense. 

Borker Boy's picture
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It appears to be a no-win situation:
 
 
 
"You inappropriately sold my mother an annuity! We're going to arbitration!"
 
                                                 -or-
 
"You failed to sell my mother an annuity! We're going to arbitration!"

Spaceman Spiff's picture
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I disagree.  If it is sold appropriately, even if you are taken to arbitration, you'll have a legitimate case for why you did it.  I think it's easier to argue "here's why I did it" than it is "here's why I didn't." 
 

BBQ's picture
BBQ
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BBQ wrote:
VA would be about the last place I'd consider putting an IRA Rollover.
 
Let me explain why I said this a ways back, as I haven't been watching this thread:
 
If I'm really trying to do what's best for my client, why would I put qualified money into another tax-deferred product? I wouldn't because of the loads!  VAs main attraction is that they are tax deferred. They're tax deferred because they are "life insurance products." Life companies go to A LOT of expense and lobbying effort to keep these suckers (VAs) as life insurance, though we all know there is barely any life insurance in these contracts. It's really kinda of a sham life product that is allowed because of life insurers' powerful lobbists.
 
Common sense would tell you that packaged products have to cost more. - The living benefits are just 'sizzle-features' that life companies put in there to sell people VAs...but they are costly options that few will ever collect on. For most people VAs are products that they shouldn't own because the costs are too high...and if the commissions were lower or tiered like mutual funds with breakpoints, you'd see VA production drop like the stock market! It's funny how higher commissions make salespeople find justifications to use these products, instead of lower cost and lower commission products, imho. Gee, maybe there's a correlation!
 
I'd venture that the high costs wipe out any benefit of tax deferral for most people...versus just investing in similar mutual funds or ETFs...or individual bonds for income. But life companies know that people buy sizzle...not the steak!

Anonymous's picture
Anonymous

You stole the "sizzle" and "steak" verbage from an article on the first page of Google when searching for "Variable Annuity Info." 

BBQ's picture
BBQ
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Actually, No I didn't. You can tell because I did not put "quotes" around it!
 
I've been licensed for life insurance since before you were a sparkle in your daddy's eye.
 
This is just common knowledge for anyone experienced in the life biz or anyone who looks beyond what their bd tells 'em.

deekay's picture
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Joined: 2007-05-15

Let me pose a question to you, BBQ:  Do you sell term life insurance?  If so, you sell a product that is never used 99% of the time!  Think about all the lost premiums!  Of course there is a chance you'll never use the living benefits of a VA, but had you needed them, you would be glad you had them.

Anonymous's picture
Anonymous

BBQ wrote:Actually, No I didn't. You can tell because I did not put "quotes" around it!
 
I've been licensed for life insurance since before you were a sparkle in your daddy's eye.
 
This is just common knowledge for anyone experienced in the life biz or anyone who looks beyond what their bd tells 'em.
 
Hey, that's a great idea!  Why not make personal attacks about my age in lieu of a real response! 
 
Just so you know:  http://seniorjournal.com/NEWS/GuardWealth/2007/7-12-06-AreVariable.htm
 
Oh, by the way, I should be starting my Ph.D in Finance (thesis probably on Efficient Market Hypothesis) 01/09 @ Smeal...is that how you mean "anyone that looks beyond what their BD tells 'em?"
 
I know I'll probably know jack shit with just a B.S. and M.B.A., both concentrated in Finance...I guess I'll just have to rely on the Putnam brochures laying around the office. 

troll's picture
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Joined: 2004-11-29

BBQ wrote:BBQ wrote:
VA would be about the last place I'd consider putting an IRA Rollover.
 
Let me explain why I said this a ways back, as I haven't been watching this thread:
 
If I'm really trying to do what's best for my client, why would I put qualified money into another tax-deferred product? I wouldn't because of the loads!  VAs main attraction is that they are tax deferred. They're tax deferred because they are "life insurance products." Life companies go to A LOT of expense and lobbying effort to keep these suckers (VAs) as life insurance, though we all know there is barely any life insurance in these contracts. It's really kinda of a sham life product that is allowed because of life insurers' powerful lobbists.
 
Common sense would tell you that packaged products have to cost more. - The living benefits are just 'sizzle-features' that life companies put in there to sell people VAs...but they are costly options that few will ever collect on. For most people VAs are products that they shouldn't own because the costs are too high...and if the commissions were lower or tiered like mutual funds with breakpoints, you'd see VA production drop like the stock market! It's funny how higher commissions make salespeople find justifications to use these products, instead of lower cost and lower commission products, imho. Gee, maybe there's a correlation!
 
I'd venture that the high costs wipe out any benefit of tax deferral for most people...versus just investing in similar mutual funds or ETFs...or individual bonds for income. But life companies know that people buy sizzle...not the steak!Sounds like you've been losing some assets to VA's. Sucks to be you.

deekay's picture
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Actually VA Salesman, it sounds like this person isn't in the business.  It sounds like they're regurgitating Suze/Ramsey bullshit like it's gospel without having the foggiest about how stuff really works.  But if BBQ is in the business, s/he probably is hemmoraging $ to VAs.

Anonymous's picture
Anonymous

BBQ wrote:Actually, No I didn't. You can tell because I did not put "quotes" around it!
 
I've been licensed for life insurance since before you were a sparkle in your daddy's eye.
 
This is just common knowledge for anyone experienced in the life biz or anyone who looks beyond what their bd tells 'em.
 
Oh come on VA/deekay...you need to read his posts more thoroughly!  There you have it...he's quite experienced, and ALWAYS tells the truth; just like he did about [not] stealing the sizzle quote. 

BBQ's picture
BBQ
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deekay, yes I sell term life...even some cash value life. You're missing my point, and the q is if the commission structure were not so attractive for VAs would anyone really be selling 'em, vs mutual funds or etf's? -  My point is that they are heavily loaded products that benefit few of the clients, when other, 'cleaner' choices are available.
 
As for the other comments, I'll ignore 'em. They're the ones who discourage people from posting on these boards. - I've been on other boards where people try to help others and discuss and analyze differing points of view, w/o all the elementary school insecurities these few posers  exhibit. - speaking of which...ice, I absolutely wuv it when someone has to quote their educational credentials because it doesn't show in their writing...and the cutting and pasting class you took is finally paying off. good job! I'm duly impressed!

troll's picture
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iceco1d wrote:BBQ wrote:Actually, No I didn't. You can tell because I did not put "quotes" around it!
 
I've been licensed for life insurance since before you were a sparkle in your daddy's eye.
 
This is just common knowledge for anyone experienced in the life biz or anyone who looks beyond what their bd tells 'em.
 
Oh come on VA/deekay...you need to read his posts more thoroughly!  There you have it...he's quite experienced, and ALWAYS tells the truth; just like he did about [not] stealing the sizzle quote.  It always cracks me up when some loser talks about how inappropriate it is to put retirement money into a product that is designed specifically for retirement.

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