Fee based

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BankFC's picture
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Joined: 2005-05-27

Maybe it's just me, but does any of you other fairly new guys (on a grid, rather than a salary structure i.e ML, SB) have trouble from an EMOTIONAL standpoint dropping assets into fee based and forgoing your upfront comp?  Well, I am. 
I know it would be better in the long run if everything works out perfectly to have an annuitized book...but it is hard to just take that 1% sometimes.  How are you all balancing it?

moneyadvisor's picture
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BankFC
Bottom line.....it sucks! it kills your motivation, and passion. It's almost impossible to build a business at 1%, it's hard enough at higher payouts. You are doing 10,000 gross per month, when you could be doing 20,000 - 30,000.

scrim67's picture
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Joined: 2005-04-28

How can any firm expect to grow their fee based biz paying at 1%?  
At some firms, including mine, we get 3% upfront for non qualified assets and 2% for qualified assets.
It's still less than other products but let's helps me meet my monthly obligations while building my practice.
scrim

ezmoney's picture
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Joined: 2004-11-30

Not impossible if you have money to live on. Need about 2 years worth. If so ech year gets easier and better for the long haul.

rightway's picture
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Joined: 2004-12-02

Some annuity companies offer a larger up front and a smaller trail, ie
2.75% up frond and .85bp trail.  If your bank does not offer this,
ask them to consider it.

Indyone's picture
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Joined: 2005-05-31

ING Landmark offers 4% up front and 1% trail w/4-year surrender.  I understand they are adding Davis Venture and some Franklin funds to their lineup.

BankFC's picture
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Joined: 2005-05-27

Please don't mention ING to me...some of the other reps in my bank program sell ING almost exclusively.  The 7% GMIB is VERY misleading!
All people hear is 7% guaranteed.  Just wait till they retire when the market hits a down cycle, and they actually realize they must annuitize to get that 7%. 
Also, someone also pointed out that the way a SPIA payout is calculated versus a GMIB payout is calculated is very different, so it really isn't 7% anyway you slice it, except ON PAPER.
Plus that contract is darn expensive!!
I could go on and on (as you can tell, I dislike ING).  But your point was there are VA's that allow you to take a pretty nice up front and still annuitize down the road.  Yes, we can and do offer some of those (Equitable and All- State come to mind, and of course ING).
My favorite VA is John Hancock Venture.

babbling looney's picture
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Joined: 2004-12-02

All people hear is 7% guaranteed.  Just wait till they retire when the market hits a down cycle, and they actually realize they must annuitize to get that 7%. 
The client should have been told that they have to annuitize to take advantage of that option in the first place.  If they were not told that then the rep needs to be severely disciplined, maybe have his licensce revoked and if the clients don't listen and only hear what they want to hear....that's their problem. They probably have difficulty listening to everyone, like their doctor, the plumber and so on.  Some people just create their own disasters by not paying attention.
The 7% retirement income guarantee is a fall back position in the event that the contract is worth less than the original amount or didn't even earn an annualized 7%.  Don't you think that they will be happy to have that 7% return (essentially an almost doubling of their initial deposit) instead of a loss in the event that they need to begin drawing income?  Plus there is no rule that they HAVE to annuitize the contract if the market is down.  They can still wait and see if there is recovery.  The hope and reality is that the contract is likely to achieve more than 7% return and in that case it is a moot point. 
Clients don't always need to have this guarantee, but for those that do and who have been burned by this last market downturn, the saftey net is worth it to them.    I don't know how long you have been in the business, but I have seen several cycles where clients lost significant amounts in their VAs because they bought them, lost contact with their rep and the contract was on auto pilot.  Some of these people are still in the hole and I can assure you that they would rather have at least a guarantee of not losing their money.

moneyadvisor's picture
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Joined: 2005-08-02

Banc,
Babbling Looney is dead on. Don't be too quick to squash the guaranteed rate annuities. Don't sell it for the commission, but as a fit for the right client. I'm not going to open up a can of worms, because this subject gets a lot of interest. But with the AXA, Met, Ing and others, the client is truly guaranteed income for life. Yes, they may never need the feature, and true it comes with cost, but it can be a powerful investment. I think if you really take a look at them ill see there benefit to the client.

Mike Damone's picture
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Joined: 2004-12-01

BankFC wrote:
The 7% GMIB is VERY misleading!
All people hear is 7% guaranteed.  Just wait till they retire when the market hits a down cycle, and they actually realize they must annuitize to get that 7%. 

It's actually a great product.  It sounds to me that the other reps aren't explaining how the GMIB rider actually works.
 

Mike Damone's picture
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Joined: 2004-12-01

BankFC wrote:
Maybe it's just me, but does any of you other fairly new guys (on a grid, rather than a salary structure i.e ML, SB) have trouble from an EMOTIONAL standpoint dropping assets into fee based and forgoing your upfront comp?  Well, I am. 
I know it would be better in the long run if everything works out perfectly to have an annuitized book...but it is hard to just take that 1% sometimes.  How are you all balancing it?

I hear you.  But you don't have to put EVERYTHING into a fee based account at 1% do you?  Can't you sell some A shares?  Do any annuity business?
 

BankFC's picture
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Joined: 2005-05-27

You all misunderstood my post.  I LIKE GMIB riders, and I sell living benefit riders on ALL annuities I sell.  I sell ALOT of annuities.
I SPECIFICALLY do not like ING product.  It is expensive and misleading.  If you think it's not your problem that the client doesn't listen...enjoy arbitration.  Even if you are right and you win, you still will have to go through it.  I'd rather avoid it all together.
Geex

Indyone's picture
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Joined: 2005-05-31

BankFC wrote:
Please don't mention ING to me...some of the other reps in my bank program sell ING almost exclusively.  The 7% GMIB is VERY misleading!
All people hear is 7% guaranteed.  Just wait till they retire when the market hits a down cycle, and they actually realize they must annuitize to get that 7%. 
Also, someone also pointed out that the way a SPIA payout is calculated versus a GMIB payout is calculated is very different, so it really isn't 7% anyway you slice it, except ON PAPER.
Plus that contract is darn expensive!!
I could go on and on (as you can tell, I dislike ING).  But your point was there are VA's that allow you to take a pretty nice up front and still annuitize down the road.  Yes, we can and do offer some of those (Equitable and All- State come to mind, and of course ING).
My favorite VA is John Hancock Venture.

It's only misleading if it is mis-sold.  The people who mis-sell the product will not likely be in this business over the long haul.  Expense is also a relative issue, as in you get what you pay for.  Yes, if you want guarantees, they will cost you money.  If you don't want to pay for the guarantee, you can certainly buy mutual funds or fee-based or some other market-based investments instead.  Having seen what the last five years can do to a bad annuity, I like having the guarantees to fall back on, particularly when we are talking about people heading into retirement.
And yes, the annuitization rate is different under the MGIB, but the bottom line is, what kind of monthly check does the illustration show?  What kind of guarantees are in place if the market doesn't do well?  I'd like for someone who argues against the MGIB and ING to post actual side by side illustrations rather than just make general statements about how the ING annuity is bad.
I'm far from endorsing this product as a cure-all, but I've found it useful for people who want guaranteed returns, but need market exposure.  My preference for those who don't need the guarantees is the fee-based business the original poster was discussing.  Sure, it's slow going at first, but it's steady business and slow and steady wins the race.

bankrep1's picture
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Joined: 2004-12-02

I read a recent study on living benefit riders and the ING product actually provided the highest payout for a 55 year old

BankFC's picture
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Joined: 2005-05-27

Once again, for those who seem to not read my entire posts...I am not arguing against GMIB and annuities.  I LIKE THEM.
I don't like ING because it is EXPENSIVE RELATIVE TO SIMILAR GMIB ANNUITY PRODUCTS, not compared to mutual fund portfolio.
Plus, I feel it is inherently a misleading product because if it were actually explained for a client the way it REALLY works, they would not get the kind of asset inflow they do.  Very few people, if you ask them, are comfortable with annuitization.
There are many products out there (aka JH, Allstate to name two right off my head) that offer "Income For Life" guarantees WITHOUT annuitization, which then allows your clients money to stay in the market and maybe rebound while taking guaranteed income (it's obviously down, hence using the GMIB) rather than annuitize.
Why then, considering apples to apples, would you want to use ING?
Please, if you are going to argue what I am saying, don't agree with me and then say I'm wrong...wouldn't that be a definition of insanity?

Mike Damone's picture
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Joined: 2004-12-01

BankFC wrote:
Once again, for those who seem to not read my entire posts...I am not arguing against GMIB and annuities.  I LIKE THEM.
I don't like ING because it is EXPENSIVE RELATIVE TO SIMILAR GMIB ANNUITY PRODUCTS, not compared to mutual fund portfolio.
Plus, I feel it is inherently a misleading product because if it were actually explained for a client the way it REALLY works, they would not get the kind of asset inflow they do.  Very few people, if you ask them, are comfortable with annuitization.
There are many products out there (aka JH, Allstate to name two right off my head) that offer "Income For Life" guarantees WITHOUT annuitization, which then allows your clients money to stay in the market and maybe rebound while taking guaranteed income (it's obviously down, hence using the GMIB) rather than annuitize.
Why then, considering apples to apples, would you want to use ING?
Please, if you are going to argue what I am saying, don't agree with me and then say I'm wrong...wouldn't that be a definition of insanity?

I'm like those 5% Withdrawal Benefits for Life but I would like to address something.
Hypothetical:
Male, age 55 $100,000 premium into a contract.  Doesn't need income for 10 years and the market goes to zero.
A) Worst Case Scenario the 5% Withdrawal Benefit for life will only provide $5,000 of annual income for life.  (These withdrawal benefits for life are essentially Life with 20 year certain with no annuitization)
B) Worst Case Scenario ING's 7% GMIB Rider when annuitized would provide $9395 of annual income Life with 20 year certain net of all fees.
If the clients main objective is to maximize guaranteed cash flow 10 years out using a variable annuity contract, I would have to conclude that ING's payout is more.
 
 
 
 
 

BankFC's picture
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Joined: 2005-05-27

Mike Damone,
That is a poorly draw conclusion with incomplete information.  I do hope this is not an indicator of how you render financial advice.
Take JH for example:
5% withdrawls for life, yes.  Also, you get a 5% bonus on the GMIB base amount each year in the first 10 years you don't take a withdrawl.  In your example of $100,000 and needing income in 10 years, that means a GMIB base of 150,000.  So that puts our worst case senario payout at $7,500 for 20 years or life, not $5,000.
Add in the fact that you can rachet the high water mark account value in years 3,6,and 9, and receive the 5% bonus on the new HIGHER amount going forward, rather that just the base premium, and your guarantee can be even higher.
So say in year 3, your actual account value reaches 130,000...15,000 higher than your guaranteed 5% return.  You RATCHET up, and now get your 5% guarantee on 130,000, or $6,500 per year.  This can happen in year 3, 6, and 9.
In short, a 5% guarantee in the JH can be much higher that a seven percent guarantee on the ING.
PLUS the fact you NEVER annuitize!!!
So, Mike Damone, please tell me how you can be so certain the ING is better???

scrim67's picture
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Joined: 2005-04-28

Reading threads such as this one reinforces why I have never suggested to a client a VA in my short time in this industry.
I do believe that a client should never invest in something they do not understand fully.    Based on my own research I get the gut feeling VA's are not fully understood and/or explained correctly even by seasoned professionals in our industry.   I have also inferred that some clients are most likely "scared into" buying an annuity since they offer some guarantees.
Not to over simplify, but why wouldn't someone just invest in a taxable mutual fund portfolio and by term insurance?
The fact that the VA's are at the very least convoluted make me reluctant to present them.    
May I ask, how you present in layman's terms VA's to your customers so that they can understand what they are buying and what bells and whistles are worth the cost to the customer.
scrim
 

Mike Damone's picture
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Joined: 2004-12-01

BankFC wrote:
Take JH for example:
5% withdrawls for life, yes.  Also, you get a 5% bonus on the GMIB base amount each year in the first 10 years you don't take a withdrawl.  In your example of $100,000 and needing income in 10 years, that means a GMIB base of 150,000.  So that puts our worst case senario payout at $7,500 for 20 years or life, not $5,000.

Mr.and Mrs. Lemonjello, if you go with BankFC recommendation, your worst case scenario after 10 years would be $7,500 for 20 years or life.
If you go with my recommendation, your worst case scenario after 10 years would be $9395 for 20 years or life.
Which one sounds better to you?
*Note, most people I work with are looking for the maximum guaranteed income even if that means they lose control via annuitization. 
 

BankFC's picture
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Joined: 2005-05-27

Mike Damone wrote:
*Note, most people I work with are looking for the maximum guaranteed income even if that means they lose control via annuitization. 
Sure they do...everyone wants to hand over their life savings to an insurance company.
While my ABSOLUTE worst case my be a little lower, the BEST you can do is $9395...
Mr. and Mrs. Client, do you really think the market is only going to return 5% OR 7% over the next 10 years?  Of course it's not.
In reality, what we are really insuring is that, specifically, when you retire 10 years from now, your money will be there THEN, even in a down cycle.  With MY plan, we can take advantage of the market over time, and still not be capped out at that measily guarantee of $9,395. 
Not to mention JH Lifestyle portfolios have a longer track record...try running an ING proposal with anything except American Funds...
Obviously, you are another ING cheerleader...

Mike Damone's picture
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Joined: 2004-12-01

We'll have to agree to disagree. 
I'm certain I would win the client if I was competing against your proposal... but I don't expect you to buy that.
 
 
 

babbling looney's picture
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Joined: 2004-12-02

With MY plan, we can take advantage of the market over time, and still not be capped out at that measily guarantee of $9,395.  . 
What are you talking about being capped out?  The client has all kinds of choices.  I don't think you understand what you are talking about.
1.)If the market performs better than the guaranteed rate then the client doesn't HAVE to annuitize.  It is their discretion.  They can just keep trucking along, let the annuity continue to grow or start withdrawals of any amount they like since they are beyond the surrender period. 
2.)Just like any other annuity they are entitled to a 10% witdrawal.  And the 7% guaranteed growth doesn't stop until the original amount has tripled.  Taking fromthe annuity doesn't invalidate the guaranetee if they did decide to annuitze later, say at year 16 or 18.  Prior withdrawals would be deducted from the rolled up amount.
3.) If in 10 years the performance of the annuity was less than the guarantee and IF the client wants to take the higher amount in the annuity as an annuitized income stream rather than waiting to see if there would be recovery in the performance. But they don't HAVE to annuitize unless they want to.  And I bet they would want to if the contract was underwater and the rollup amount looked pretty good.
I am not arguing that it isn't expensive.  Also annuities have some significant downsides in tax treatment for income vs capital gains and are certainly not a good wealth transfer vehicle.  But we are not talking about that now.

babbling looney's picture
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Joined: 2004-12-02

Edit my previous.  The 7% goes up until the contract has tripled or the client turns 80%.   So don't sell this to any really older clients.  It is all a part of knowing your products and guaging to your individual clients

BankFC's picture
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Joined: 2005-05-27

Babbling,

I understand it, trust me.  Have a great evening!

executivejock's picture
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Joined: 2005-06-29

So what is the big expense with the ING?
From what I understand ING pays the PFA the commission?

Indyone's picture
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Joined: 2005-05-31

BFC,
You are arguing a product that you don't fully understand and Looney has illustrated that in the above posts, although the 7% guarantee caps when the client turns 80 years old, which is what I'm sure BL meant when posting 80%.  Also, the ratchet feature is available under ING just like they are under your favorite VA.  Continue selling the strengths of your products, but understand your competitors well, so you'll know how to sell against them.  Just saying they are expensive and misleading won't get you anywhere if I'm on the other side acknowledging the cost, but explaining the benefits and the net minimum payouts.
Bottom line is, pretty much all annuities are expensive when compared to other products, but again, you get what you pay for...and you pay for the protection.  Scrim, for most people, mutual funds and term insurance is a fine idea, but for those clients who want guaranteed returns, without having to die to get them, annuities have a place and you would better yourself by learning a VA product or two so you are ready when that prospect comes in and demands some guarantees.

scrim67's picture
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Joined: 2005-04-28

This is rather timely:
I just got off the phone with a client of mine who I was notified by my back office he is ACATing his "conservative" 40/60 asset allocation program we started 4 months ago to an AXA EQUITABLE VA because the advisor pitched all the guarantees.
I asked him "did they tell you the total expenses"   reply "no"
"how about the unfavorable tax treatment of withdrawals"   "no"
"did they explain the GMIB kicks in only if you annuitize?"  "no"
I told him to come in and see me again because if he really wants this product after I give him the full story I can sell it to him.
Now, he's worried that because he signed all the paperwork this account will be transferred.   My back office will not transfer out his assets if my client has changed him mind.  Plus, I do believe he has a 10 day free look.
No matter how this plays out it will be a good learning experience for me.   
I take responsibility from the standpoint that my client didn't yet consider me his "trusted advisor" since he was so easily persuaded.  He didn't even call me for my opinion.   I will have to be wary of this going forward with all my clients no matter if they have been my clients for 4 months 4 years or 4 decades.
scrim
 

blarmston's picture
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Joined: 2005-02-26

"I take responsibility from the standpoint that my client didn't yet consider me his "trusted advisor" since he was so easily persuaded.  He didn't even call me for my opinion.   I will have to be wary of this going forward with all my clients no matter if they have been my clients for 4 months 4 years or 4 decades."
This could be a great opportunity for you in that you can reexamine how you have been dealing with this client, and whether there are some common themes with all your clients. Nothing like a client moving money out for us all to reassess our business and look for ways to improve the model.

doberman's picture
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Joined: 2005-02-22

BankFC
...Mr. and Mrs. Client, do you really think the market is only going to return 5% OR 7% over the next 10 years?  Of course it's not...
---------------------------------------------
Be careful selling investments products with the expectation of high market returns. By high, I mean returns over 7%. For a reference, simply go back to the mid to late '90's.  Although no one can predict what the market will do, I can make several arguments why the market might only average 7% over the next 10 years. For the source of my arguments, simply refer to the writings of Warren Buffett.

executivejock's picture
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Joined: 2005-06-29

I just reviewed some John Hancock funds and over the past 5 years they were all between -1 and +1 percent on average. I know this includes 01 which was a huge negative, but no one can predict the market.
I have some new clients who had a few hundred thousand in savings. I believe a ING variable annuity for these 50 somethings to be a good deal for them? Any suggestions..

babbling looney's picture
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Joined: 2004-12-02

I told him to come in and see me again because if he really wants this product after I give him the full story I can sell it to him
This is a good strategy.  I usually tell my customers that when we are done talking I want them to know not only WHAT they own but more importantly WHY they own it.  This differentiates me (any you) from being a saleman and merely a product pusher and elevates you to advisor status.
Good luck

BankFC's picture
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Joined: 2005-05-27

Babbling,
I understand the ING just fine...I know you don't HAVE to annuitize.  What we were debating is which guarantee is better, not ALL circumstances. 
Mike Damone understood that, why didn't you?
Again, it's called a debate...on a forum.  So just because I don't type every bit of minutia I can think of doesn't equate to a lack of understanding.
 

PowPow's picture
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Joined: 2004-11-30

scrim67 wrote:
Not to over simplify, but why wouldn't someone just invest in a taxable mutual fund portfolio and by term insurance?

Scrim, look at the difference between "Death Benefits" and "living benefits" -- I imagine you're already picking up on this but hopefully that distinction will help.
The annuity helps the client who is more concerned about what happens if he/she LIVES too long.  The taxable mutual fund could run out of money some day.  Go over to FPi and see some hubbub about monte carlo if you want details. 
With an annuity (with a lifetime guarantee -- whether annuitized or not), the client doesn't have to worry about running out of money as long as the insurance company is good.  Like indy1 said, this type of client doesn't care about the term insurance (death benefit) because you'd have to die to get it.
 

rightway's picture
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Joined: 2004-12-02

If a client is worried about the market; worried to the point that they
may reduce or eliminate their proper exposure to growth as per a
purdent financial plan, they should consider an annuity with living and
death benefits.  Right now it is the only vehicle that can rovide
a level of protection along with growth potential. 

It is up to the advisor to sift through the garbage and find a good
annuity product.  But don't get attached, as soon as you find it,
another will slap on a benefit or reduce a cost to be more
competetive.  ING this year, AXA Next...its a little ridiculous if
you ask me.  

moneyadvisor's picture
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Joined: 2005-08-02

Indyone wrote:  Scrim, for most people, mutual funds and term insurance is a fine idea, but for those clients who want guaranteed returns, without having to die to get them, annuities have a place and you would better yourself by learning a VA product or two so you are ready when that prospect comes in and demands some guarantees.
 
VERY FUNNY!!!!
 
Bank - Don't worry so much about trying to hit a Home run every time at bat. Annuities are great choices for some. The good ones all cost about the same, they all have varying features that are there to benefit clients if the world ends tomorrow, (or in 8 years). I use 3-4 different ones because, different situations call for varying solutions. I couldn't tell you, nor do I care what the "best" one is.

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