[quote=skeedaddy2]I know a couple of guys that are brokers in a bank. They are not a team
but both are the goto guys to a group of 8 private bankers. Their product
mix is about 70% annuities, 20% fixed income and 10% funds. Each breaks
$1 Million in production and net about $450,000 a year.

They acknowledge that less than 10% of their assets would follow if they
were to leave and they are fine with that. They also live with the constant
threat of reorganizations and cuts in their payout and they are okay with
that as well. In fact, they have fewer revisions to the payout than
wirehouse brokers.

One advantage is that the brokerage biz represents a small portion of the
revenue mix for the bank, so its not a priority business line, hence,
management kinda leaves well enough alone. Compliance is very, very
tight to avoid settlements, lawsuits, bad press and arbitrations.[/quote]

Absolutely!!! Where do I sign.

"One advantage is that the brokerage biz represents a small portion of
the revenue mix for the bank, so its not a priority business line,
hence,

management kinda leaves well enough alone. Compliance is very, very

tight to avoid settlements, lawsuits, bad press and arbitrations."



Trust me, this is NOT and advantage.

In some of the decimated Bank of America territories, a hungry wirehouse broker can build a $50 million recurring book within 4-5 years. Not through the private bank, either, but by working with the local branches and cherry-picking all the large accounts held by the OSJ. Of course, during those 5 years, the broker will be incredibly poor and frustrated because he’ll never understand how to hit the rotating bank goals and therefore, lose a good portion of his comp.

Their product
mix is about 70% annuities, 20% fixed income and 10% funds. Each breaks
$1 Million in production and net about $450,000 a year.

I'm just curious and a little ignorant about this - 70% in annuities? Since  you listed the other 30%, it almost seems like 70% of the client's total invested $$ is going into annuities.

Am I missing something? Would anyone feel bad about putting so much into annuites, versus tax exempts, and other non qualified (capital gains, stepped up basis, dividend at 15%, etc. )strategies? Do they use annuities inside IRAs?

This might be an example of why some bank reps get a bad rap from other advisors.Yes, you have a ready market, and you get paid about the same as the mother ML broker, but you really have to believe in supporting these insurance company products, with their higher mortality and expense charges, illiquidity and so.

In some cases,  money that gets tucked into the surrender charge world can receive less attention in terms of porfolio rebalancing service, in part due to rep turnover. What do you think? Anyway, 70% of any number is a big number.

[quote=planrcoach]

Their product
mix is about 70% annuities, 20% fixed income and 10% funds. Each breaks
$1 Million in production and net about $450,000 a year.

I'm just curious and a little ignorant about this - 70% in annuities? Since  you listed the other 30%, it almost seems like 70% of the client's total invested $$ is going into annuities.

Am I missing something? Would anyone feel bad about putting so much into annuites, versus tax exempts, and other non qualified (capital gains, stepped up basis, dividend at 15%, etc. )strategies? Do they use annuities inside IRAs?

This might be an example of why some bank reps get a bad rap from other advisors.Yes, you have a ready market, and you get paid about the same as the mother ML broker, but you really have to believe in supporting these insurance company products, with their higher mortality and expense charges, illiquidity and so.

In some cases,  money that gets tucked into the surrender charge world can receive less attention in terms of porfolio rebalancing service, in part due to rep turnover. What do you think? Anyway, 70% of any number is a big number.

[/quote]

Planrcoach, I believe you are not quite looking at the numbers from the right angle.  My product mix is not quite 70% annuities, but close.  However, NONE of my clients have 70% of their liquid assets in annuities.  They might have CD's on the bank side, or money markets that I don't have (but can see ).  I won't do a bond unless is $100,000 or more because of the lot sizes and the low comp (plus CD's are paying pretty close anyway).

So even if my product mix was 70% annuities, it doesn't mean that any client has 70% of their liquid net worth in annuities. 

See what I mean?  If planners/brokers have a hard time undertsanding this, how do we expect the general public to do it?

Right, when you look at the big picture, a smaller % is in annuities.

I think planners and brokers generally have a pretty good understanding (and opinions and philosophies) about annuities can or should fit in, I see your specific point other assets being part of the mix.

The general public gets schooled by the occasional self-made media gura who says, "all annuities are bad". This is ironic, since immediate annuities will likely become more important to help retiringbaby boomers deal with potential longevity.

In general, I am under the impression that in some bank environments, annuities are over used to the detriment of other (tax and liquidity, and changing interest rate) strategies.

For the usual obvious reasons, they should be used carefully. Because the media hates them or does not understand them completely, for the sake of the reputation of our profession, everyone should be clear on all the options.

[quote=planrcoach]

Right, when you look at the big picture, a smaller % is in annuities.

I think planners and brokers generally have a pretty good understanding (and opinions and philosophies) about annuities can or should fit in, I see your specific point other assets being part of the mix.

The general public gets schooled by the occasional self-made media gura who says, "all annuities are bad". This is ironic, since immediate annuities will likely become more important to help retiringbaby boomers deal with potential longevity.

In general, I am under the impression that in some bank environments, annuities are over used to the detriment of other (tax and liquidity, and changing interest rate) strategies.

For the usual obvious reasons, they should be used carefully. Because the media hates them or does not understand them completely, for the sake of the reputation of our profession, everyone should be clear on all the options.

[/quote]

I agree wholeheartedly.

[quote=BankFC][quote=planrcoach]

Their product
mix is about 70% annuities, 20% fixed income and 10% funds. Each breaks
$1 Million in production and net about $450,000 a year.

I'm just curious and a little ignorant about this - 70% in annuities? Since  you listed the other 30%, it almost seems like 70% of the client's total invested $$ is going into annuities.

Am I missing something? Would anyone feel bad about putting so much into annuites, versus tax exempts, and other non qualified (capital gains, stepped up basis, dividend at 15%, etc. )strategies? Do they use annuities inside IRAs?

This might be an example of why some bank reps get a bad rap from other advisors.Yes, you have a ready market, and you get paid about the same as the mother ML broker, but you really have to believe in supporting these insurance company products, with their higher mortality and expense charges, illiquidity and so.

In some cases,  money that gets tucked into the surrender charge world can receive less attention in terms of porfolio rebalancing service, in part due to rep turnover. What do you think? Anyway, 70% of any number is a big number.

[/quote]

Planrcoach, I believe you are not quite looking at the numbers from the right angle.  My product mix is not quite 70% annuities, but close.  However, NONE of my clients have 70% of their liquid assets in annuities.  They might have CD's on the bank side, or money markets that I don't have (but can see ).  I won't do a bond unless is $100,000 or more because of the lot sizes and the low comp (plus CD's are paying pretty close anyway).

So even if my product mix was 70% annuities, it doesn't mean that any client has 70% of their liquid net worth in annuities. 

See what I mean?  If planners/brokers have a hard time undertsanding this, how do we expect the general public to do it?

[/quote]

I understand it very well.  You get paid more and the BANK gets paid more for annuities.  The fixed annuities are not even under the review of a broker dealer and are probably under a bank insurance licensed program, hence less oversight.  If the broker dealer that you are contracted with was aware that 70% of the investments you are making are in annuities they will either

1.) be pissed off because you are not giving them revenue or

2.) if you are doing 70% in variable annuities you are dealing with a pretty shady broker dealer.

The reason you and your bank do 70% in annuities (besides the high commission) is:

Oh yes.  I understand it VERY well.  I used to be a bank broker until I just couldn't stomach it any longer.  It doesn't matter if the 70% represents that portion of the client's money.  It represents the lions share of your business which tells me you are a lazy broker who is probably more concerned with your own pocket than the long term ramifications of annuities on your clients.

Disclaimer.  I do sell annuities when I feel they are appropriate and they represent about 5%  to 10% maximum of my book.

That YOU is not directed at Bank FC personally…unless you DO have 70% of your product mix in annuities.    It is a generic you.

It is a generic you.

And your honesty is appreciated, you know, with a first hand view, why some bank advisors, and broker dealer affiliates, and insurance producers, get a bad rap.

I'm trying stay open-minded about annuities. Bank FC points out, perhaps some % of total invested assets is appropriate. If you look at just costs during the life of an annuity, it seems wrap accounts and such could also extract a substantial toll.

Not to mention all of the financial planning considerations.

And so right here is where the fate of the consumer is decided, not in the corporate board room.

I'm trying stay open-minded about annuities. Bank FC points out, perhaps some % of total invested assets is appropriate. If you look at just costs during the life of an annuity, it seems wrap accounts and such could also extract a substantial toll.

Along with Jones, this topic has been beaten to a pulp.  I personally have no animus towards annuities (fixed or VA) as long as they are used appropriately for EACH individual client's circumstances and not as a product sold to everyone because they are high commission.

Sometimes the guarantees and the client's peace of mind are more important to the client than the costs.

[quote=babbling looney][quote=BankFC][quote=planrcoach]

Their product
mix is about 70% annuities, 20% fixed income and 10% funds. Each breaks
$1 Million in production and net about $450,000 a year.

I'm just curious and a little ignorant about this - 70% in annuities? Since  you listed the other 30%, it almost seems like 70% of the client's total invested $$ is going into annuities.

Am I missing something? Would anyone feel bad about putting so much into annuites, versus tax exempts, and other non qualified (capital gains, stepped up basis, dividend at 15%, etc. )strategies? Do they use annuities inside IRAs?

This might be an example of why some bank reps get a bad rap from other advisors.Yes, you have a ready market, and you get paid about the same as the mother ML broker, but you really have to believe in supporting these insurance company products, with their higher mortality and expense charges, illiquidity and so.

In some cases,  money that gets tucked into the surrender charge world can receive less attention in terms of porfolio rebalancing service, in part due to rep turnover. What do you think? Anyway, 70% of any number is a big number.

[/quote]

Planrcoach, I believe you are not quite looking at the numbers from the right angle.  My product mix is not quite 70% annuities, but close.  However, NONE of my clients have 70% of their liquid assets in annuities.  They might have CD's on the bank side, or money markets that I don't have (but can see ).  I won't do a bond unless is $100,000 or more because of the lot sizes and the low comp (plus CD's are paying pretty close anyway).

So even if my product mix was 70% annuities, it doesn't mean that any client has 70% of their liquid net worth in annuities. 

See what I mean?  If planners/brokers have a hard time undertsanding this, how do we expect the general public to do it?

[/quote]

I understand it very well.  You get paid more and the BANK gets paid more for annuities.  The fixed annuities are not even under the review of a broker dealer and are probably under a bank insurance licensed program, hence less oversight.  If the broker dealer that you are contracted with was aware that 70% of the investments you are making are in annuities they will either

1.) be pissed off because you are not giving them revenue or

2.) if you are doing 70% in variable annuities you are dealing with a pretty shady broker dealer.

You know what assuming gets you.  You are dead wrong.  In our program, EVERYTHING runs through the broker/dealer, including fixed annuities and life insurance.  If there is one thing I cannot tolerate, it is people who make blind assumptions.  There are some real idiots on this board, and some very smart people.  I assumed you leaned toward the latter, but I was wrong once before... 

The reason you and your bank do 70% in annuities (besides the high commission) is:

You normally sound like a sane person...maybe you have your blouse on too tight today.  To say you don't have to explain fees, tax issues, penalties, etc is downright stupid.  I don't know who you have in mind when stating this stuff, but it sure as hell isn't me.

LOL.  "A real and ethical brokerage firm."  I bet you made a great EDJ rep.  NEWS FLASH.  Firms don't have ETHICS.  They are FOR PROFIT COMPANIES that have rules, regulations, and guidelines.  It is up to the REP, and the REP alone, to make the judgement in how much to charge, what product to reccommend, etc.  If you think a "firm" has ethics, I've got a bridge to sell you.

This statement doesn't even make any sense.  Why would a client be locked into anything if the annuity has "come due" (past it's surrender period)?   I'm going to give you the benefit of the doubt and assume you mean because they would have to pay taxes...well, they didn't pay any for the last X amount of years, so what do you expect?  They can do any number of things, icluding continuing to grow the money tax deffered...how is that a bad thing again?

Oh yes.  I understand it VERY well.  I used to be a bank broker until I just couldn't stomach it any longer. 

I can do whatever I want (fee based, C shares, A shares, SMA, whatever).  If you couldn't stomach it, it was because either your program's structure was flawed, or you simply couldn't stomach yourself.

It doesn't matter if the 70% represents that portion of the client's money.  It represents the lions share of your business which tells me you are a lazy broker who is probably more concerned with your own pocket than the long term ramifications of annuities on your clients.

BL, you are simply ridiculous in this statement.  Like I said, usually you seem like an articulate person (although you do like to portray yourself as the big chested muscle car girl, hope it makes you feel "cool").

Disclaimer.  I do sell annuities when I feel they are appropriate and they represent about 5%  to 10% maximum of my book.

Generic "you" or not, your tone denotes someone who has an axe to grind...or maybe it's just not a good week for you? 

[/quote]

Most of my revenue is/will be generated  from trails and fees.   Not saying this is right or wrong but just a fact.

Some of my colleagues generate revenues primarily from 1035 exchanges.   Not saying this is right or wrong either.

I just prefer the former in building my practice.

My belief is it's less of a conflict of interest.

scrim

Planrcoach, I believe you are not quite looking at the numbers from the right angle.  My product mix is not quite 70% annuities, but close.  However, NONE of my clients have 70% of their liquid assets in annuities.  They might have CD's on the bank side, or money markets that I don't have (but can see ).  I won't do a bond unless is $100,000 or more because of the lot sizes and the low comp (plus CD's are paying pretty close anyway).

So even if my product mix was 70% annuities, it doesn't mean that any client has 70% of their liquid net worth in annuities. 

See what I mean?  If planners/brokers have a hard time undertsanding this, how do we expect the general public to do it?

I took exception to this statement that we are having a hard time understanding.  I understand very well.  Maybe you should adjust your left nut...your brains are being cramped.

Putting 70% of your product mix into one investment is lazy brokering no matter what the investment is. This is why Jones gets a bad rap.... all American Funds all the time.  It doesn't matter what portion of your client's funds the annuities are. 

As to the client being locked in, maybe you explain this scenario ***but I know that the bank brokers in my area do not.  They gloss over this aspect of annuities and look at the annuity book as an ongoing revenue stream because when they reach the end of surrender period, the broker will roll into another annuity....no matter what.   This is why bank brokers have a bad reputation.  Not all are sharks like this, but enough that it taints the whole pool.

***Mr Client: Every dime you take out of this annuity until you reach your cost basis will be taxed at ordinary income rates.  Yes, you are deferring the taxation until later.  If you have a variable annuity you will not be able to receive the favorable capital gains rate that we have now. Capital gains will be converted to ordinary income and taxed at whatever your bracket is at that time.  And ...oh by the way....when you die your annuity will bypass probate BUT all the gain is taxed as ordinary income to your heirs.  Of course you can annuitize your annuity and spread the taxation of the gain over years, however when you do that you will no longer be able to access more than the scheduled income stream.***

I have many clients who are shocked when they find out the tax ramifications of accessing the annuity that they bought years ago with a cost basis of $40,000 and current value of $120,000.  They are locked into an annuity format because they either pay big taxes or have to gradually take the income to spread the tax hit. They are further shocked to know that the nest egg they thought they were leaving to their kids is going to be heavily taxed, defeating the purpose of their investment.

Annuities are a great tool for the right circumstances and when all the pros and cons are explained. You may not be doing anything unethical, but when you say you have close to 70% of your product mix in annuities....red flags are going off in my mind.

You are right. Firms are not ethical, that falls back upon the individual broker.  However, I am speaking as my own firm in a sense, because I am independent.  I do not represent a firm. I represent myself.

I love what annuities offer.  I think we bash them now and will regret it. 



A combination of high quality asset management to make assets grow
(non-annuity) with transfer of guaranteed income risk (annuity) is the
very perfect mix that will likely make many advisors stars (in the eyes
of lcients) and personallly wealthy…while fullfilling the very
treasured goals of families we serve…Client and Advisor
benefits…the Right Way.



Bank or not.

[quote=rightway]I love what annuities offer.  I think we bash them now and will regret it.[/quote]

Amen.  I think we tend to bash what we don't understand and unnecessarily take a tool out of our toolbox to the detriment of our clients.

Judgement

Bank FC appears to have too much time on their hands

Babbling is SMART and got to the meat.  Saved that answer and printed it out for my file.

Rightway is stupid.  Have you heard of rebalancing?  You can shift to any mutual fund in the same family at no cost to the client in a fee based relationship.  For example, you can move from the MFS Utility fund (and you should this year) to the MFS Total Return Fund.

AND LIKE BABBLING SAID, IF THE CLIENT DIES, THE HEIRS GET THE STEP UP TO THE DATE OF DEATH.

VBrainy,

What are the tax consequences for the gains in a mutual fund held for more than a year?  What about an variable annuity?

Oooh! I know…but I’m not telling. It’s on the Series 7 test, right?



Careful now, I think its a trick question.

vbrainey wrote: "Have you heard of rebalancing?  You can shift to any mutual fund in the same family at no cost to the client in a fee based relationship."

What does "fee based" have to do with that?  It works the same way in a commissioned account. Fee-based allows someone to move to another fund family without a new commission and/or surrender charges.   Regardless, I wouldn't say "no cost" to the client without mentioning the tax ramifications of the sale which are the same regardless of whether the new purchase is inside or outside of the family.

Also, one of the things that I see lacking in the conversation of the positives and negatives of annuity taxation is that all the points only hold true for non-qualified annuities.  Qualified annuities are taxed identical to all other qualified investments.