[quote=Registered Rep]

I agree Scrim that you should only use annuities where & when appropriate but somehow I just can't stop selling those damn VA's. Here we are in Dec. & they have made up 20-25% of my ytd production.

Seriously, I would have a couple of well respected VA wholesalers pay you a visit & have them roll play the presentation, feature, benefits, &  close of a VA to you. Then you do it to them, continue this process until you feel comfy.

Will it be worth it? Only you can answer that but you may find you're missing a huge opportunity to help your clients.

[/quote]

I have gotten the presentation more time than I can count.  Until I feel I am missing a very significant number of opportunities I'm going to keep my practice similar to its current makeup.

scrim

Your opinion is not what counts.  It is your clients feelings that count.  All products have positives and negatives.  If the negatives outweigh the positives, you should not invest in annuities for that client.  However, for a particular client, the positives may outweigh the negatives. 

My typical annuity client has done much better than my typical mutual fund client.  There is a logical reason for this.  The reason is not that annuities are better (or worse).  When someone buys a mutual fund, you must have them invest in accordance with their risk tolerance.  The guarantees in a VA will allow someone to invest in a more aggressive manner which can possibly lead to higer returns.

Here's an example:

Client: "I want my money to grow as much as possible, but I'm not willing to lose any money on this long term investment.  What should I do with this $100,000"

Rep:"We can invest in mutual funds and have the money grow, but we can't guarantee against loss.  Another option is to invest in a VA.  This VA will guarantee that your money will double in twenty years regardless of investment performance.  However, the expenses are higher so it is likely that you'll have a lower return than if you invested in comparable mutual funds.  Is the possible tradeoff of lower returns on the upside worth having a guarantee that your money will double as a worst case scenario?  If so, let's look at our options in depth."

The reality of the situation is that this type of client will get a higher return long term (despite higher expenses) in a VA because he could invest aggressively in a VA, but would have to invest very conservatively in mutual funds.

I'm selling almost all L-share's now.  I can remember a couple years ago it was always B-share VA's.  Now the only time I sell a B share is if the client is extremely elderly or in really bad health.

Under what circumstances do you guys sell an L vs B?

[quote=anonymous]

Your opinion is not what counts.  It is your clients feelings that count.  All products have positives and negatives.  If the negatives outweigh the positives, you should not invest in annuities for that client.  However, for a particular client, the positives may outweigh the negatives. 

My typical annuity client has done much better than my typical mutual fund client.  There is a logical reason for this.  The reason is not that annuities are better (or worse).  When someone buys a mutual fund, you must have them invest in accordance with their risk tolerance.  The guarantees in a VA will allow someone to invest in a more aggressive manner which can possibly lead to higer returns.

Here's an example:

Client: "I want my money to grow as much as possible, but I'm not willing to lose any money on this long term investment.  What should I do with this $100,000"

Rep:"We can invest in mutual funds and have the money grow, but we can't guarantee against loss.  Another option is to invest in a VA.  This VA will guarantee that your money will double in twenty years regardless of investment performance.  However, the expenses are higher so it is likely that you'll have a lower return than if you invested in comparable mutual funds.  Is the possible tradeoff of lower returns on the upside worth having a guarantee that your money will double as a worst case scenario?  If so, let's look at our options in depth."

The reality of the situation is that this type of client will get a higher return long term (despite higher expenses) in a VA because he could invest aggressively in a VA, but would have to invest very conservatively in mutual funds.

[/quote]

This debate will always be there.   My opinion the negatives far outweigh any positives so I stay away.

Perhaps if the laws change concerning the tax treatment upon withdrawal I might reconsider.

Scrim

Your missing the point that it is not your opinion that matters.  The client is what counts. 

Your tax comment only refers to non-qualified annuities.  Qualified annuities get the identical tax treatment as mutual funds and other investments.  Therefore, according to your comment, it's time to reconsider.

P.S. For the first few years of my career, I also was convinced that annuities weren't good for my clients.

[quote=anonymous]

Your missing the point that it is not your opinion that matters.  The client is what counts. 

Your tax comment only refers to non-qualified annuities.  Qualified annuities get the identical tax treatment as mutual funds and other investments.  Therefore, according to your comment, it's time to reconsider.

P.S. For the first few years of my career, I also was convinced that annuities weren't good for my clients.

[/quote]

We shall see as my practice matures if I introduce new products.  I'll never say never.

Even though I'm not supposed to have an opinion I also feel using annuities in a qualified account is almost never a good idea.

Just my .02

scrim

[quote=anonymous]

Here's an example:

Client: "I want my money to grow as much as possible, but I'm not willing to lose any money on this long term investment.  What should I do with this $100,000"

Rep:"We can invest in mutual funds and have the money grow, but we can't guarantee against loss.  Another option is to invest in a VA.  This VA will guarantee that your money will double in twenty years regardless of investment performance. 

[/quote]

I think this might be a typo on your part.  Based on the good ol' rule of 72, a lump sum doubling in 20 years is a 3.6% return.  I don't think you're gonna sell many VA's with a 3.6% guarantee...

When the light bulb comes on (not if but when)...not only will you provide additional services to meet your clients' goals but you will also experience a bump in production & income. If you don't give them the option - some other advisor WILL.

[quote=Registered Rep]

I'm selling almost all L-share's now.  I can remember a couple years ago it was always B-share VA's.  Now the only time I sell a B share is if the client is extremely elderly or in really bad health.

Under what circumstances do you guys sell an L vs B?

[/quote]

I use to only sell 7-8 year products because the fees were lower.  But each and every time I locked up somebody's money for that long, a better living benefit would be released.

Now I only use 4 year / L share annuity products for flexibility.

I think the 3 and 4 year products are probably best…plus you are doing some “annuitizing” of your book in the process.

[quote=Registered Rep]

When the light bulb comes on (not if but when)...not only will you provide additional services to meet your clients' goals but you will also experience a bump in production & income. If you don't give them the option - some other advisor WILL.

[/quote]

Absolutely!  This thread started when I lost my first account in over two years simply because I did not offer him an annuity option.

I'm living and learning.

Scrim

I'm certainly acquired more accounts than lost though so it's a net positive at this juncture.

I capture alot of VA assets in qualified plans when I explain to them I can reduce their fees which should result in better investment performance over the long term.   In exchange for this they have to give up any death or living benefits.

scrim

[quote=scrim67][quote=anonymous] Your missing the point that it is not your opinion that matters.  The client is what counts. 

Your tax comment only refers to non-qualified annuities.  Qualified annuities get the identical tax treatment as mutual funds and other investments.  Therefore, according to your comment, it's time to reconsider.

P.S. For the first few years of my career, I also was convinced that annuities weren't good for my clients.[/quote]

We shall see as my practice matures if I introduce new products.  I'll never say never.

Even though I'm not supposed to have an opinion I also feel using annuities in a qualified account is almost never a good idea.

Just my .02

scrim[/quote]

Scrim, I like you and respect your desire to do what is right for your clients, but trying to convince you that annuities are OK is like trying to convince Mr. A that Christians aren't retarded.  Certainly, you are entitled to have an opinion and unlike others, I won't call you names and make fun of you for having an opinion that is different from mine.

Someday, I'd venture to guess, the light will come one and like anonymous, myself and other posters with more experience, you too will probably reach the conclusion that annuities make sense for a segment of the population.  If your client has (1) little or no tolerance for stock market fluctuations (desires principal protection), (2) need for returns in excess of current bond and CD rates to provide for purchasing power protection and (3) desires a steady and increasing stream of income for a lifetime, annuities fit the bill, my friend.  For clients such as these, the extra 2% cost is almost irrelevant and doesn't begin to stop them from purchasing the annuity.  Odds are, your former client fit at least part of that profile and you missed an opportunity to sell him what he wanted and what is best for him vs. what you thought was best for him.  In reality, what's best for him is the investment that is an acceptable alternative AND that he's willing to keep.

The argument that they don't belong in IRAs because of the redundant tax deferral is tired and weak.  Very, very few of my clients buy annuities for tax deferral.  At best, for equities, the tax deferral is about a push with the income tax treatment upon withdrawal, so I rarely sell it as a benefit, unless I'm talking to a CD customer who compounds interest and is tired of receiving a 1099 for income that they really don't see.  Annuities belong in IRAs for reasons 1, 2 & 3 above.

Full disclosure...annuities make up about 8% of my AUM, so it's not like I think they are the only answer either...

There's my nickel...you can keep the change...

I do respect all of your opinions.

1-2% more annually in expenses adds up more quickly than one might think.

I have enough trouble convincing clients to deal with my 1-1.5% advisory fee.   If the fees they were paying were close to 3% or so I hardly even want to deal with that situation.   That's just too high.     

scrim

I imagine the fees could be lower.

Again, not everyone has to have the same opinions.

That's what makes life so darn interesting.

scrim

"I think this might be a typo on your part.  Based on the good ol' rule of 72, a lump sum doubling in 20 years is a 3.6% return.  I don't think you're gonna sell many VA's with a 3.6% guarantee..."

I don't know if you understand.  Nobody wants a 3.6% return.  However, people love the fact that this is the absolute worst case scenario.  For someone who has 20 years, this is the best GMAB that exists.  I also use a 10 year one with a guaranteed 0% that has an annual reset.

We don't ever expect the client to have to use the GMAB.  It simply gives them piece of mind and more importantly, the ability to invest more aggressively. 

[quote=scrim67]I do respect all of your opinions.

1-2% more annually in expenses adds up more quickly than one might think.

I have enough trouble convincing clients to deal with my 1-1.5% advisory fee.   If the fees they were paying were close to 3% or so I hardly even want to deal with that situation.   That's just too high.     

scrim[/quote]

You're focusing on the wrong end of the equation...focus on net return after fees...NOT fees.  Say you have a hypothetical investment with a 10% annual return...under your fee-based model, the client sees 8.5-9% net.  Under a variable annuity, the client sees 7% net, but without any risk to principal, etc.  If you present it that way instead of focusing on the fees, I think your success rate will improve regardless of the platform you choose to present...and yes, I believe that more of your target market than you think would be interested in the 7% annuity product.

Also, If your bank is offering CDs at 5% and loaning the money out at 8%, you have...GOSH!!! A 3% "FEE"!

Indyone, you also forgetting to add in the fund expenses, so in your example, Scrim's clients will get less than 8% net.

The part that Scrim doesn't seem to get is that a VA client can invest more aggressively, so even though the fees may be higher, many investors will end up with more money in the VA than the funds.

Scrim, why are VAs inappropriate for qualified money?  This echoes just about everything that I have ever read on the subject that is written by people who are not experts on the subject.  I've never heard an expert on this subject agree with this opinion.

[quote=Indyone]

Also, If your bank is offering CDs at 5% and loaning the money out at 8%, you have...GOSH!!! A 3% "FEE"!

[/quote]

That's a great way to look at it. 

Scrim, I rarely use VAs, but in the right situation, it's perfect.  If it's money the client is going to leave to their kids, but don't want to see it go down, a VA is perfect (especially with restricted beneficiary options if the kids aren't responsible).  Also, if someone has retired, and needs income, being able to guarantee X% of their invested amount (with the possibility to grow) is huge.  Those advisors in 1999, who were telling their clients they would be able to take 5% income out of the mutual funds in their IRAs, for the rest of their life, have some hard phone calls to make (if they haven't made them already).

FULL DISCLOSURE: I’ve sold less than 10 VAs in the 5+ years I’ve been in this business. All but one had a gauranteed income feature of some kind.