My point was that the agent was getting paid 10%, and the client was getting a “bonus” of 12%.  Both of those came from the insurance company.  So how could it be a profitable transaction to the insurer, if they (the insurance company) is already down 22% on the day the contract is signed?

You’re right.  I am very closed-minded when it comes to EIA’s, whose main purpose is to generate enormous reserves for insurance companies, and huge commissions to those who sell them. 
You’re also right about the fact that managed money isn’t for everyone.  I only deal with people who are serious about making money, and who know that the best way to do so is to divorce your feelings about temporary market swings.  Over time, the risk of a diversified portfolio of stocks goes to zero; for everything that’s “fixed”–let alone those instruments that lock up principal for 10 years or more–it’s slow-motion suicide.  How anyone can lock in their money at 3% in a world of $3.50 gasoline and skyrocketing medical and nursing home costs and feel good about it is beyond me, so I don’t bother.   Plenty of hungry CD and annuity salesmen out there to pick off those people, and I suppose they have to make a living too.
A doctor isn’t concerned about a patient’s feelings about his prognosis–if they don’t take their medicine, they’re going to die.  Invested in CD’s or most EIA’s, the client is losing money, every single day, against inflation and taxes.  That’s the reality, and I would be doing a disservice to the client to sell them a product that is bad for them, just because they feel good about it today.

[quote=Bodysurf]You’re right.  I am very closed-minded when it comes to EIA’s, whose main purpose is to generate enormous reserves for insurance companies, and huge commissions to those who sell them. 
You’re also right about the fact that managed money isn’t for everyone.  I only deal with people who are serious about making money, and who know that the best way to do so is to divorce your feelings about temporary market swings.  Over time, the risk of a diversified portfolio of stocks goes to zero; for everything that’s “fixed”–let alone those instruments that lock up principal for 10 years or more–it’s slow-motion suicide.  How anyone can lock in their money at 3% in a world of $3.50 gasoline and skyrocketing medical and nursing home costs and feel good about it is beyond me, so I don’t bother.   Plenty of hungry CD and annuity salesmen out there to pick off those people, and I suppose they have to make a living too.
A doctor isn’t concerned about a patient’s feelings about his prognosis–if they don’t take their medicine, they’re going to die.  Invested in CD’s or most EIA’s, the client is losing money, every single day, against inflation and taxes.  That’s the reality, and I would be doing a disservice to the client to sell them a product that is bad for them, just because they feel good about it today.

[/quote]

Your ignorance is not one of your best kept secrets.

Uh huh.  For the record, I use VA’s a lot.  But EIA’s are one of the scourges of this industry, as are the people who sell them.

Don’t pay any attention to me, though.  Don’t you have an “elderly issues” seminar to put on?  Or is today your day at the gun range?

[quote=Bodysurf]Uh huh.  For the record, I use VA’s a lot.  But EIA’s are one of the scourges of this industry, as are the people who sell them.

Don’t pay any attention to me, though.  Don’t you have an “elderly issues” seminar to put on?  Or is today your day at the gun range?

[/quote]

It’s tempting, but I’m not going to the range today. I’ve only got two guns and I carry both of them. Since I just cleaned them yesterday and won’t have time to clean them again, I’m gonna do something else today.

What are you doing today? Figuring out a new explanation for why people should continue to pay you to lose money for them? Does that “we’re on the same side of the table” line still work?

I’m playing in a tennis tournament today.

YTD I’m down in only two accounts.  I do all equities with covered call writes, with fairly high minimums.  Not for everyone, I know.

I do like VA’s.  When doing the optimum asset allocations, I determine what the client’s exposure to fixed income should be, and invest those proceeds into Variable Annuities.  They work like bonds–which I’m not a fan of either–with far better returns and guarantees.  I did about $5mm worth last year, primarily with ING and Met.  I reserve almost all my harsh criticism for EIA’s, and guys who see every sale as a 10% commission opportunity.

[quote=Bodysurf]Over time, the risk of a diversified portfolio of stocks goes to zero

I do like VA’s.  When doing the optimum asset allocations, I determine what the client’s exposure to fixed income should be, and invest those proceeds into Variable Annuities.  They work like bonds–which I’m not a fan of either–with far better returns and guarantees. 

[quote=Bodysurf] I do like VA’s.  When doing the optimum asset allocations, I determine what the client’s exposure to fixed income should be, and invest those proceeds into Variable Annuities.  They work like bonds–which I’m not a fan of either–with far better returns and guarantees. [/quote]
Optimum?  How exactly do you determine one’s “optimum” asset allocation?

Well, it’s the very core of my belief system that only equities can deliver the long-term performance, price appreciation, diversification, and dividend growth that today’s investor needs to ensure that inflation doesn’t demolish his retirement portfolio.  So I begin with a long-term horizon and outlook.  For such people, EIA’s, CD’s, munis–are a guaranteed money loser after inflation and taxes.  (And yes, I’m aware that annuities defer taxes.)
I demonstrate to the client, however, that it’s always wise to keep a percentage of their post-retirement income guaranteed.  One way to do this is show how their Social Security, their pensions, and some money invested in VA’s will guarantee–to the best extent possible, anyhow–a given level of income.  Every dime above that needs to be invested in instruments that historically outperform.  The real “risk” you need to concern yourself with, is outliving your money.

Most prospects disagree.  Most like the temporary security and comfort that fixed-income investments provide.  It’s only later, when they run out of money courtesy of a 25-year retirement and soaring costs, that they wish they’d done something–anything–differently.  Not my problem.  It’s always baffled me how anyone hears the term “fixed income” and doesn’t run in the opposite direction.  There are no expenses I know of that are fixed, but we pretend we’re doing people a favor by helping them down a slope from which many will never recover.  Our job is not to tell people what they want to hear, or to modify our investment advice based on their “feelings”–it’s to deliver cold, hard doses of the truth.  And the truth is that there are NO investors who bought into a diversified portfolio of stocks years ago, and would’ve been better off in bonds, or CD’s, or these abominations called EIA’s.

[quote=Bodysurf]Well, it’s the very core of my belief system that only equities can deliver the long-term performance, price appreciation, diversification, and dividend growth that today’s investor needs to ensure that inflation doesn’t demolish his retirement portfolio.  So I begin with a long-term horizon and outlook.  For such people, EIA’s, CD’s, munis–are a guaranteed money loser after inflation and taxes.  (And yes, I’m aware that annuities defer taxes.)
I demonstrate to the client, however, that it’s always wise to keep a percentage of their post-retirement income guaranteed.  One way to do this is show how their Social Security, their pensions, and some money invested in VA’s will guarantee–to the best extent possible, anyhow–a given level of income.  Every dime above that needs to be invested in instruments that historically outperform.  The real “risk” you need to concern yourself with, is outliving your money.

Most prospects disagree.  Most like the temporary security and comfort that fixed-income investments provide.  It’s only later, when they run out of money courtesy of a 25-year retirement and soaring costs, that they wish they’d done something–anything–differently.  Not my problem.  It’s always baffled me how anyone hears the term “fixed income” and doesn’t run in the opposite direction.  There are no expenses I know of that are fixed, but we pretend we’re doing people a favor by helping them down a slope from which many will never recover.  Our job is not to tell people what they want to hear, or to modify our investment advice based on their “feelings”–it’s to deliver cold, hard doses of the truth.  And the truth is that there are NO investors who bought into a diversified portfolio of stocks years ago, and would’ve been better off in bonds, or CD’s, or these abominations called EIA’s.

[/quote]


How do you explain to people why they should continue to pay you to lose money for them?

Are the reps at your b/d  even allowed to sell EIA’s? Tell the truth.

How do you explain to people why they should continue to pay you to lose money for them?

[quote=Primo]

It is not slight of hand, it is comparing actual returns to actual returns.  Nothing tricky about it.  What is slight (shouldn’t there be an “e” in there?) of hand sales is showing a hypothetical “this is the way it could work” illustration as opposed to a historical “this is the way it would have worked” illustration.  Ever ask yourself why that is?  As far as fees are concerned, my fees are disclosed in bold type upfront, and then the client gets a quarterly reminder.  VA fees are buried in a prospectus.  At the end of the day, I charge less all in than a VA.  Quick question, how do you know about “unknown trading fees” if they are unknown?

[quote=Primo]It is not slight of hand, it is comparing actual returns to actual returns.  Nothing tricky about it.  What is slight (shouldn’t there be an “e” in there?) of hand sales is showing a hypothetical “this is the way it could work” illustration as opposed to a historical “this is the way it would have worked” illustration.  Ever ask yourself why that is?  As far as fees are concerned, my fees are disclosed in bold type upfront, and then the client gets a quarterly reminder.  VA fees are buried in a prospectus.  At the end of the day, I charge less all in than a VA.  Quick question, how do you know about “unknown trading fees” if they are unknown?[/quote]

One thing you rookies don’t understand is that we know that the more we disclose, the easier it is to close the sale. Unfortunately for you, one of the words that we can use is “guarantee.”

It is not slight of hand, it is comparing actual returns to actual returns.  Nothing tricky about it.  What is slight (shouldn’t there be an “e” in there?) of hand sales is showing a hypothetical “this is the way it could work” illustration as opposed to a historical “this is the way it would have worked” illustration.  Ever ask yourself why that is?  As far as fees are concerned, my fees are disclosed in bold type upfront, and then the client gets a quarterly reminder.  VA fees are buried in a prospectus.  At the end of the day, I charge less all in than a VA.  Quick question, how do you know about “unknown trading fees” if they are unknown?

One thing you rookies don’t understand is that we know that the more we disclose, the easier it is to close the sale. Unfortunately for you, one of the words that we can use is “guarantee.”

I have no idea how much or little you disclose Tom.  Being that we live in different parts of the country, we most likely will never see the same prospect.  IF (and that is a big if) you pitch annuities like you post here, you are the poster child for the scorn given to annuities.  I base my opinions of annuities on what I see in my market.  EIA's are pitched as no downside equity products instead of fixed annuities with a different crediting method.  I would be willing to bet EIA sales will drop tremendously when they are regulated as equity products (if it happens).  I'm not a big fan of regulation, but I would welcome this particular piece.

[quote=Primo]

I have no idea how much or little you disclose Tom.  Being that we live in different parts of the country, we most likely will never see the same prospect.  IF (and that is a big if) you pitch annuities like you post here, you are the poster child for the scorn given to annuities.  I base my opinions of annuities on what I see in my market.  EIA’s are pitched as no downside equity products instead of fixed annuities with a different crediting method.  I would be willing to bet EIA sales will drop tremendously when they are regulated as equity products (if it happens).  I’m not a big fan of regulation, but I would welcome this particular piece.

Nice to finally come to an understanding.