no trail dumbsh!t !!

"Why not invest in 50 stocks that have increased dividends for 10+ years and put a limit order on them for say 8% less than the puchase price. Then add some amount into bonds or SPIA for “guarantees”. You could up the limit order each year for growth.

That would provide "downside" protection with no surrender charges, no M&E and a likely rising income stream, tax-advantages..." EDJtoRIA

Edoria,

Stocks don't often go down the way you want them too. Sometimes (like in the case of colonial gas which had been paying rising dividends since Adam And Eve held the first BOD meeting!) the dividend is abruptly eliminated and the stock gaps down 50%! Where is you little limit order now? It's an executed market order that got you drilled and filled at the same time.

Is that likely to happen, to you? Yes. Given enough exposure to the market, you too will step on a landmine. What if, tonight, the BIG ONE hits California? "When California tumbles into the sea, that'll be the day I go back to Annandale!" notice he didn't say "IF"! What will the market look like tomorrow? Dow Down 5,000? Dow Closed till further notice? and each of your fifty limit orders will have been ticked off as market orders (or do you want them to be just out of the money by a 100%?).

What if Bird Flu makes the jump this weekend and half of Hong Kong is exposed by Monday (the half with the airport in it)?

What if a sea container in NJ has a massive dirty bomb ticking in it right NOW!?

There is risk in the market and for you (and the "just buy a mutual fund" crowd) to think you can pretend to take on that risk and manage it with your petty little tricks is a grevious error!

Understand risk and use it. Understand fear and protect against it. Just because you're paranoid doesn't mean there isn't plenty to be phobic of.

Mr. A

Understand risk and use it. Understand fear and protect against it. Just because you're paranoid doesn't mean there isn't plenty to be phobic of.

Sweet. Clients emotions are real, and you are the only thing standing between their emotions and irrational investor behaviour. These are the only clients worth having, in my book. 'Most everything else is just bells and whistles.

Mr. A,

I guess I'm just a lot more optimistic than you.

If any of the above scenarios happened, wouldn't the insurance companies that have their assets invested in the markets also be in trouble? What if they had lots of policies in place in California? Can you say "bankruptcy"?

I don't offer my service based on doom and gloom. I try to show people a good value for the relationship and that I'm a nice person. That seems to work for me!

Why not invest in 50 stocks that have increased dividends for 10+ years and put a limit order on them for say 8% less than the puchase price. Then add some amount into bonds or SPIA for "guarantees". You could up the limit order each year for growth.

EDJ to RIA, just curious, with this strategy, what's the total cost to the client.  How much money is the advisor making?  How much time does the advisor have to invest in this?  What's the advantage to the client?   Just give us ballpark #'s on a $200,000 investment.

[quote=anonymous]

Why not invest in 50 stocks that have increased dividends for 10+ years and put a limit order on them for say 8% less than the puchase price. Then add some amount into bonds or SPIA for "guarantees". You could up the limit order each year for growth.

EDJ to RIA, just curious, with this strategy, what's the total cost to the client.  How much money is the advisor making?  How much time does the advisor have to invest in this?  What's the advantage to the client?   Just give us ballpark #'s on a $200,000 investment.

[/quote]

Plus this strategy doesn't provide the guarantees that are usually the reason the client is buying the VA in the first place.

I just did a 180K VA for clients who have inherited money. This is the first real money they have had and are nervous about losing and the wife especially about the market.  They are not very sophisticated investors. They don't need the money until retirement which is over 14 years away. The annuity has a guaranteed base growth rate, a worst case scenario if you will and a death benefit for their children...another worst case scenario.  

After ten years they can annuitize the contract if the base is greater than the actual contract value or they can continue to let the contract go on until the base is 2.5 times the initial deposit.  If the contract is worth more than the guaranteed base, there is no need to annuitize and they can take retirement income in any amount they like.  If they want to their free withdrawal amounts from the contract prior to 10 years it is taken pro rata from the contract and adjusted accordingly in the guaranteed base.  At this time, they see no need to take anything from the contract.

They know that this expensive and the guarantees are going to reduce the potential gains with the same funds outside of the annuity. They feel that the guarantees are more important to them.

The rest of the funds we have put into money market, bond ladder with the longest maturity being 15 years and a few mutual funds for growth and income and liquidity.

While your scenario of the 50 stocks is do-able because my clients have enough funds to build a portfolio, the fact that these are unsophisticated investors who are leery of the stock market would make it impossible for them.  Trying to explain stop loss and sell limit orders, zero cost collars, ticket charges etc would scare them.  The activity in the account as the stocks are stopped out and new stocks bought would also be scary. The end result would be that they give up and put the money back into CDs just like Dad did.

[quote=EDJ to RIA]

Mr. A,

I guess I'm just a lot more optimistic than you.

If any of the above scenarios happened, wouldn't the insurance companies that have their assets invested in the markets also be in trouble? What if they had lots of policies in place in California? Can you say "bankruptcy"?

I don't offer my service based on doom and gloom. I try to show people a good value for the relationship and that I'm a nice person. That seems to work for me!

[/quote]

More optimistic is one way of looking at it. Some optimist might say you are half full of Sh1t and a pessimist might say I'm half empty of it!

Gloom and doom is when your client has to go back to work at Mc Donalds because the market ate their portfolio's earnings power.

I'm Sister Mary Sunshine when it comes to my ideas and I'm Darth Vader when it comes to anyone else's ideas (if it means more money to/for me). I invest/speculate in the markets naked every day. I buy stocks and sell them when I have a 20% gain. Why? Because I know that I don't know what can't be known and that is "What tomorrow will bring!"

I rarely buy VA's, but I don't delude myself or my clients that I can replicate the safety of annuities. I just don't have the capital backing me that can allow me to make a "Guarantee!". And neither do you!

Mr. A

[quote=babbling looney][quote=anonymous]

Why not invest in 50 stocks that have increased dividends for 10+ years and put a limit order on them for say 8% less than the puchase price. Then add some amount into bonds or SPIA for "guarantees". You could up the limit order each year for growth.

EDJ to RIA, just curious, with this strategy, what's the total cost to the client.  How much money is the advisor making?  How much time does the advisor have to invest in this?  What's the advantage to the client?   Just give us ballpark #'s on a $200,000 investment.

[/quote]

Plus this strategy doesn't provide the guarantees that are usually the reason the client is buying the VA in the first place.

I just did a 180K VA for clients who have inherited money. This is the first real money they have had and are nervous about losing and the wife especially about the market.  They are not very sophisticated investors. They don't need the money until retirement which is over 14 years away. The annuity has a guaranteed base growth rate, a worst case scenario if you will and a death benefit for their children...another worst case scenario.  

After ten years they can annuitize the contract if the base is greater than the actual contract value or they can continue to let the contract go on until the base is 2.5 times the initial deposit.  If the contract is worth more than the guaranteed base, there is no need to annuitize and they can take retirement income in any amount they like.  If they want to their free withdrawal amounts from the contract prior to 10 years it is taken pro rata from the contract and adjusted accordingly in the guaranteed base.  At this time, they see no need to take anything from the contract.

They know that this expensive and the guarantees are going to reduce the potential gains with the same funds outside of the annuity. They feel that the guarantees are more important to them.

The rest of the funds we have put into money market, bond ladder with the longest maturity being 15 years and a few mutual funds for growth and income and liquidity.

While your scenario of the 50 stocks is do-able because my clients have enough funds to build a portfolio, the fact that these are unsophisticated investors who are leery of the stock market would make it impossible for them.  Trying to explain stop loss and sell limit orders, zero cost collars, ticket charges etc would scare them.  The activity in the account as the stocks are stopped out and new stocks bought would also be scary. The end result would be that they give up and put the money back into CDs just like Dad did.

[/quote]

Sounds like the ING ESII to me...

The clients that I accept are somewhat sophisticated. Most wouldn't touch a VA with a 10-foot pole. Not that VA's aren't appropriate for some folks, they're just not my clients. If I don't think a prospective client will understand or appreciate my strategy and platform, I don't accept them. I'll charge them $150/hr to show them a detailed cost and diversification analysis, but then I'll send them on their way with a "call me again if you have any questions!"

That's just the way I'm set up.

On the cost front, the platform I use charges a flat 20bps for all trading, performance reporting and portfolio management software. I pass this on to the customer as the "expense ratio" and then tack on my tiered fee from 1% down to .55%. I'd gues my average fee is around 80bps + 20bps = somewhere around 1%.

Everyone have a great weekend!

The clients that I accept are somewhat sophisticated. Most wouldn't touch a VA with a 10-foot pole.

I'll call B.S. on this.  I say that because a client's level of sophistication has nothing to do with this.  A sophositicated conservative client can absolutely find value in a VA.  In fact, I find the sale to be much easier with the sophisticated client because they understand the value in being able to invest in a way that is above their natural risk tolerance.

"Somewhat sophisticated' means that they heard once that VA's were a bad way to go and they hold on to that kernel of "knowledge" with all their might.

I've had arguements with very sophisticated investors over the benefits of preferred stocks, over the disadvantages of closed end bond funds, over option strategies, over annuities, over the relative advantages of simple interest over amortized interest/principal payments and every other investing paradigm that has come down the pipe.

I argued in favor of preferreds before the New Issue Preferreds market came to the market, and then I had to argue against the preferreds to the self same people who were dead set against them before.

I don't buy new issue Preferreds, I don't buy new issue CEBF, I don't buy mortgages. I will buy discounted preferreds, I will buy discounted CEBFs, I don't buy mortgages.

I used to not buy VAs because they didn't offer anything beyond the death benefit. Now they offer much much more. I will buy them. But I expect to run into the same old "Sophistication" when I present them.

Mr. A

[quote=EDJ to RIA]

The clients that I accept are somewhat
sophisticated. Most wouldn’t touch a VA with a 10-foot pole. Not that
VA’s aren’t appropriate for some folks, they’re just not my clients. If
I don’t think a prospective client will understand or appreciate my
strategy and platform, I don’t accept them. I’ll charge them $150/hr to
show them a detailed cost and diversification analysis, but then I’ll
send them on their way with a “call me again if you have any
questions!”

That's just the way I'm set up. [/quote]

You hit the nail on the head. I'm the same way. My customers just arent VA customers, and if they would accept the blandishments of annuity salesmen, they probably wouldn'tappreciate real investment management.

If you really want to sour clients on annuities, download a copy of AEL's investor presentation from the FBR conference.

It's extremely open/explicit that AEL's model is to pay annutant 250bp less than AEL's general account earns. It also explain's how AEL's annuities tend to have much larger and longer surrender charges than the industry averages.

So you show people  that on the one hand the industry tells annutants "You made the right choice" and to shareholders they say "Look at these suckers".

[quote]On the cost front, the platform I use charges a flat 20bps for all trading, performance reporting and portfolio management software. I pass this on to the customer as the "expense ratio" and then tack on my tiered fee from 1% down to .55%. I'd gues my average fee is around 80bps + 20bps = somewhere around 1%.

Everyone have a great weekend!

It's extremely open/explicit that AEL's model is to pay annutant 250bp less than AEL's general account earns.

I don't know this annuity, but why is it a shock to find out that the insurance companies are in it for the money?  This is actually why I hardly ever reommend SPIA's.  The client would be better investing the funds and creating their own annuity.  The reason that I feel VAs are appropriate for some people has been repeated over and over by others who don't have their eyes shut.  Guarantees not available in other investments and the ability to be more agressive than the client would otherwise be because of the guarantees.  Tax deferral is sometimes the reason, but most often not.

As to the "sophisitication" of customers, how do you determine this.  See if they crook their pinky finger when sipping tea?  Actually, I think of clients as sophisitacted if they are aware of and willing to use strategies that are more involved than the average investor and willing to be invested in other than your basic mutual fund, bond portfolios.  Unsophisticated (to me anyway)  means I have to start explaining the very basics...what is a stock, what is a bond, what is a mutual fund, how are these different than CDs, etc.

The type of "sophisticated" investor I won't do business with is the one who thinks they know more than I do and wants to second guess every recommendation I make.  Maybe they watched Suzie Orman or read Smart Money once.

It's extremely open/explicit that AEL's model is to pay annutant 250bp less than AEL's general account earns. It also explain's how AEL's annuities tend to have much larger and longer surrender charges than the industry averages.

What does this have to do with VA's?  How the investments perform compare to the insurance company's general account has zero meaning in a VA.