[quote=Hank Moody] [quote=the word][quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!

  Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]

"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?

Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote]   Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00.   Thanks for proving my point about guarantees in the current environment..[/quote]

Well, Wordy Turdy, I suppose he'll have $50,000 for me to put into an index annuity, where he'll get all of the upside of the market and none of the down side.  Speaking of the current environment, which annuity companies aren't making good on their guarantees?
[/quote]   But I thought the worst case scenario was $10k for life.  Looks like you admit the worst case scenario is much worse.  You were wrong Bobby.  Try to step out of the spotlight of everlsasting ignorance oh orracle of annuities.   I like VA's.  They are 70% of my book.   I guess i can be objective. 

[quote=the word][quote=Hank Moody] [quote=the word][quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!

  Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]

"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?

Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote]   Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00.   Thanks for proving my point about guarantees in the current environment..[/quote]

Well, Wordy Turdy, I suppose he'll have $50,000 for me to put into an index annuity, where he'll get all of the upside of the market and none of the down side.  Speaking of the current environment, which annuity companies aren't making good on their guarantees?
[/quote]   But I thought the worst case scenario was $10k for life.  Looks like you admit the worst case scenario is much worse.  You were wrong Bobby.  Try to step out of the spotlight of everlsasting ignorance oh orracle of annuities.   I like VA's.  They are 70% of my book.   I guess i can be objective. [/quote]

I'm sorry that you've grown afraid of VA's. I'm not afraid of them and they're easy to sell.

I'm sure they are easy to sell if you lie and misrepresent what you are selling.

Scared??  You call it what you want.  The money that we invest are the hard earned dollars of hard working people.  I will always be prudent with those funds. 

[quote=the word][quote=Hank Moody] [quote=newnew]the mutual fd argument is bogus. The VA SUBACCTS will always be fine, it’s the GUARANTEES that will suddenly get much more expensive!!

  Your clients know the expenses, but do they know the MAX that can be applied when the hedging stops working?[/quote]

"The VA subaccounts will ALWAYS be fine." Wow! Did your husband tell you that or did you just make it up? Let me see if I have this right...A client puts $100,000 into a VA. The market value drops to $50,000. The annuity company gives itself a 50 bp raise and pays the client $10,000 for life (20% of the market value) and the client is supposed to be upset about a 50 bp fee increase?

Did you even THINK before you posted this? Do they let you help real people with their money?
[/quote]   Hey Hanky Panky, the worst case scenario in your above scenario is the annuity company goes out of business and you now have $50,000.00.   Thanks for proving my point about guarantees in the current environment..[/quote]   Word,   You need to calm down a little bit.  I felt the way you do now, but you need to call up your wholesaler and have him explain how this works to you over some SBUX.   The VA side of an insurance company is a separate entity.  It is also a profitable entity.  If something happened to the parent company, this division could be sold, since it is an asset.  Anything the original company has guaranteed, must be backed up by the new company.   Also, insurance companies MUST maintain enough reserves to fulfill anything they have guaranteed.  This includes living benefits.   The VA companies have built in a few buffers.  1.  They can raise rider fees.  2. Rider fees are usually based on income base value, but charged to account value.  3. Some companies use options to hedge or move you out of the market or a combination of the two.    It is important to find a company that is hedging the right way.  I happen to be of the opinion that proper hedging should be based upon the difference of income base vs. account value.  The companies I use hedge this way.  Some companies hedge for interest rate changes, or other risks that I think are of less importance.   In a way, you can think of it like social security.  Future buyers will pay for the benefits of today's buyers.   Also, remember, not everyone who bought a VA will take income at the same time.  And when you take income, you are taking it from your account value until it runs out.    There was a good conference call I was on with one of the companies I use about their hedging strategies.  With the options they use, in the first two weeks of October, they made $1 Billion.    It is also important to find a company that does not have all their business made up of VA's.    

No way i need to calm down.  I have to sit here and listen to Bobby spew his smartass comments from his perch on high.  You better beleive I am going to let him know when he is wrong and is lying.  As is the case in this thread.

  Snags, I'm not calling my wholesaler for objective info.  All of what you said is relevant and I've heard it all before.  Like, I said we can agree to disagree.  I will not sell them until their is more clarity about the indusrty.     

[quote=the word]No way i need to calm down.  I have to sit here and listen to Bobby spew his smartass comments from his perch on high.  You better beleive I am going to let him know when he is wrong and is lying.  As is the case in this thread.

  Snags, I'm not calling my wholesaler for objective info.  All of what you said is relevant and I've heard it all before.  Like, I said we can agree to disagree.  I will not sell them until their is more clarity about the indusrty.     [/quote]


"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?


What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.

[quote=Hank Moody] [quote=the word]No way i need to calm down.  I have to sit here and listen to Bobby spew his smartass comments from his perch on high.  You better beleive I am going to let him know when he is wrong and is lying.  As is the case in this thread.

  Snags, I'm not calling my wholesaler for objective info.  All of what you said is relevant and I've heard it all before.  Like, I said we can agree to disagree.  I will not sell them until their is more clarity about the indusrty.     [/quote]


"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?


What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.
[/quote]   Hank, can you explain the '10% lifetime cash flow' comment?  Are you referring to a GMIB rider?  It's a strong conversation point, and I want to make sure I understand what you're showing your client.  TIA.

[quote=deekay][quote=Hank Moody] [quote=the word]No way i need to calm down.  I have to sit here and listen to Bobby spew his smartass comments from his perch on high.  You better beleive I am going to let him know when he is wrong and is lying.  As is the case in this thread.

  Snags, I'm not calling my wholesaler for objective info.  All of what you said is relevant and I've heard it all before.  Like, I said we can agree to disagree.  I will not sell them until their is more clarity about the indusrty.     [/quote]


"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?


What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.
[/quote]   Hank, can you explain the '10% lifetime cash flow' comment?  Are you referring to a GMIB rider?  It's a strong conversation point, and I want to make sure I understand what you're showing your client.  TIA.[/quote]

It's not a GMIB rider. I'd explain it, but I don't want "The Tord" to benefit from any of my ideas.

[quote=Hank Moody] [quote=the word]No way i need to calm down.  I have to sit here and listen to Bobby spew his smartass comments from his perch on high.  You better beleive I am going to let him know when he is wrong and is lying.  As is the case in this thread.

  Snags, I'm not calling my wholesaler for objective info.  All of what you said is relevant and I've heard it all before.  Like, I said we can agree to disagree.  I will not sell them until their is more clarity about the indusrty.     [/quote]


"Mr. Prospect, I can guarantee you that your worst case scenario will be a 10% lifetime cash flow on ALL of the money you have invested." How is THAT for some clarity?


What kind of clarity do you require? Do you need Balack Obama to tell you that everything's going to be ok? Personally, I'm glad that you can't figure out what to sell. Less competition for the rest of us who have figured out that clients want guarantees. I don't remember being as naive as you when I was 27.
[/quote]   You already admitted that this was a lie.  Worst case is you are stuck with your account value after the annuity company goes under.  Why do you insist on lying to your clients to make a sell?   The clarity I need is for AIG to not need to beg for emergeny capital from the US government, for ING not to beg for emergency capital from the Dutch government, for Hartford to not need emergency capital from Allianz.    I would argue that that a sell does not need to be made in every environment. 

"The VA side of an insurance company is a separate entity.  It is also a profitable entity.  If something happened to the parent company, this division could be sold, since it is an asset.  Anything the original company has guaranteed, must be backed up by the new company.   Also, insurance companies MUST maintain enough reserves to fulfill anything they have guaranteed.  This includes living benefits.   The VA companies have built in a few buffers.  1.  They can raise rider fees.  2. Rider fees are usually based on income base value, but charged to account value.  3. Some companies use options to hedge or move you out of the market or a combination of the two."   Snags, I'm not trying to pick on your post, but there's some things here that are worth further conversation.   The VA side of an insurance company is not a separate entity.  The money inside of a VA is in separate accounts, but that's not the same thing.    Sure, a company could sell it's VA business.  It's an asset, but just because it's an asset doesn't mean it has value.   Ex. XYZ insurance company just got into the VA business.  They have one contract on the books.  It was purchased with $100,000.  The current contract value is $70,000.  It has a death benefit of $100,000 and a GMIB value of $106,000.  The insurance company collects fees of 1.5% of the contract value for the M&E and .85% of the GMIB value.  Now, multiply this by thousands of contracts like this.  If these contracts values are underwater, why would a third party pay money for them?    They do have to keep reserves, but these reserve requirements don't have to be enough to fulfill any guarantees.   This is because it's impossible to know how much is actually needed.   When someone invests $100,000 into a VA, what's the worst case scenario for the insurance company?  I think that the worst case scenario is if the VA has an enhanced death benefit and the market completely tanks.  ie. someone invests $100,000 and their value goes to $30,000, but their death benefit has increased to $150,00.  If the market does this type of tanking, there is not enough money in reserves from the VA business.  Hopefully, their other businesses can pick up the slack.  Maybe I'm wrong, but I don't that the companies have put enough money into reserves to handle separate account losses of 50%+.   Raising the rider fee is a really interesting concept.  Is this really a buffer?   I think that it may not be.  I'm thinking out loud on this one, so please give me your 2 cents.   As you said, they are charged to the account value, but based upon the rider amount.  Therefore, when the account value drops, the rider fee as a a % of the contract value increases.  This increases the chance that the contract value will drop further.  If we then couple this with an increased rider fee, the contract value will drop even faster.  Doesn't this then mean that since the separate account becomes less, the insurance company is ultimately on the hook for more money?

I agree, it's sort of a catch 22 with these variable annuities. The more likelihood that your standard mutual funds will go to zero would also increase the likelihood of the insurance company not making good on their VA guarantees.

Keep in mind NO ONE has to buy out the VA part of these insurance companies and NO, state guaranties will not step in for these income/withdraw guarantees. They only protect the GENERAL account of the insurance companies. i.e fixed annuites and the fixed account within a VA.   I don't care how the wholesalers spin the VAs and how their companies hedge against risk because I personally feel that no company's room full of hundred PHD actuarties are better than another's. What it comes down to is how much risk they are willing to take, how much their shareholders are pressuring them for profit (as far as the stock insurance companies go). For example, I think AXA HAD the strongest GMIB product out there for the longest time but as of this year's -40% downturn, they are decreasing the features on the product and increasing the fees.     With a 6% withdraw and a 3% fee to start you off, the only thing you're guaranteed is the income based off the insurance company's annuitization chart. There is NO upside potential in the long run. Imagine three bear markets, early 90's, 2001, and right now. During these rough times, your clients' fees probably increased from 3% to anywhere between the ranges of 5-6% (as your account value drops, the fee anchor gets heavier on the guarantee side). The only way to get upside potential is to use the mutual end insurers with the less fancy guarantees, which totals around 2% and does not base their fees off the guarantees.   With that said, I think that anyone using withdraw benefits should be safer than people using income benefits. From a business standpoint, withdraw benefits are much more predictable by the actuaries versus an income benefit. Don't get me wrong, I completely believe in the product for any conservative investor for qualified plans.  

[quote=anonymous]

Raising the rider fee is a really interesting concept.  Is this really a buffer?   I think that it may not be.  I'm thinking out loud on this one, so please give me your 2 cents.   As you said, they are charged to the account value, but based upon the rider amount.  Therefore, when the account value drops, the rider fee as a a % of the contract value increases.  This increases the chance that the contract value will drop further.  If we then couple this with an increased rider fee, the contract value will drop even faster.  Doesn't this then mean that since the separate account becomes less, the insurance company is ultimately on the hook for more money?[/quote]   Anon,   Yes, I definitely think it's a buffer.  Since you asked, here's my 2 cents:   First, let's make a point.  One company I use clearly states in the prospectus, that they can not raise your rider fee in the first 5 years of the contract.  If the market has any kind of recovery in the next 5 years, which is entirely possible, this discussion might just be a moot point.   Ok, so let's say you're past the first 5 years and they are going to raise your rider fee.  You have a choice:  Either you can elect to pay the higher rider fee, or you can elect not to pay the higher amount and lose the quarterly ratchet feature of your VA, but still maintain the MAW.   Here's the speculation on my part.  If after 5 years, the insurance company decides to raise your rider fee, we are probably in a pretty bad state in the markets.  Therefore, you're less likely to be getting above average returns in the market.  It would seem the guaranteed 7% growth of income base would probably be the best option.   So, if you are in the accumulation phase, you would probably want to pay the extra fee to keep getting your guaranteed 7% step-ups.   If you are in the distribution phase, your contract value would quite possibly be under the income base high watermark, so it wouldn't be likely that market returns + withdrawals would help get you any higher ratchets.    Therefore, you wouldn't elect to pay more for the rider, forego the quarterly ratchet, and continue to receive your MAW.    Something else to consider:  People are still buying VA's.  They bought them at Dow 12000, 14000, 12000, 10000, 8000, and everywhere inbetween.  People will continue to buy them.  Not everyone will be taking money out at the same time.  And when they do begin to take money, they are taking their own money until the point their contract value reaches zero.  Some people will live long enough to get income after the contract value hits zero, others will not.  That's simple insurance logic.    Some people will never take income from their VA's.  Others will take out more than their MAW and will reduce their benefit.  And some will take out more than their MAW thereby reducing their contract to zero and completely cancelling their income.   And all while this stuff is happening, the market will continue to go up and it will continue to go down.  The insurance companies will continue to make money on a fee basis and through their hedging strategies.    If it gets to the point that insurance companies can't meet their insurance guarantees, it will be the end of the economy.    If (when) insurance companies begin paying out income after contract values hit zero, it will work the same way social security works.  The fees from the new buyers will be used to pay the income for the old buyers.   I would just try to work with companies whose lines of business are very diversified and employ hedging strategies that hedge against the biggest risks.        

[quote=snaggletooth][quote=anonymous]

Raising the rider fee is a really interesting concept.  Is this really a buffer?   I think that it may not be.  I'm thinking out loud on this one, so please give me your 2 cents.   As you said, they are charged to the account value, but based upon the rider amount.  Therefore, when the account value drops, the rider fee as a a % of the contract value increases.  This increases the chance that the contract value will drop further.  If we then couple this with an increased rider fee, the contract value will drop even faster.  Doesn't this then mean that since the separate account becomes less, the insurance company is ultimately on the hook for more money?[/quote]   Anon,   Yes, I definitely think it's a buffer.  Since you asked, here's my 2 cents:   First, let's make a point.  One company I use clearly states in the prospectus, that they can not raise your rider fee in the first 5 years of the contract.  If the market has any kind of recovery in the next 5 years, which is entirely possible, this discussion might just be a moot point.   Ok, so let's say you're past the first 5 years and they are going to raise your rider fee.  You have a choice:  Either you can elect to pay the higher rider fee, or you can elect not to pay the higher amount and lose the quarterly ratchet feature of your VA, but still maintain the MAW.   Here's the speculation on my part.  If after 5 years, the insurance company decides to raise your rider fee, we are probably in a pretty bad state in the markets.  Therefore, you're less likely to be getting above average returns in the market.  It would seem the guaranteed 7% growth of income base would probably be the best option.   So, if you are in the accumulation phase, you would probably want to pay the extra fee to keep getting your guaranteed 7% step-ups.   If you are in the distribution phase, your contract value would quite possibly be under the income base high watermark, so it wouldn't be likely that market returns + withdrawals would help get you any higher ratchets.    Therefore, you wouldn't elect to pay more for the rider, forego the quarterly ratchet, and continue to receive your MAW.    Something else to consider:  People are still buying VA's.  They bought them at Dow 12000, 14000, 12000, 10000, 8000, and everywhere inbetween.  People will continue to buy them.  Not everyone will be taking money out at the same time.  And when they do begin to take money, they are taking their own money until the point their contract value reaches zero.  Some people will live long enough to get income after the contract value hits zero, others will not.  That's simple insurance logic.    Some people will never take income from their VA's.  Others will take out more than their MAW and will reduce their benefit.  And some will take out more than their MAW thereby reducing their contract to zero and completely cancelling their income.   And all while this stuff is happening, the market will continue to go up and it will continue to go down.  The insurance companies will continue to make money on a fee basis and through their hedging strategies.    If it gets to the point that insurance companies can't meet their insurance guarantees, it will be the end of the economy.    If (when) insurance companies begin paying out income after contract values hit zero, it will work the same way social security works.  The fees from the new buyers will be used to pay the income for the old buyers.   I would just try to work with companies whose lines of business are very diversified and employ hedging strategies that hedge against the biggest risks.        [/quote]   Hey Snags, if you don't mind me asking, have any of your clients began taking out withdraws yet?

[quote=ChrisVarick]

Hey Snags, if you don't mind me asking, have any of your clients began taking out withdraws yet?[/quote]   Not yet, I want these things to grow getting the 7% step up for as long as possible.

gregoron:

Watch out for those step-ups.  Some VA’s reset their 10-year accumulation period each year you elect a step-up, plus they can raise the rider fees too.

  7% growth on the income base does not raise fees. a 15% market step up/ratchet on the income/withdraw base COULD trigger a fee increase, in this market, I doubt any portfolio could beat ING's 7% guaranteed growth. No need to worry about that...