I am somewhat curious why the sudden push for insurance guaranty products.  I think it is because the market broke off at the hilt, but then again, history has told us it is a buying time.  I have been bullish since DOW 7,000.  Starting to moderate, but WTF.  I have to call you out, are you selling for commish, or what you think is right?  If I had to guess, we have a bunch of insurance pikers lurking here.

[quote=joelv72]

I am somewhat curious why the sudden push for insurance guaranty products.  I think it is because the market broke off at the hilt, but then again, history has told us it is a buying time.  I have been bullish since DOW 7,000.  Starting to moderate, but WTF.  I have to call you out, are you selling for commish, or what you think is right?  If I had to guess, we have a bunch of insurance pikers lurking here.

[/quote]

Not everybody wants market risk.  Some people want something fixed, tax-deferred, creditor-protected, and can turn into an income stream that cannot be outlived.

I didn't think you could be that retarded, but I stand corrected. 

I agree with deekay and that is why I brought up the thread. Even after this market rebound people are scared to death. It needs to be a part of my business moving forward. If you don't think a product with guarantees can benefit a client you are a boob.

For people who panicked(or about to panic) at market bottom, the VA was a great option. Many of the contracts I sold last year are about to lock-in at a nice gain. The VA kept them in equities, provide for a permanent income stream, and have the possibility of growing income above the inflation rate. A great product for a portion of a portfolio.

[quote=N.D.]

Ice- Great explanation.

To put it simple how about...

$100,000 EIA = 80k in zero coupon bonds maturing at 100k + 20k in options potentially capturing upside of index - expenses.

$100,000 VA = 20k x five various mutual funds - expenses.

Structured products are similar to EIAs also. They usually use options with European style settlement so all the costs can be precalculated.

As ice has stated before in another thread, tax deferral is the only part that cannot be replicated by a firm that does not restrict their advisors.

[/quote]

They really can't be replicated by an individual due the professional management and buying power of the insuance companies. 

For more info on their performance, check out this study.  It also discusses other reasons as to why they aren't easily replicated.  http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf

[quote=N.D.]

Ice- Great explanation.

To put it simple how about...

$100,000 EIA = 80k in zero coupon bonds maturing at 100k + 20k in options potentially capturing upside of index - expenses.

$100,000 VA = 20k x five various mutual funds - expenses.

Structured products are similar to EIAs also. They usually use options with European style settlement so all the costs can be precalculated.

As ice has stated before in another thread, tax deferral is the only part that cannot be replicated by a firm that does not restrict their advisors.

[/quote]

They really can't be replicated by an individual due the professional management and buying power of the insuance companies. 

For more info on their performance, check out this study.  It also discusses other reasons as to why they aren't easily replicated.  http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf

I said they could be replicated. I did not say it would be profitable. To be able to compete with the insurance companies it would have to be done on a large scale or initiated at an opportune time such as now when the vix has come in so much over the last year bringing the options market down.

You can't replicate it on an individual level because

A) Annuities provide lifetime income that cannot be outlived.  You cannot create that with other products as a retail FA.

B) In many states, NQ annuities are creditor-protected. 

So additional discussion on this is no more than mental masturbation. 

[quote=N.D.]

I said they could be replicated. I did not say it would be profitable. To be able to compete with the insurance companies it would have to be done on a large scale or initiated at an opportune time such as now when the vix has come in so much over the last year bringing the options market down.

What exactly is "bringing the options market down"? A declining VIX will bring option prices down, but a market is still available for the necessary hedges to be executed.

[/quote]

[quote=deekay]You can't replicate it on an individual level because

A) Annuities provide lifetime income that cannot be outlived.  You cannot create that with other products as a retail FA.

B) In many states, NQ annuities are creditor-protected. 

So additional discussion on this is no more than mental masturbation.[/quote]

I am talking about the accumulation phase not the distribution. I can replicate the mechanics and then purchase an SPIA for the income stream at a later time. There are many arguments for and against them. Also, I do not see a problem with jerking my mind off so I will continue.

[quote=Ron 14][quote=N.D.]I said they could be replicated. I did not say it would be profitable. To be able to compete with the insurance companies it would have to be done on a large scale or initiated at an opportune time such as now when the vix has come in so much over the last year bringing the options market down.[/quote]What exactly is "bringing the options market down"? A declining VIX will bring option prices down, but a market is still available for the necessary hedges to be executed.[/quote]

Yes I mean prices down. This week was the lightest options volume week since like forever. Does it mean the protection of options is no longer needed? Does that mean the "guarantee" of an annuity is losing its luster? I don't know. They are not my specialty by any means. But I do like EIAs over VAs any day. Maybe it's the part of me that likes ETFs over MFs. They all have their place but EIAs and ETFs are more predictable in my opinion.

[quote=N.D.]

[quote=deekay]You can't replicate it on an individual level because

A) Annuities provide lifetime income that cannot be outlived.  You cannot create that with other products as a retail FA.

B) In many states, NQ annuities are creditor-protected. 

So additional discussion on this is no more than mental masturbation.[/quote]

I am talking about the accumulation phase not the distribution. I can replicate the mechanics and then purchase an SPIA for the income stream at a later time. There are many arguments for and against them. Also, I do not see a problem with jerking my mind off so I will continue.

[quote=Ron 14][quote=N.D.]I said they could be replicated. I did not say it would be profitable. To be able to compete with the insurance companies it would have to be done on a large scale or initiated at an opportune time such as now when the vix has come in so much over the last year bringing the options market down.[/quote]What exactly is "bringing the options market down"? A declining VIX will bring option prices down, but a market is still available for the necessary hedges to be executed.[/quote]

Yes I mean prices down. This week was the lightest options volume week since like forever. Does it mean the protection of options is no longer needed? Does that mean the "guarantee" of an annuity is losing its luster? I don't know. They are not my specialty by any means. But I do like EIAs over VAs any day. Maybe it's the part of me that likes ETFs over MFs. They all have their place but EIAs and ETFs are more predictable in my opinion.

[/quote]

Since when can a retail FA magically make their investment strategies creditor-protected?

[quote=deekay]Since when can a retail FA magically make their investment strategies creditor-protected?[/quote]

Okay, we will continue to rub this one out...

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was created to make it more difficult for debtors who had the capacity to pay, however the BAPCPA increased, in some cases, the creditor protection available to retirement plans. ERISA plans are one example and IRAs vary by state.

You guys throw that "guarantee" word around all over the place. What is the realistic chance of the account owner utilizing the "creditor protection" benefit of an annuity? If an annuity is purchased with the intent of avoiding creditors, it is not guaranteed. But it sounds nice especially after the last two years.

[quote=N.D.]

[quote=deekay]Since when can a retail FA magically make their investment strategies creditor-protected?[/quote]

Okay, we will continue to rub this one out...

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was created to make it more difficult for debtors who had the capacity to pay, however the BAPCPA increased, in some cases, the creditor protection available to retirement plans. ERISA plans are one example and IRAs vary by state.

You guys throw that "guarantee" word around all over the place. What is the realistic chance of the account owner utilizing the "creditor protection" benefit of an annuity? If an annuity is purchased with the intent of avoiding creditors, it is not guaranteed. But it sounds nice especially after the last two years.

[/quote]

Lots of rich people like the idea their money cannot be touched if they get sued.  I didn't realize your target market are those who are going bankrupt.  My bad.

That's what an irrevocable trust is for. Beside NQ annuities are only creditor protected in half of the states. And I would say if gross negligence was found then the Judge will pierce the annuity veil just the same as it would a corporation.

Of all the annuities and all the benefits you can only find scaring people with the chance of being sued to sell one? That's what umbrella insurance is for...

OK, client came to me with a VA that was being pitched by a bank advisor.  It had a hypo built in to the presentation that showed what $100K would do over the last 15 years, spread over 4 funds and how much better off they would be with the GMAB.  The only problem is, when I plug the same funds into morningstar (retail, not the insurance line crud), the hypo shows them significantly ahead of the GMAB, even with my advisory fee of 1.25% ($330K vs $365K).  That is with two very steep recessions built in, so you would think this is about as good of a 15 year period you could expect from a VA.  So, to all you annuity slingers, what is your come-back to that?

[quote=joelv72]

OK, client came to me with a VA that was being pitched by a bank advisor.  It had a hypo built in to the presentation that showed what $100K would do over the last 15 years, spread over 4 funds and how much better off they would be with the GMAB.  The only problem is, when I plug the same funds into morningstar (retail, not the insurance line crud), the hypo shows them significantly ahead of the GMAB, even with my advisory fee of 1.25% ($330K vs $365K).  That is with two very steep recessions built in, so you would think this is about as good of a 15 year period you could expect from a VA.  So, to all you annuity slingers, what is your come-back to that?

[/quote]

Hypos can be rigged to make any product look better than the competitions'.  So get off your high horse.  A VA is a risk management tool.  Have a prospect or client who needs to invest aggressively to reach their goals but they can't stand the ups and downs?  A VA is a valid solution.  Sure, in a vacuum I would expect a similarly-constructed portfolio of funds to do better than the VA option.  But how will the client react to their portfolio being down 40% (like it was in '07)?  They need to stay invested to catch the rebound.  If they're like some people, they bailed.  A GMAB annuity could have helped them stay invested because they know they've got their guarantees. 

Why not show them both options and let them pick?  Or do you just bash annuities because you're an RIA who has chosen not to present annuities?  Seems to me the more logical solution would be to let the client decide how to proceed, rather than try to 'sell' them on one approach or another.

[quote=N.D.]

That's what an irrevocable trust is for. Beside NQ annuities are only creditor protected in half of the states. And I would say if gross negligence was found then the Judge will pierce the annuity veil just the same as it would a corporation.

Of all the annuities and all the benefits you can only find scaring people with the chance of being sued to sell one? That's what umbrella insurance is for...

[/quote]

I have a friend/prospect who is being sued for $20mm (true story).  The max umbrella coverage he could get is $10mm.  He's 35 years old and makes over $500k per year.  In my state, his wages could be garnished for the next 21 years if the settlement goes against him.  How much you want to bet he won't be interested in seeing how he can protect what he's accumulated so far?

[quote=deekay]

[quote=joelv72]

OK, client came to me with a VA that was being pitched by a bank advisor.  It had a hypo built in to the presentation that showed what $100K would do over the last 15 years, spread over 4 funds and how much better off they would be with the GMAB.  The only problem is, when I plug the same funds into morningstar (retail, not the insurance line crud), the hypo shows them significantly ahead of the GMAB, even with my advisory fee of 1.25% ($330K vs $365K).  That is with two very steep recessions built in, so you would think this is about as good of a 15 year period you could expect from a VA.  So, to all you annuity slingers, what is your come-back to that?

[/quote]

Hypos can be rigged to make any product look better than the competitions'.  So get off your high horse.  A VA is a risk management tool.  Have a prospect or client who needs to invest aggressively to reach their goals but they can't stand the ups and downs?  A VA is a valid solution.  Sure, in a vacuum I would expect a similarly-constructed portfolio of funds to do better than the VA option.  But how will the client react to their portfolio being down 40% (like it was in '07)?  They need to stay invested to catch the rebound.  If they're like some people, they bailed.  A GMAB annuity could have helped them stay invested because they know they've got their guarantees. 

Why not show them both options and let them pick?  Or do you just bash annuities because you're an RIA who has chosen not to present annuities?  Seems to me the more logical solution would be to let the client decide how to proceed, rather than try to 'sell' them on one approach or another.

[/quote]

They have already seen both options (remember, they brought the info to me).  I can and do have the ability to present annuities with no surrender charges, although rider options are severely limited.  Think high income individuals that have maxed out on their tax deferred options.  For the most part, I think the expensive bells and whistles (riders) are way over-rated.

Also, "hypos can be rigged"???  It was a straight up run over the same period with the same funds on the retail side as opposed to the insurance offered side.

[quote=joelv72]

Also, "hypos can be rigged"???  It was a straight up run over the same period with the same funds on the retail side as opposed to the insurance offered side.

[/quote]

You can cherry-pick time frames to make one portfolio look better than the other.  I should have clarified the term 'rigged'.  Of course, you cannot rig an actual hypo.

Thanks for clarifying your position.  Basically, you can offer poor VA options and you inject your opinion on the subject.  That's fine.  I was under the impression an RIA needed to be objective.  I fail to see how you are.