[quote=Borker Boy]I had a very interesting conversation with a guy yesterday who does EIA and “bonus” fixed annuity business exclusively. He actually brought up the fact that a lot of people in town believe he’s churning his clients’ annuities, and he said that to the untrained observer, it could easily appear that way.

  He said he and another CPA sat down several years ago and figured out how to beat the insurance companies at their own game. He buys several annuities for a client with a variety of companies, gets the upfront bonus on the deposits, and then follows their rules and gets out of the contract and moves to something else and gets another bonus. He said he keeps an amount liquid that the client feels comfortable with, but 1035s the rest of their money in and out of annuities without incurring any surrender penalties.   He said he averages his clients 7-8% annually and nets upwards of $500K a year. The average commission he receives is 11.5%.   He markets himself--surprise!-- as being totally anti-stock market and turns away anyone that wants to buy individual stocks or mutual funds. I've been very skeptical of this guy's business practices until he showed me on paper what he does. Now, I'm just feeling sort-of naïve.   Could it be that there actually exists an ethical annuity churner?[/quote]

Where have you been? It's called annuity arbitrage. My average commission is 9% and I don't believe that your guy is getting 11.5%.

[quote=VA Salesman] [quote=Borker Boy]I had a very interesting conversation with a guy yesterday who does EIA and “bonus” fixed annuity business exclusively. He actually brought up the fact that a lot of people in town believe he’s churning his clients’ annuities, and he said that to the untrained observer, it could easily appear that way.

  He said he and another CPA sat down several years ago and figured out how to beat the insurance companies at their own game. He buys several annuities for a client with a variety of companies, gets the upfront bonus on the deposits, and then follows their rules and gets out of the contract and moves to something else and gets another bonus. He said he keeps an amount liquid that the client feels comfortable with, but 1035s the rest of their money in and out of annuities without incurring any surrender penalties.   He said he averages his clients 7-8% annually and nets upwards of $500K a year. The average commission he receives is 11.5%.   He markets himself--surprise!-- as being totally anti-stock market and turns away anyone that wants to buy individual stocks or mutual funds. I've been very skeptical of this guy's business practices until he showed me on paper what he does. Now, I'm just feeling sort-of naïve.   Could it be that there actually exists an ethical annuity churner?[/quote]

Where have you been? It's called annuity arbitrage.  Trying to convince people to buy American Funds. My average commission is 9% and I don't believe that your guy is getting 11.5%. That's just what he told me, Bobby. How in the hell do you continue to get back into this forum? 
[/quote]

EIA’s, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won’t.

  However, its' the details of the products actual return calculations that are their undoing. Since they all have caps, ceilings, upside participation penalties, etc try calculating their mean returns and variances over 3, 5, 7, 10 year periods. Now compare those numbers w/ same for whatever underlying index they use (SP500, DOW, etc.). When thats done calculate their respective Sharpe Ratio's and you'll see why they suck.

If you’ll read some of the comments on the SEC site regarding the proposed rule change, you’ll see how upset insurance agents are about EIAs becoming classified as securities.

  Do you really think they'll disappear? I think a lot of insurance guys will just go get the Series 6 and keep chugging away. That's all they'll need, right?

EIA's, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won't.

Let's hope that they don't get treated as a security.  If EIA's are securities, so are all fixed annuities.  Seriously, what's the difference?  In neither case is the clients' money invested in the market.  In both cases, an insurance company offers a minimum guarantee.  In both cases, the client getting their money back is based upon the solvency of the insurance company.   In both cases, the actual performance will partially be based upon securities which the client does not own (an index for an EIA and the insurance company's general account for a fixed annuity).   Insurance agents won't be precluded from selling them.  In fact, only insurance agents can sell them now and if they get classified as a security, it's still only insurance agents who will be able to sell them.  It's just that in addition to being an insurance agent, one will also have to be a registered rep.   It's complete B.S. that only those with a fiduciary obligation will sell them.  There are plenty of people with fiduciary obligations who sell them now.  They may disappear or go way down in popularity.  This is because many B/D's won't allow their reps to sell them or limit their ability to sell them.   Now compare those numbers w/ same for whatever underlying index they use   Why would someone do that?  They are fixed savings vehicles.  They should be sold to and purchased by people who want guarantees and don't want their money in the market, but are willing to take the risk that their savings may underperform other fixed savings vehicles in return for taking the chance that they may outperform.   Borker, getting their 6 isn't enough.  I mean, you are correct, but one would then have to find a B/D who will allow the sales without being too much of a pain and a grid that won't kill compensation.   (For the record, I've never sold an EIA.)

[quote=MinimumVariance]EIA’s, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won’t.

  However, its' the details of the products actual return calculations that are their undoing. Since they all have caps, ceilings, upside participation penalties, etc try calculating their mean returns and variances over 3, 5, 7, 10 year periods. Now compare those numbers w/ same for whatever underlying index they use (SP500, DOW, etc.). When thats done calculate their respective Sharpe Ratio's and you'll see why they suck.[/quote]   EIAs aren't designed to keep up with the underlying index.  EIAs are fixed annuities with a different crediting method.  EIAs are designed for fixed annuity buyers, not stock fund/ETF buyers.  Unfortunately, some unscrupulous advisors and agents sold them as "all upside, no downside" products.  But, as a fiduciary, you already knew that, right?

[quote=anonymous]

EIA's, which are about to be classified as securities by the SEC, wil soon disappear as insurance agents will be precluded from selling them and guys w/ a fiduciary obligation won't.

Let's hope that they don't get treated as a security.  If EIA's are securities, so are all fixed annuities.  Seriously, what's the difference?  In neither case is the clients' money invested in the market.  In both cases, an insurance company offers a minimum guarantee.  In both cases, the client getting their money back is based upon the solvency of the insurance company.   In both cases, the actual performance will partially be based upon securities which the client does not own (an index for an EIA and the insurance company's general account for a fixed annuity). In theory, you're correct, but I can't see a pure fixed annuity ever being designated as a security. The issue with EIAs is that many insurance agents are representing them as being investments in the market, but the agents aren't appropriately licensed to discuss market-related investments. I don't believe EIAs are securities.     Insurance agents won't be precluded from selling them.  In fact, only insurance agents can sell them now and if they get classified as a security, it's still only insurance agents who will be able to sell them.  It's just that in addition to being an insurance agent, one will also have to be a registered rep.   It's complete B.S. that only those with a fiduciary obligation will sell them.  There are plenty of people with fiduciary obligations who sell them now.  They may disappear or go way down in popularity.  This is because many B/D's won't allow their reps to sell them or limit their ability to sell them. I'm seeing a lot of indy's selling these things. I know several CPAs who have their Series 7 but have realized how much money they can make through EIAs, so they've abandoned the "market" per se, and are slanging these things for a living. (Most of them don't do any tax work anymore, either.)   Now compare those numbers w/ same for whatever underlying index they use   Why would someone do that?  They are fixed savings vehicles.  They should be sold to and purchased by people who want guarantees and don't want their money in the market, but are willing to take the risk that their savings may underperform other fixed savings vehicles in return for taking the chance that they may outperform.   Borker, getting their 6 isn't enough.  I mean, you are correct, but one would then have to find a B/D who will allow the sales without being too much of a pain and a grid that won't kill compensation. Will LPL, Ray James, Commonwealth, etc., allow the sale of EIAs?   (For the record, I've never sold an EIA.)[/quote]

Borker, getting their 6 isn't enough.  I mean, you are correct, but one would then have to find a B/D who will allow the sales without being too much of a pain and a grid that won't kill compensation. Will LPL, Ray James, Commonwealth, etc., allow the sale of EIAs?

My B/D allows the sale of EIAs ....but.... they have a list of approved vendors.

The trade must be processed through trade review and there are a lot of disclosures, suitability requirements and other forms the client must sign.   After all this, the application is then forwarded to the insurance company and treated like any other outside fixed insurance business without being run through the grid.    (100% compensation)

I don't do these types of annuities.  I imagine that if an agent began processing excessive amounts of EIAs at the expense of doing RRep type business,  the B/D would likely terminate their affiliation.  If you are caught trying to go around the system, selling unapproved annuities or skipping the trade review process, you can be terminated.