"BINGO, except that insurance companies have lots of experience with underwriting and pricing life insurance as well as hedging liabilities. Hence this rider is going to be correctly priced."

Neither one of us have the knowledge to know whether the living benefits are priced correctly.  I'm just pointing out that there is plenty of concern inside the industry that the riders are not appropriately priced.  It wouldn't be the first time that insurance companies didn't price things correctly.  Look at what happened in the past with DI for physicians.  They still can't get a handle on LTCi pricing.

"...for a roughly straight line M&E expense of 1.3%.

Now if we create all kinds of fancy fee's to bring the total all in expense to ~2.3% pa we do quite well for ourselves. "

Let's pretend that your example is exactly how the insurance company does it.  They pay 1.3% to hedge the contract and .8% for the typical underlying fund for a total of 2.1%.  That would leave only .2% to pay death clams, sales commissions, and all other expenses and still leave room for a profit.  (the 2.3% is an all-in figure that includes fund expenses.) 

[quote=Ashland]

BINGO, except that insurance companies have lots of experience with underwriting and pricing life insurance as well as hedging liabilities. Hence this rider is going to be correctly priced.

Yeah, GM had lots of experience handling their DB plan, too. Think they got some help from an insurance company? Not sure if these are priced correctly... What happens if interest rates go dramatically higher. Don't remember a time when tax rates were this low, either. Insurance co's have not priced in catastrophic natural disasters correctly into P&C policies. Warren Buffett said so himself. How do we know that they've done so on the life side...

The way these annuities get cooked is that we have a 10% down year & our client's taking out 6%. The 2.5% charge is against the insurance benefit -- now 16% lower the contract has to grow 20% + 8%(for the next yr's w/d) to get back to even. One bad year... could be next yr! So, I don't sell them for inflation protection... just 6% against current principal & the possibility if the annuitant dies before 85 that the bene gets the full amt back.[/quote]

The income benefit amount doesn't fall with the market. You just made yourself look stupid.

The income benefit amount doesn't fall with the market. You just made yourself look stupid.

Seems to be Bobby’s forte. Overconfident with an average IQ.

[quote=anonymous]

“BINGO, except that insurance companies have lots of experience with underwriting and pricing life insurance as well as hedging liabilities. Hence this rider is going to be correctly priced.”

Neither one of us have the knowledge to know whether the living benefits are priced correctly.  I'm just pointing out that there is plenty of concern inside the industry that the riders are not appropriately priced.  It wouldn't be the first time that insurance companies didn't price things correctly.  Look at what happened in the past with DI for physicians.  They still can't get a handle on LTCi pricing. [/quote]

Again, you are bringing up things that are not relavent to the discussion at hand. LTC insurance involves huge assumptions about how much LTC people will need and how much it will cost. VA's and thier embedded options are a mature industry.

On a VA, the question is the pricing of the death put, and annuitisation put options. If you think these are mispriced, go buy a VA for yourself.

[quote]

"...for a roughly straight line M&E expense of 1.3%.

Now if we create all kinds of fancy fee's to bring the total all in expense to ~2.3% pa we do quite well for ourselves. "

Let's pretend that your example is exactly how the insurance company does it.  They pay 1.3% to hedge the contract and .8% for the typical underlying fund for a total of 2.1%.  That would leave only .2% to pay death clams, sales commissions, and all other expenses and still leave room for a profit.  (the 2.3% is an all-in figure that includes fund expenses.) 

So Allreit, do you favor any annuity in any circumstance?

If you think these are mispriced, go buy a VA for yourself.

I don't have an opinion one way or another whether they are mispriced.  I'm simply telling you that many inside of the industry think that they are.  I won't buy a VA for myself because they are not appropriate for my situation.  I will continue to sell them to my clients when appropriate

VA's and thier embedded options are a mature industry.

There is nothing mature about the living benefits of VA's and how these will effect investor behavior.  Despite the options, as has been previously mentioned, if the market performance is poor and people live long, the insurance companies face serious risk.  This is starting to become an issue with the rating services.

Fund expenses to the insurance company are less than 0.8% since these are insitutional shares and/or the company gets kickback (12b-1) on them.  

It is the mere fact that they are institutional shares that keep the fund expenses to around .8.  If they weren't institutional shares and the client is not paying an upfront sales charge, the fund expenses would typically be higher, sometimes significantly so.  You are certainly correct about the 12b-1 fee.  This can range between 0% and .25%.

The sales comission is paid by the client, and not an ongoing expense.

The fact remains that if the total expenses are 2.3%, money has to come from this pot of money to pay the sales charges.   The client is not paying 2.3% + sales charges.  They are paying 2.3% total. 

[quote=anonymous]

If you think these are mispriced, go buy a VA for yourself.

I don't have an opinion one way or another whether they are mispriced.  I'm simply telling you that many inside of the industry think that they are.  I won't buy a VA for myself because they are not appropriate for my situation.  I will continue to sell them to my clients when appropriate

VA's and thier embedded options are a mature industry.

There is nothing mature about the living benefits of VA's and how these will effect investor behavior.  Despite the options, as has been previously mentioned, if the market performance is poor and people live long, the insurance companies face serious risk.  This is starting to become an issue with the rating services.

Fund expenses to the insurance company are less than 0.8% since these are insitutional shares and/or the company gets kickback (12b-1) on them.  

It is the mere fact that they are institutional shares that keep the fund expenses to around .8.  If they weren't institutional shares and the client is not paying an upfront sales charge, the fund expenses would typically be higher, sometimes significantly so.  You are certainly correct about the 12b-1 fee.  This can range between 0% and .25%.

The sales comission is paid by the client, and not an ongoing expense.

The fact remains that if the total expenses are 2.3%, money has to come from this pot of money to pay the sales charges.   The client is not paying 2.3% + sales charges.  They are paying 2.3% total. 

[/quote]

Give it up on these retards. Let them continue to bore people to death with their lame-assed mutual funds and wrap accounts. I love telling their clients that the first thing I'm gonna do is turn off the broker meter (fees). They love it when that goes away.

Just tell 'em ‘yer smarter than a registered rep an’ didn’t hurt your head playing hockey, Bobby.

[quote=silouette]So Allreit, do you favor any annuity in any circumstance?[/quote]

The only Annuity product I recomend are Vanguard branded SPIA’s with the CPI link option.



As an AEL shareholder I strongly encourage other people to buy EIA’s

[quote]The weighted average gross spread (annual aggregate yield on invested
assets over the aggregate annual cost of money on annuities) reached an all-
time high of 2.73% on its aggregate annuity fund values, compared with 2.48%
for 2005.



American Equity’s annuity
reserves remain well protected by surrender charges with over 97% of annuity
values within the contractual surrender charge period at December 31, 2006.
The average remaining surrender charge period was 10.1 years at December 31,
2006, with an average remaining surrender charge percentage of 13.4%. [/quote]



From the 2006 AEL’s year end earnings release…

Hmm, All the people I run into with VA's that have supposed riders to protect their principal have lost their shirts, are pissed at the people who sold them and should NOT be investing more aggresively because of a rider they will never use.

Feel free to post one specific example.  How much did they invest?  What is the account value today?

Why are the riders, "supposed riders"?  Why shouldn't the riders allow someone to invest more aggressively?

[quote=anonymous]

Why are the riders, "supposed riders"?  Why shouldn't the riders allow someone to invest more aggressively?

[/quote]

You are like a Cadillac salesman preaching to a bunch of KIA salesman. They can argue price, but have no clue about value. Last time I checked, people like Cadillacs better.

By the way...there is a very large insurance company that is raising it's upfront commission by 1%. Option A will now be 8.25%.

[quote=anonymous]

Hmm, All the people I run into with VA's that have supposed riders to protect their principal have lost their shirts, are pissed at the people who sold them and should NOT be investing more aggresively because of a rider they will never use.

Feel free to post one specific example.  How much did they invest?  What is the account value today?

[/quote]

I have a client who rolled over his 401k of $582,000 and the bank broker put him into an IGN Smartdesign VA. That was June 2003. The value is now $627,000. That's a compounded return of around 2%. Still have huge surrender charge. Returns are have been below inflation in 3 of the best market years in a long time.

I thought the client's wife was going to throw up when I told her the broker got a $40,000 commission. They never heard from the guy one time!

[quote=EDJ to RIA]I have a client who rolled over his 401k of $582,000
and the bank broker put him into an IGN Smartdesign VA. That was June
2003. The value is now $627,000. That’s a compounded return of around
2%. Still have huge surrender charge. Returns are have been below
inflation in 3 of the best market years in a long time.

I thought the client's wife was going to throw up when I told her the broker got a $40,000 commission. They never heard from the guy one time![/quote]

LOL . Did the client barf?

Bank Brokers!
What are they good for?
Absolutely Nothing!

[quote=EDJ to RIA][quote=anonymous]

Hmm, All the people I run into with VA's that have supposed riders to protect their principal have lost their shirts, are pissed at the people who sold them and should NOT be investing more aggresively because of a rider they will never use.

Feel free to post one specific example.  How much did they invest?  What is the account value today?

[/quote]

I have a client who rolled over his 401k of $582,000 and the bank broker put him into an IGN Smartdesign VA. That was June 2003. The value is now $627,000. That's a compounded return of around 2%. Still have huge surrender charge. Returns are have been below inflation in 3 of the best market years in a long time.

I thought the client's wife was going to throw up when I told her the broker got a $40,000 commission. They never heard from the guy one time!

[/quote]

It's got to be irritating to have all of those dollars in an annuity so you can't make money off of them, yourself.

Did you tell them that the bank boy only made about $1,500.00 of the $40,000 that the bank got paid?

[quote=AllREIT] [quote=silouette]So Allreit, do you favor any annuity in any circumstance?[/quote]

The only Annuity product I recomend are Vanguard branded SPIA's with the CPI link option.

As an AEL shareholder I strongly encourage other people to buy EIA's

[quote]The weighted average gross spread (annual aggregate yield on invested assets over the aggregate annual cost of money on annuities) reached an all- time high of 2.73% on its aggregate annuity fund values, compared with 2.48% for 2005.

American Equity's annuity reserves remain well protected by surrender charges with over 97% of annuity values within the contractual surrender charge period at December 31, 2006. The average remaining surrender charge period was 10.1 years at December 31, 2006, with an average remaining surrender charge percentage of 13.4%. [/quote]

From the 2006 AEL's year end earnings release....

[/quote]

 Looks pretty risky.

If we look at a few roughly historical numbers: 

10% stock returns and 6% bond returns.

60/40 mutual fund portfolio
8.4% average pre-expense return
.6% expense ratio
7.8% return after taxes

So the cost of protecting the portfolio from market risk by adding bonds is 2.2%.  This is about equal to the cost of insurance in a GMIB VA.  So cost is really only an issue if the client is comparing it to a stock only portfolio.

Other advantages of the VA:
1)  We don't have to worry about sequence of returns.  Even a 10% average rate of return can run out of money of the first few years of withdrawal are negative.
2)  We have just come off of a 20 year bull market in bonds.  Without being too predictive, using historical rates of return for bond funds is being awfully optomistic.
3)  Even 60/40 portfolios are subject to corrections that may be emotionally difficult for the client (or they might not like that one fund has been underperforming the others).  Seeing the benefit value continually increase helps the client weather volatility.
4)  What if the next 20 years aren't like the last 20?  20 years from now we may have different asset allocation models than we do now (just as ours are different from those 20 years ago).
5)  What if a catastrophic geopolitical event happens at the wrong time for your retired client?

When used correctly VAs can be great tools for risk management, just as balanced portfolios are. 

Here’s some real numbers…

10-11-2002 value: 143,200.00

3-28-2007 value: $290,030.93 (Net of ALL fees)

Standard death benefit, GMIB

No need to defend performance.