You would be correct on that one.

I've never read an entire mutual fund propectus either.

scrim

[quote=anonymous]Oops, I meant GMWB. STL Indy is talking about a guaranteed minimum withdrawal benefit and not a guaranteed minimum income benefit.[/quote]

Correct.  It was late when I was typing that last night, I thought we were talking about the same thing.  I don't really even sell the GMIB benefit on some of these VA's as the clients that I steer towards VA's are looking to draw income now (without killing their asset like annuitizing or buying a SPIA).  I usually combine the GMWB rider with an enhanced death benefit rider (depending if the client is concerned with leaving a legacy).

However, even though the GMIB rider forces you to get that guarantee and recover your loss over a long period of time, that's something that a individual stocks and mutual funds can't offer outside of a VA.  It's better than not having it at all for safety minded retirees, and I think most senior clients would be happy to have the potential safety net there (even if they never want to use it).  We can't expect the insurance company to make them whole at the end of the 5/7/10yr contract and just let them walk away.  If a no-loss guarantee w/ walkaway feature at the end of the surrender period is the most important thing to them, perhaps a fixed annuity would be more suitable.

No one product is right for everyone, and there is a place in the market for all of them I think (even EIA's, at least a good one like ING's Secure Index product line).  Know your client and the rest is easy.

Find out what matters to your client most, then give the fitting product to them.

Amazing how many fools try to force a product where it isn't wanted. These idiots wonder why a prospect does business elsewhere and eventually starve out of the business.

Unless the client's way is committing financial suicide or getting you busted, capture the assets FIRST...THEN drip in your agenda.

You're all getting hung up on some confusion over one possible rider of the VA contract and calling them all bad.  I want to see the assumptions used and the calculation about how the end result is only 3% annual return...call me skeptical, but it's real easy to throw numbers around on this board without any substantiation.  My suspicion is that for this doomsday scenario to play out, you would have to assume less than 7% performance in the first ten years, client conversion to monthly income immediately after ten years (which has been very rare in my book), and about a 2% annuitization rate for at least 25-30 years.  That just doesn't happen very often, so the GMIB is more or less a security blanket for a nervous client, to get them in or keep them in the market.

Scrim, you are showing a bias toward believing those posts that support your own conclusions rather than investigating things for yourself.  Get some illustrations for various scenarios (current income, current tax deferral/retirement income, etc.) and study them.  Ask questions until you understand the products, and then put them in your arsenal.

I just had an illustration ran for some money a client wants to draw income from, and on a $35,000 initial premium, he is immediately able to draw 5% of the contract value, and this draw is based on an increasing contract value, which is ratcheted up each year the contract value is higher.  If the contract value declines, the income draw stays the same for that year.  At the end of the illustration, which runs from February 1985 to April 2006, the client has withdrawn a total of $95,402, and has an account value and guaranteed death benefit of $88,292, for an average total annual return of 11.62%.  This is on an 80/20 stock/bond mix for the duration of the contract.

Given the protections provided, (the annual ratchet, guaranteed income and guaranteed death benefit), please tell me how this is a bad thing for my nervous client?!!!

[quote=Indyone]

Given the protections provided, (the annual ratchet, guaranteed income and guaranteed death benefit), please tell me how this is a bad thing for my nervous client?!!!

[/quote]

It's a bad thing for the brokers who don't have insurance licenses and CAN'T offer them.

[quote=RealityBichslap]

It's a bad thing for the brokers who don't have insurance licenses and CAN'T offer them.

[/quote]

And for the insurance agents w/o securities licenses that can only push fixed products (most of which don't have a clue about good VA's, how they work, and the protection they can provide)... and then when they do sell a EIA to Mr. and Mrs. Smith it's usually some complete piece of 15yr garbage with double digital commissions and not a good one that pays them only 4-5%.

I try to remain neutral.

My point was that they are very complex and confusing products.   I prefer presenting products that are very easy to understand for the average person.

For my "nervous" investor, I'd rather setup a conservative asset allocation plan, keep withdrawal rates reasonable, preach living at or below their means, etc.... to ensure that my clients have a very little chance of ever running out of money.

All this stuff is a moving target of course, but by acting as their fidicuary I feel this is a better option and a much easier concept to grasp.

scrim

[quote=scrim67]For my "nervous" investor, I'd rather setup a conservative asset allocation plan, keep withdrawal rates reasonable, preach living at or below their means, etc.... to ensure that my clients have a very little chance of ever running out of money.

scrim[/quote]

Scrim, that is why your competitors have a natural leg up with "nervous" investors.  The example I posted above satisfies nervous investors while allowing for generous withdrawal rates (5% of an increasing balance) and virtually no chance of them running out of money, while giving them the potential for better overall returns.

I'm not here to twist your arm and tell you you're wrong, just stay neutral and keep an open mind about VAs...otherwise, I suspect that you're limiting yourself here...

I will always keep an open mind.

Until the time where my clients are leaving in droves because they are losing more money than they expected I would prefer building my clientele with those who are like minded as me.

I set there expectations that in any one calendar year there downside is a loss of approx. 5% but of course that comes with the limited upside of around 20%.      I tell them right off the bat that expect your principal to fall 1 or 2 years out of ten and to go up 8 or 9 years on average.   Because we use municipals in alot of cases for the bond allocation much of their return is taxfree as well.   The taxable portion we stick to tax efficient MF's.     

So far, this approach seems to work for "nervous" clients to date.  But then again, I'm only two years into my practice.    I'm always open to change.

scrim

"My point was that they are very complex and confusing products.   I prefer presenting products that are very easy to understand for the average person."

Scrim, how do you know that they are complex and confusing products when you have never read the contract?  

Read and understand the contract and then it will be easy to explain.

"I try to remain neutral."

You sound like a good guy, but when you don't understand products, you are not remaining neutral, you are remaining ignorant. 

I have a VA packet in front of me.

On the 6% withdrawal strategy hypo's with a 500k starting base  it's showing the Account Value going down every year between ages 55 to 70.  

Why is the hypo showing a decrease every year in account value?  Can an account decrease 15 years in a row?

This just doesn't pass the smell test.

scrim

Scrim,

1)We are talking about GMIB features, not GMWB features.

2)Stop looking at hypos.  Read the contract!

Of course an account can decrease every year if someone is taking withdrawals.

I personally have no problem with investors using VA's as long as they are being sold correctly.   VA's are more of a risk management tool in my opinion.

That being said, I think I can do better for clients using proper asset allocation as a risk management tool.

There's more than one way to build our practices so for those advisors who present VA's to clients as risk mgmt tools I have zero issues with that.

scrim

IMO, you should not be allowed to have an opinion on an insurance product if you refuse to read the contract.

"That being said, I think I can do better for clients using proper asset allocation as a risk management tool."

Scrim, here's a hypothetical example for you.  A client has $200,000 of qualified money sitting in CD's.  Based upon his goals, it is determined that this needs to grow to $490,000 in 11 years for him to reach his retirement goal.  This works out to an 8.5% return.  He is risk adverse and is not willing to make an investment that might lose money. 

Please explain what the proper asset allocation is that can give him an 8.5% return with no chance of loss.  Personally, I don't know how this can be done with asset allocation. 

it's not possible, I agree

where can I find the contract?  I have a whole kit in front of me...wouldn't they include the contract in the kit?

[quote=scrim67]

I have a VA packet in front of me.

On the 6% withdrawal strategy hypo's with a 500k starting base  it's showing the Account Value going down every year between ages 55 to 70.  

Why is the hypo showing a decrease every year in account value?  Can an account decrease 15 years in a row?

This just doesn't pass the smell test.

scrim[/quote]

That's probably the 0% return assumption.  Most illustrations will show what happens if you assume historical investment returns, and then they also show a second 0% return assumption as a worst-case scenario.  If all they show is a declining balance scenario, you should have no problem competing with that.

[quote=scrim67]

it's not possible, I agree

where can I find the contract?  I have a whole kit in front of me...wouldn't they include the contract in the kit?[/quote]

Scrim, the information you are looking for is in the prospectus.  That is where the contract information, such as riders and cost, etc. is before the annuity is purchased.  Once purchased, a custom contract with the client's infomation and riders on it is produced, and the client has X days (in my state, 20 days) to look it over and make sure it is what they wanted.

If the prospectus is not included, your kit is not complete...hope that helps.

Scrim, just ask the insurance company to see a pecimen contract with GMIB rider.

IMO, the example that I gave is a perfect fit for a GMIB or GMAB rider.  The client can do the necessary aggressive investing that they need to do, but has no chance of losing principle.  The major benefit of GMIB and GMAB riders are that they allow the client to invest above their natural risk tolerance.  The fact that the rider most likely will never actually be needed is irrelevant.

I meant specimen, not pecimen.  The prospectus may have everything necessary.  However, since an annuity is a contract, I would still suggest looking at an actual contract.

Thanks indy,

I just threw the kit in the trash and will order another one.

one thing I can't figure is if they assume a 0% return and a 0% withdrawal why is the account value declining every year?

scrim