VA within an IRA
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[quote=NASD Newbie][quote=The Judge]
Bottom line about annuities/advisors: if annuities paid a broker a 1% commission (instead of 4-6%) they wouldn't be used nearly as often.
Simple enough.
[/quote]
An annuity is a product that is sold to investors, not bought by investors.
They are rarely, if ever, the most appropriate choice.
[/quote]
Everything we have is "sold", not bought by investors.... otherwise they would be going to discount brokers and doing trades online. I don't get people beating down my door to buy unsolicited mutual funds or setup fee based money management accounts either.
As for VA's being appropriate, who are you to tell our clients that they can't pay for a some protection of their retirement funds and sleep easier at night? Most retiree's in their 60's and 70's are more than happy to pay the extra expenses involved in a VA rather than get a very similar investment (sometimes the exact same funds or asset allocation) outside of a VA and be 100% at risk with no guarantees whatsoever.
Of course, long term, these funds in a VA have a very little chance of being less than where they started 7-10yrs earlier given the proper asset allocation models, which is why insurance companies can very easily add these guarantees to their policies. Rarely will they every need to add money to a policy after that length of time to get it back to even and for VA's with riders that also add inflation protection to that principle, they just simply use the extra rider fees to buy puts and are covered that way.
I guess by your logic, you like to goto Best Buy on the weekend and beat up the poor sap walking out with his new $2500 HDTV and also paid for an overpriced $300 extended warranty that has very low odds of being used? Who are you to tell that guy that he shouldn't buy it (even though I'd agree with you and never buy them personally)? Some people are more than willing to pay for protection (even when it's statistically unneeded) for 100% piece of mind, VA's with riders are no different.
BTW, that's only covering one aspect of VA's vs MF's and their differences. We're not even covering tax deferral, death benefits (with step up's), and avoiding probate.... often skimmed over benefits of annuities that are important to some.
[quote=scrim67]
the VA's my firm allows us to use when you factor in M&E, Fund expenses, guarantees of principal are all atleast 50% higher in costs compared to our MF wrap program.
scrim
[/quote]
and most 50- to 60-somethings will pay it (and a bit more) to guarantee all of their money will be paid back if an "event" was to wipe their savings/investment out the year before they need it-
for those who cringe at the thought of being paid 7% on these things, look at the 0 CDSC models for your clients, they only pay the advisor 1 to 3%-
[quote=STL Indy]
Who are you to tell that guy that he shouldn't buy it (even though I'd agree with you and never buy them personally)? Some people are more than willing to pay for protection (even when it's statistically unneeded) for 100% piece of mind, VA's with riders are no different.
[/quote]
Who are you to tell a guy he shouldn't buy it? Damn that sounds so defensive that a cynic would swear that you're nothing but a whore screaming, "Who are you to tell me what I can sell?"
Why do you suppose the NASD, NASSA and the SEC are on annuity sales violations like white on rice?
[quote=TexasRep][quote=scrim67]
the VA's my firm allows us to use when you factor in M&E, Fund expenses, guarantees of principal are all atleast 50% higher in costs compared to our MF wrap program.
scrim
[/quote]
and most 50- to 60-somethings will pay it (and a bit more) to guarantee all of their money will be paid back if an "event" was to wipe their savings/investment out the year before they need it-
for those who cringe at the thought of being paid 7% on these things, look at the 0 CDSC models for your clients, they only pay the advisor 1 to 3%-
[/quote]
If a client is properly diversified and allocated based on their risk tolerance and situation no event could ever wipe out their life savings.
Again, there are no wrong answers here
scrim
[quote=scrim67][quote=TexasRep][quote=scrim67]
the VA's my firm allows us to use when you factor in M&E, Fund expenses, guarantees of principal are all atleast 50% higher in costs compared to our MF wrap program.
scrim
[/quote]
and most 50- to 60-somethings will pay it (and a bit more) to guarantee all of their money will be paid back if an "event" was to wipe their savings/investment out the year before they need it-
for those who cringe at the thought of being paid 7% on these things, look at the 0 CDSC models for your clients, they only pay the advisor 1 to 3%-
[/quote]
If a client is properly diversified and allocated based on their risk tolerance and situation no event could ever wipe out their life savings.
Again, there are no wrong answers here
scrim
[/quote]
Oh reeeeaaallly! No event could wipe out their life savings, says the cocksure 20 year old newbie. Maybe a crash like the one in the 70's didn't exactly "wipe out" a person's portfolio but if they had been invested in the stock market they would have lost a significant chunk.
Date Started: 1/11/1973
Date Ended: 12/06/1974
Total Days: 694
Starting DJIA: 1051.70
Ending DJIA: 577.60
Total Loss: -45.1%
If you think you are sooooo smart and that you can bulletproof a portfolio from external world events just by diversification, you probably think you can jump over tall buildings too.
The person approaching retirement who has just watched his diversified portfolio take a 40 to 50% dump is not going to buy the diversification, Sharpe Ratio, alpha, beta explanation from you. All he cares about is that he can't retire now and needs to continue to pull the plow for many more years. The person who sees his VA take a similar dump and who purchased the GRIB rider is going to want to kiss your feet.
But hey.....it is your business and your client's money. You do it your way.
100 equities would not be proper allocation in my opinion.
Someone getting close to retirement a 50/50 allocation would be more appropriate.
In that case there losses would have been nowhere near 50%.
scrim
You don't think that bonds have market crashes too?
Look up the bond market crashes of 1994 and 1987 and think about our current interest rate environment. I presume you have clients who are currently holding long term bonds and are seeing the market value erode while the comprable interest rates on new issues are rising?
Clueless..
I give up.
[quote=babbling looney]
Clueless..
I give up.
[/quote]
It really is like Dumb and Dumber come to life.
Years ago I was involved in dealing with a broker who wrote--yep, actually wrote--a letter to a client saying that since their bonds were guaranteed by the United States it was impossible for them to ever lose value.
I didn't say bond markets don't crash.
I'm just talking about asset allocation to smooth out the volatility.
When I said 50/50 I should have clarified that other 50% includes cash as well as bonds.
scrim
Plus my clients in bonds are in short or intermediate maturities which will not erode.
I have my most conservative/skittish clients in about 60% cash as the returns on cash are very similar to bonds right now without the fluctuation.
scrim
[quote=scrim67]
Plus my clients in bonds are in short or intermediate maturities which will not erode.
[/quote]
er, erode as much as longer term bonds
[quote=scrim67]
I didn't say bond markets don't crash.
I'm just talking about asset allocation to smooth out the volatility.
When I said 50/50 I should have clarified that other 50% includes cash as well as bonds.
scrim
[/quote]
I believe in asset allocation as well and am doing same bond swaps and converting long bonds to cash positions for the time being. I'm not disagreeing with you about doing asset allocation strategies.
But the original point of this thread was the value of paying for a guaranteed income stream in a VA even if the VA is in an IRA. Your idea that you can provide the same guarantee (or any level of guarantee) by just diversifying a portfolio is delusional. If your clients don't require the added saftey net of a guaranteed income stream or death benefit...fine. However, you are comparing apples to oranges.
Your certainty that your superior asset allocation strategies are going to save the day is going to bite you in the butt someday. It's all a big guessing game and there is no certain outcome in investing.........except.... if the client decides to buy an insurance rider in their VA.
[quote=scrim67][quote=scrim67]
Plus my clients in bonds are in short or intermediate maturities which will not erode.
[/quote]
er, erode as much as longer term bonds
[/quote]
What do you suppose would be a reasonable amount of erosion to expect if the prime hits 15%?
[quote=NASD Newbie][quote=babbling looney]
Clueless..
I give up.
[/quote]
It really is like Dumb and Dumber come to life.
Years ago I was involved in dealing with a broker who wrote--yep, actually wrote--a letter to a client saying that since their bonds were guaranteed by the United States it was impossible for them to ever lose value.
[/quote]
NASD, you really can be quite a jack@$$. Is this done intentionally?
[quote=NASD Newbie][quote=scrim67][quote=scrim67]
Plus my clients in bonds are in short or intermediate maturities which will not erode.
[/quote]
er, erode as much as longer term bonds
[/quote]
What do you suppose would be a reasonable amount of erosion to expect if the prime hits 15%?
[/quote]
I have no idea. All of this is a moving target.
[quote=scrim67][quote=NASD Newbie][quote=scrim67][quote=scrim67]
Plus my clients in bonds are in short or intermediate maturities which will not erode.
[/quote]
er, erode as much as longer term bonds
[/quote]
What do you suppose would be a reasonable amount of erosion to expect if the prime hits 15%?
[/quote]
I have no idea. All of this is a moving target.
[/quote]
True, but your clients will blame you regardless. Goes with the territory.
[quote=babbling looney][quote=scrim67][quote=TexasRep][quote=scrim67]
the VA's my firm allows us to use when you factor in M&E, Fund expenses, guarantees of principal are all atleast 50% higher in costs compared to our MF wrap program.
scrim
[/quote]
and most 50- to 60-somethings will pay it (and a bit more) to guarantee all of their money will be paid back if an "event" was to wipe their savings/investment out the year before they need it-
for those who cringe at the thought of being paid 7% on these things, look at the 0 CDSC models for your clients, they only pay the advisor 1 to 3%-
[/quote]
If a client is properly diversified and allocated based on their risk tolerance and situation no event could ever wipe out their life savings.
Again, there are no wrong answers here
scrim
[/quote]
Oh reeeeaaallly! No event could wipe out their life savings, says the cocksure 20 year old newbie. Maybe a crash like the one in the 70's didn't exactly "wipe out" a person's portfolio but if they had been invested in the stock market they would have lost a significant chunk.
Date Started: 1/11/1973
Date Ended: 12/06/1974
Total Days: 694
Starting DJIA: 1051.70
Ending DJIA: 577.60
Total Loss: -45.1%
If you think you are sooooo smart and that you can bulletproof a portfolio from external world events just by diversification, you probably think you can jump over tall buildings too.
The person approaching retirement who has just watched his diversified portfolio take a 40 to 50% dump is not going to buy the diversification, Sharpe Ratio, alpha, beta explanation from you. All he cares about is that he can't retire now and needs to continue to pull the plow for many more years. The person who sees his VA take a similar dump and who purchased the GRIB rider is going to want to kiss your feet.
But hey.....it is your business and your client's money. You do it your way.
[/quote]
Isn't it funny how the VA threads always start the biggest flame wars here? Well, I don't want to be in one, but here's my $.02 (and I do sell VAs)
Just two quick thoughts, BL ;
(1) The DJIA isn't "the market" and it isn't an example of a diversified portfolio, much less when the owner is a couple of years from retirement (as if they even needed every dollar of their retirement money on day one after the retirement party)
(2) As bad as that down turn was, how was the client who had a portion of their portfolio represented by the DJIA in a year or two, or three after that downturn?<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
[quote=bankrep1]
NASD,
Again you show your lack of intelligence:
Here is a program for a conference I went to a couple of years ago, read the topics and the speakers. Then ue your brain:
http://www.navanet.org/conf/pdf/NAVA-Prelim-May.pdf#search=' Variable%20annuities%20and%20NAVA%20and%20Professor%20CFP%20 JD'
[/quote]
Wow, you mean an industry group is in favor of the industry? Well, that changes everything
I know that the DJIA is not representative of the market or even of a real person’s portfolio. DOH! I wanted to give him some historical perspective when he is sure that there is no event that would wipe out someone’s life savings. I agree that there wouldn’t be a wipe in a properly diversifed portfolio…but there could sure be some pain. The point is that scrim seems to be cavalier and academic about the possibility of fluctuation a client’s life savings and thinks that diversification is “the” way to protect a client. It is “a” way. He doesn’t want to consider that there could be value in other (and yes) costly methods.
And as bad as that downturn was, for those clients who stayed the course and remained invested, they did see a nice recovery. However, many clients would and did panic at that point and pull their investments and those clients who needed access to their money THEN not in years to come were shell shocked.
As advisors we can look dispassionately at these ups and downs in the market, but we need to look at it from the client's emotional viewpoint.